A 10-unit Denny’s franchisee declared bankruptcy in late October, citing lingering difficulties from the COVID pandemic.
Denn-Ohio operates restaurants in Michigan, Ohio, and Kentucky.
The organization was formed in 2009 through a partnership between Thomas E. Pilbeam, a former Denny’s franchise representative, and James E. Thompson, a former Denny’s area manager. They jointly operated Denn-Ohio while maintaining ownership in their own respective Denny’s franchises (Pillbeam had three-unit PTS Hospitality and Thompson had five-unit JMAD Hospitality).
From 2009 to 2019, Denn-Ohio experienced “consistent financial success,” Pilbeam said in a court filing. At the highest point, all three franchise entities had a combined 27 locations, 19 of which were controlled by Denn-Ohio. Then Thompson unexpectedly passed away in December 2019, creating operational challenges. A few months later, the companies were hit with the COVID pandemic and several economic challenges, such as increased labor, food, and delivery expenses, and higher costs to complete required renovations.
Denn-Ohio shuttered nine underperforming locations between 2020 and the bankruptcy filing. Another two are expected to close, leaving the franchise with eight restaurants. In 2022, the group generated a net loss of $1.3 million.
First Franchise extended a series of loans to Denn-Ohio, JMAD, and PTS between 2017 and 2019 with a collective initial balance of $9.3 million. Payments were temporarily suspended in April 2020 during the height of “shelter in place” orders. First Franchise subsequently agreed to multiple forbearance agreements, with the final one expiring October 12. As of today, Denn-Ohio owes $2.6 million, JMAD owes $530,000, and PTS owes $223,000.
Before filing, Pilbeam explored selling or refinancing his stores by contacted Denny’s corporate office, other franchise owners, commercial brokers, lenders, and investors. Based on feedback, he believes “current demand for Denny’s locations is extremely limited.”
Denny’s systemwide same-store sales were up 1.8 percent in Q3 but decelerated throughout the quarter amid softening traffic levels. The comps growth was driven primarily by 8.4 percent of pricing, including 5.8 percent current-year pricing and 2.8 percent carryover pricing. Denny’s domestic average weekly sales for Q3 were approximately $37,000, which translates to an AUV of $1.9 million.
To mitigate slower traffic, the breakfast chain is testing virtual brand Banda Burrito in 10 locations. The concept will expand to another 80 stores in November. This is in addition to its other delivery-only concepts, Burger Den and The Meltdown. A franchisee also is working on a 20-unit test with Franklin Junction, a host kitchen platform that pairs brick-and-mortar restaurants with virtual brands.
Also, at its recent annual franchisee convention, Denny’s introduced a fresh prototype as part of its “Modern American Diner” concept. This updated store showcases a more appealing design and fully embraces the off-premises dining experience, complete with a designated pickup area staffed by a dedicated to-go specialist. Off-premises orders through the brand’s app and delivery-only concepts held steady at 19 percent of sales in Q3 and were tracking above 20 percent by the end of the quarter.