Stores with full operating hours outperform units with limited hours by nearly 20 percentage points.
Staffing shortages continued to hinder Denny’s ability to operate around the clock as Q4 came to a close.
At the end of December, 48 percent of the U.S. system operated 24/7, and that percentage rose slightly to 50 percent at January's exit. Seventy-two percent are operating at least 18 hours day. Restaurants running fewer than 24 hours are doing so with roughly 80 percent of pre-pandemic staffing levels.
Denny’s is eager to get the rest of its domestic system up to all-day speed. Stores with full operating hours outperform restaurants with limited hours by nearly 20 percentage points.
U.S. same-store sales decreased 4.7 percent compared to 2019, including a 4.8 percent decline for franchised restaurants and a 3.5 percent dip at company-owned restaurants. In Q4, comps increased 0.4 percent, including a 0.4 percent uptick for franchised stores and a 5.1 percent lift for corporate units.
Restaurants operating 24/7 saw same-store sales rise 10 percent, 13 percent, and 7 percent in October, November, and December, respectively, while units with limited hours saw declines of 9 percent, 6 percent, and 10 percent across the same period.
To drive recruiting, the family-dining chain launched a new career website to make it easier for jobseekers to apply, an effort that’s resulted in increased candidate flow. CEO John Miller noted Denny’s is one of only two restaurant brands to be recognized by Newsweek as one of the top 100 best places to work.
President Mark Wolfinger said efforts by the human resources team have been fruitful, as well.
“Our human resources team has been very proactive in our hiring efforts and has made tremendous progress,” he said during Denny's Q4 and 2021 earnings call. “Hourly turnover in our company restaurants is consistently below industry benchmarks. And we believe this is largely due to our comprehensive training programs and competitive wages.”
Though staffing levels are not 100 percent, general manager positions across all company restaurants are completely filled for the first time since the pandemic began.
“This allows us to shift our focus to reminding both new and tenured employees why we were voted one of the best places to work and focus on our retention efforts,” Wolfinger said. “We are encouraged to see applicant flow across the domestic system continue to run higher than our historical average, and believe staffing levels will improve in due course.”
Along with hiring initiatives, Denny’s is continuing to move forward with several projects, including its Heritage 2.0 remodel program.
At the onset of the pandemic, the brand deferred all remodel requirements to help operators with capital constraints. Because of that and the following two years of delayed remodels, the cycle was extended from seven years to eight years.
Before being placed on hold, the remodel program showed signs of promise. Miller said the program generated “mid-single-digit sales during the testing prior to the pandemic.”
Wolfinger said the brand is working with “franchisees who have multiple remodels to do to map out a more normalized capital spending expectation.” In the fourth quarter, four franchised units were remodeled and three company remodels were also completed.
Another major project is the partnership with REEF Kitchens. The new development deal will provide Denny’s the ability to open ghost kitchens in underrepresented markets. Wolfinger said these ghost kitchens will be used as “a testing ground for new consumer reach.” The brand anticipates opening the first of several new REEF locations during the first half of 2022.
Denny’s third priority is related to sparking franchise development in the U.S. A new incentive program provides up to $400,000 for development in under-penetrated domestic markets. Upfront cash will also be available as opposed to Denny’s practice of reduced fees over time.
Wolfinger said franchisees have shown enthusiasm and that he expects formal signups to start in the near-term.
“This is all incremental to our existing domestic development pipeline, which includes 73 remaining commitments from our recently completed refranchising strategy,” he said. “The last few years have certainly been a challenge on the development front as our franchisees have navigated the pandemic. But with sales, recovery, and these new programs in place, I'm very optimistic about our long-term restaurant development outlook.”
As franchisees come onboard, Denny’s is working to modernize its kitchen equipment and technology. Miller said upgrades will create an enhanced guest experience, noting that improvements to the kitchen will allow Denny’s to enhance menu offering across all products. The tech upgrades include shifting to a new cloud-based restaurant technology platform.
The changes should result in better experiences for both guests and workers, Miller said.
“We'll be able to take orders tableside, we'll be able to do that curbside, we'll be able to take advantage of any number of technologies that reside better in the cloud for updating all the mundane and tedious things like mini-management and updating prices,” he said.
“And when it's easier use, we tend to see a lot higher adoption rate by our guests,” the CEO added.
Denny’s completed 2021 with 1,640 restaurants systemwide—1,575 franchised stores and 65 company-run restaurants. The chain opened 20 units last year, but closed 30.
Total operating revenue increased 38 percent to $398.2 million in 2021, primarily due to the COVID recovery as compared to the prior year. Adjusted EBITDA was $85.6 million versus $26.6 million in 2020.