Denny’s seeks to balance value, premium menu platforms
As Denny’s Corp. finishes its refranchising program, executives are focusing on tailoring the family-dining brand’s offerings on better margins and profitability that appeal to franchisees.
In releasing fourth-quarter earnings Tuesday, the 1,703-unit Spartanburg, S.C.-based company said its efforts to become 96% to 97% franchised were “substantially completed.”
John Miller, Denny’s CEO, said, “There’s an earnest desire among highly franchise systems to focus a little bit more on profitable transactions and quality transactions in light of high wage inflation.”
Miller said franchisees showed a willingness to give up a little bit on transactions to drive “respectable margins.” About 15% to 25% of guests seemed driven by value offerings, he added.
“For our planning throughout 2020,” Miller said, “we will have value propositions that we can toggle the rates up and down as required and toward premium and or value propositions. And then part of the ‘Delight and Make It Right’ service model does prepare our servers to do a better job of highlighting new menu items that are on the premium side and/or to upsell when there’s nice upsell opportunities.”
Miller noted that in the fourth quarter Denny’s value platform – the $2 $4 $6 $8 Value Menu – produced about 11% of the menu mix, down from more than 12% in the same period of 2018. The Super Slam platform added another 5%, he said, so value platform sales were in the middle teens. A few year ago, that would have been in the high teens or low 20s, he said.
“So we have deemphasized that side of the menu, and we’ll continue to do that through 2020,” Miller noted.
Denny’s has worked to broaden its menu to capture more interest in the dinner daypart, but breakfast items remain the brand’s bread and butter. Miller said the company ended the fourth quarter with about a 64% total breakfast mix all day with about 85% of customers at breakfast order breakfast items. The all-day breakfast mix grew to 64%, up from about 62% in the third quarter, he said.
“It’s not our long-term goal to be strictly breakfast oriented,” Miller said. “But, today, it’s dominant on our mix.”
Miller said the family-dining brand expected long-term growth in off-premise sales from the Denny’s on Demand platform as more restaurants expanded their delivery channels.
“While dine-in transactions continue to represent the overwhelming majority of our sales, the steady growth in delivery has contributed to a 67% growth in our off-premise business from nearly 7% of sales prior to the launch of Denny’s on Demand [in May 2017] to approximately 12% of sales in the fourth quarter,” he said. About 89% of Denny’s domestic system is partnered with at least one delivery partner.
“These transactions continue to be highly incremental, skewed toward a younger guest and over-indexed to the late-night and dinner dayparts,” Miller added.
For the fourth quarter ended Dec. 25, Denny’s said net income rose to $117.4 million, or $1.90 a share, from $43.7 million, or 67 cents a share, in the same period last year. With the refranchising, revenues were $541.4 million in the quarter, compared to $630.2 million in the prior-year period.
Denny’s domestic systemwide same-store sales increased 1.7% in the fourth quarter, including a 0.5% increase at company restaurants and a 1.8% increase at domestic franchised restaurants.
As of Dec. 25, Denny’s had 1,703 franchised, licensed and company family-dining restaurants around the world, including 144 abroad.
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