The first quarter wasn’t a great one for the Denny’s diner chain, with domestic same-store sales falling 1.3% despite a lift of 5.5% from pricing. The figures indicate that traffic was down for the system by more than 6%. Still, management boasted to financial analysts that the venerable brand outpaced both family dining and the casual sector during the first three months of 2024.
In airing the Q1 results to Wall Street analysts, executives of the company focused on Denny’s previously disclosed strategy for weathering the times, along with the promise posed by the company’s young second concept, Keke’s Breakfast Café. The new growth vehicle also had its traffic challenges, with comps sliding 3.6% in Q1.
Sprinkled throughout the executives’ presentations were several delectable tidbits that added color to the challenges faced by Denny’s and other operators in the mid-priced market. Here’s a sampling:
There are more ways to simplify a menu than merely cutting its length. A successful effort to nudge customers away from create-your-own-type dishes delivered significant operational benefits, according to CEO Kelli Valade. Her comments suggested the diner chain will continue to lead patrons toward standardized preparations. “This helps us with order accuracy, makes servers’ lives easier and speeds up ticket times without any impact to the guest as they are always welcome to customize any order,” she told analysts.
California’s new fast-food wage isn’t just an issue for QSRs. The $20 wage was instituted this month solely for restaurants in the state that are part of big fast-food chains. Denny’s, a full-serve operation, wasn’t forced to raise its starting pay to that level. But it nonetheless raised prices there by 5% so it can afford to offer a competitive wage if necessary. To date, it’s not feeling any negatives; the retention rates for managerial and hourly personnel there have risen, according to chain officials.
It sees an opportunity for full-service operations there to sell fast-food products. With quick-service burrito chains raising their prices in California to cover a $20-an-hour wage, Denny’s sees a sweetened opportunity to sell Mexican fast food out of a full-service format. Banda Burrito, the diner chain’s newest virtual concept, is being rolled into an additional 200 Denny’s stores within the Golden State, none of which are under the same inflationary pressures as local branches of Taco Bell, Chipotle or Qdoba. Price comparisons should tip decidedly in Banda’s favor.
“Our California franchisees were quick to sign up, given the perfect timing and the fit of the Banda offerings,” said Valade. She indicated that a national rollout will likely follow.
Off-premise is key to holding younger customers. Delivery and takeout delivered 21% of the diner chain’s sales in Q1, a nice bump from the 19% mix of a year ago, executives noted. Valade attributed the gain to other operators backing away from virtual concepts and otherwise de-emphasizing off-premise business. For Denny’s, she said, that channel is an important way of keeping the brand attractive to younger consumers. About 70% of Gen Z and millennial patrons ordered takeout or delivery from Denny’s in Q1, while only 40% dined within its restaurants.
“This simply means that this part of our business—though, yes, lower margin—is highly incremental and delighting a different guest,” Valade said.
The pruning of weak stores continues. Management didn’t mention during the analysts’ call that Denny’s continues to weed out weaker stores, a topic of some discussion during its prior confab with the Wall Street reps. Yet the press announcement of Q1 results indicates that 25 units were shuttered during the period. Five stores were added, for a net decline of 20 stores, lowering Denny’s total unit count as of March 27 to 1,553.
Overall, the company posted a net profit for Q1 of $4.6 million, compared with a year-ago income of $597,000, on revenues of $52.3 million, down 2.7%.
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