A Revitalized Denny's Surges Into the New Year
Denny’s began 2017 on rocky footing, just like most of its casual-dining peers. But widespread upgrades, especially on the digital front, helped the brand bounce back and keep its positive sales streak in tact. Domestic systemwide same-store sales grew 2.2 percent in the fourth quarter versus the prior-year period, the company announced February 13. For the full year, comps lifted 1.1 percent, marking the seventh straight year of positive system same-store sales. Denny’s also reported net income of $13.1 million in Q4, or 19 cents per diluted share.
“This reflects the momentum generated by our revitalization strategies,” president and CEO John Miller said in a conference call. “And I'm proud of the efforts of our team to consistently execute these revitalization strategies, which support our commitment to achieving our vision of being the world's largest most admired and beloved family of local restaurants.”
Denny’s is creeping toward that notion of being the largest. Denny’s franchisees opened 13 restaurants in the quarter, and the company debuted one, lifting the brand’s total to 1,735 restaurants. Denny’s opened 39 system restaurants in fiscal 2017 and said it plans to bring 40–50 new restaurants to market with about flat net growth.
As of September 30, there were 1,945 Applebee’s (1,791 domestic) and 1,761 IHOPs (1,655 domestic). The DineEquity flagship, however, is retracting underperforming units from its system to the tune of 105–135 closures. So Denny’s could be kicking in the door of this conversation soon enough.
As the chain progresses toward that mark, it will bring a fresh look to the table. Denny’s completed 69 remodels in Q4 (67 of which were franchised stores) and 250 in 2017 (247 franchised).
Known as the Heritage Model program, Miller said about 67 percent of the entire system is currently updated and that Denny’s believes it is “just crossing into the middle stages of our revitalization with many brand enhancing strategies remaining and an expectation that approximately 80 percent of the system will have the new image by the end of 2018.”
Miller said updated stores are receiving favorable guest feedback and generating a mid-single-digit-range sales lift over legacy stores.
“We have continued progress with remodels coupled with our brand enhancing strategies is expected to yield benefits for years to come,” Miller said.
The remodeling program is perhaps the most visible change occurring at Denny’s, but it is just part of the bigger picture. Looking back, Denny’s started fiscal 2017 with first quarter same-store sales declines of 1.1 percent, year-over-year. In the second, comps improved to 2.6 percent growth, and rose 0.6 percent in the third—a period that was difficult across the industry due to weather issues.
A key driver in this turnaround and re-positioning is the Denny’s on Demand platform, which offers web and mobile ordering and payment options for pickup and delivery. In May, Denny’s rolled out a new online ordering platform via Olo that revamped the chain’s mobile app, allowing users to find a local restaurant, customize and place an order, and pay for takeout. In select markets, guests can also order delivery. Some locations even offer the option 24/7.
While still in the early stages, Miller said the results have returned positive dividends. Off-premise sales are up 2 percentage points. In December of 2016, off-premise sales represented 6.6 percent of total sales at Denny’s. They grew 210 basis points to 8.7 percent of total sales in December, Miller said.
This boom has been especially pronounced during holidays. Denny’s set a company record for off-premise business on Christmas Day, where the platform represented 12.8 percent of total sales.
“These to-go transactions continue to be highly incremental,” he said. “They over indexed at late night and dinner dayparts, and skew toward the younger 18–34 year old demographic.”
Denny’s began really pushing its on-demand platform in January with a commercial promoting both value and the new segment.
Currently, about 50 percent of Denny’s domestic system is actively engaged with one or more delivery service options, Miller said. That number is growing. “We continue to add master partnership agreements with third-party delivery providers where available,” he said. “… We anticipate continued long-term growth in off-premise sales from the Denny's On Demand platform as more restaurants sign these individual delivery agreements or add a second delivery option in their locations.”
In the past few years, Denny’s has improved or changed just about its entire menu. Only lately, however, has this focus been really promoted in a marketing campaign. Check out the below commercial highlighting the brand’s Dulce de Leche Craft Pancakes for proof:
In July 2016, Denny’s unveiled a marketing campaign at one of its New York City locations to showcase its new package recipe. The “50 percent fluffier” product uses real eggs, fresh buttermilk, and a hint of vanilla.
Miller said Denny’s is innovating in non-pancake places, too, showcasing fresh ingredients in “three sizzling skillet dinners, like the Crazy Spicy Skillet and the Smoky Gouda Chicken and Broccoli Skillet.”
Returning to development, Denny’s said its growth initiatives have led to nearly 500 new restaurant openings since 2009, representing more than 28 percent of the current system.
“The ongoing revitalization of our brand and our expanding global footprint continue to attract new interest for international expansion,” Miller said.
Internationally, Denny’s opened seven units in 2017, including three in the Philippines and the brand’s first in the U.K. and Guatemala. Denny’s has opened more than 60 international restaurants in nine new countries since 2009, bringing its international footprint to 128 units. Miller added that Denny’s pipeline has about 80 planned international openings as well.
“While we are encouraged by the substantial progress our team has made, we believe opportunity remain in order to reach our full potential. And accordingly we will continue to invest in our talent and systems to further elevate the guest