A year and a half after spending $82.5 million to acquire Keke’s Breakfast Cafe, Denny’s CEO Kellie Valade and her team finally addressed the brunch chain’s full opportunity at the company’s franchise convention in October.
The potential reaches the triple digits.
The rising Florida-based chain has 100 restaurants in development. Fourteen new franchisees will open those stores, with eleven of them being part of the Denny’s family. Signed agreements exist for the East Coast, as well as major markets in California and Texas. Meanwhile, Keke’s plans to bolster its corporately owned footprint in Tennessee and Florida. According to the franchise deals, operators typically have one year to open their first store. Larger agreements require restaurant openings within a maximum of five years, while smaller contracts have shorter timelines.
Denny’s is equipped with a $100 million third-party loan pool, with $50 million earmarked for Keke’s development.
“Always a balancing act. They’re spread out enough so that we really do feel like we can handle it,” said Valade, addressing how the company will handle the robust pipeline. “And we’re investing where we need to. We’ve invested in this brand this year to put the right Keke’s development team in place. We’ve invested leveraging our development resources to get to that 14. … I’d say at this point we’ve exceeded our expectations in terms of signing the 14 that we’ve signed. And it’s been a steady and really progressive thing that we’ve been able to do with excitement again from both Keke’s franchisees, new franchisees, and Denny’s franchisees.”
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As of September 27, Keke’s had 56 restaurants—48 franchises and eight company-operated—in Florida, with high concentrations in the Tampa and Orlando markets. Those 48 franchised locations are owned by 19 operators. Nine franchisees have one store, eight have between two and five, and two have between six and 10. The brand had an AUV of $1.8 million in 2022, down from $1.9 million in 2021, but an improvement from $1.6 million and $1.2 million in 2019 and 2020, respectively. Keke’s same-store sales dropped 5 percent year-over-year in the third quarter.
Keke’s has opened three locations in 2023. Another one to three outlets are projected to debut before the year ends. Several openings expected in 2023 will push into 2024 because of permitting and construction delays. However, growth is still taking tangible shape. Property control has been secured for 10 future franchised and company-operated restaurants, in addition to the signed development deals. Future expansion will move forward with a new Keke’s prototype as well.
“Now that we have a playbook built on Keke’s that articulates what makes this brand so special, we’re leaning into that Keke special sauce to ensure that as we grow, we continue to demonstrate a differentiated offering to all of our guests through the new tagline, ‘Mornings from Scratch,'” Valade said.
In Q3, the brand launched a slimmer menu design that reduces kitchen complexity. It provides a cleaner look that allows Keke’s to “better showcase the high-quality ingredients and made-from-scratch philosophy it’s known for,” the CEO said. The shift has led to growth in average check. Keke’s is also seeing promising results by testing alcohol in several cafes.
Keke’s corporate restaurants in Nashville are currently under construction, with a cost ranging from $1 million to $2 million. Additional locations will open in the Jacksonville and Orlando areas. CFO Robert Verostek said that once those DMAs have enough company stores (six to eight), Keke’s will transition back to a highly franchised model.
“The first ones tend to be a little bit more expensive until you get some efficiencies and optimize what you’re doing,” Verostek said. “So what we will ultimately be building these things for, and what we talked about a year or so ago when we took over Keke’s, and where the first few will end up, could be slightly different. So you may see us investing a couple of hundred thousand dollars more into the first ones until we optimize the buildout into the future.”
Keke’s had 52 restaurants when Denny’s completed its acquisition in the summer of 2022. Around the time of the purchase, the company brought on Valade as the new CEO. From the start, Denny’s noted that Keke’s would operate independently with its own leadership, strategies, products, marketing, operations, and development initiatives. David Schmidt, who worked at Bloomin’ Brands for almost 16 years and briefly as Red Lobster’s CFO, has served as Keke’s brand president since September 2022.
