Denny’s turns 69 this year, but the family-dining chain is as innovative as ever, with eyes on new growth opportunities.
The chain is rolling out an upfront cash incentive development program to help domestic franchisees capitalize on market opportunities. The incentive ranges from $50,000 to $400,000, with more money going toward underpenetrated markets. Franchisees have expressed excitement, CFO Robert Verostek said, and formal signups are expected in 2022.
“This is a great way for franchisees to take advantage of pandemic-driven marketshare opportunities and receive upfront cash, compared to our historical approach to development incentives, involving reduced fees over an extended timeframe,” the CFO said during a presentation at the ICR Conference.
As franchisees expand, Denny’s is ensuring they’re equipped with the requisite technology to succeed. That includes the brand’s kitchen modernization project announced in November, which aims to reduce complexity, improve consistency, and reduce waste. Menu enhancements are expected across all dayparts, especially dinner. CEO John Miller said the upgrades will affect more than 4.5 million plates each week.
Denny’s also underwent a technological transformation with a revamped and more personalized website and mobile app that have better upsell and cross-sell opportunities, and a new cloud-based restaurant platform that will roll out in the first half 2022 through the end of 2023.
The kitchen equipment package and cloud-based technology come with a $65 million price tag for the entire U.S. system. Denny’s will provide $10 million to assist franchisees with implementation. The chain also negotiated favorable financing terms in a loan pool, with a portion backstopped by the company. However, Verostek noted many franchisees are well-positioned financially and expect to pay for the remaining investment with cash.
Additionally, Denny’s is restarting the launch of its Heritage 2.0 prototype that was postponed during the pandemic to provide capital relief to franchisees. In an effort to work with operators on the new design, the remodel cycle was extended from seven years to eight, and the company is working closely with franchisees who have multiple pending remodels to strategize a more normalized capital spending expectation in the coming years. As of December 21, roughly 3 percent of the U.S. system have converted to the Heritage 2.0 design.
Denny’s had 1,494 U.S. restaurants in the U.S. as of September 29, with high concentrations in California, Texas, Arizona, and Florida.
To fill the gaps of its brick-and-mortar stores, Denny’s is partnering with REEF Kitchens, the largest operator of virtual restaurants in North America, to penetrate dense metropolitan trade areas. Delivery options will include signature menu items like the “Grand Slamwich,” “Moons Over My Hammy,” “Grand Slam,” and Double Berry Banana Pancakes and Apple Crisp. Denny’s anticipates opening the first of several ghost kitchens during the first half of 2022.
U.S. same-store sales lifted 1 percent in the fourth quarter, up from a 0.1 percent decrease in Q3. For the full year, comps dropped about five percent.
Performances varied widely depending on whether a restaurant was operating 24/7 or with limited hours. Roughly 48 percent of the domestic footprint is running at full strength, and those stores saw same-store sales increases of 10 percent, 13 percent, and 7 percent, in October, November, and December, respectively.
Meanwhile, stores with limited hours saw same-store sales declines 9 percent, 6 percent, and 11 percent across the same period. Twenty-four percent are open between 18 and 23 hours, and 28 percent are open less than 18 hours.
In December, Denny’s domestic footprint earned $35.8 million per week on average. Of that amount, $7.5 million came from off-premises, or about a 21 percent mix. Virtual brands The Burger Den and The Meltdown continue to be “highly incremental,” as well, accounting for about 3 percent of sales.
The Burger Den is active in more than 1,100 locations and The Meltdown is in about 800 stores. The ghost concepts help Denny’s leverage underutilized dayparts; 72 percent of The Burger Den’s orders and 60 percent of The Meltdown’s orders come during dinner and late-night, compared to 43 percent for Denny’s.