- The chain plans to close dozens of additional locations.
- Closed locations have averaged about $1.1 million in sales.
- The company is closing locations to improve overall profitability.
Nostalgia only takes people so far.
You might visit a restaurant from your childhood or even take your kids there every now and again, but you won’t eat there regularly if the food quality and value don’t equal or exceed your other options.
Nostalgia can drive people through a chain’s doors, it just can’t get people to come back.
“The reason brands are relying so heavily on blasts from the past is that nostalgic marketing campaigns offer consumers an escape from constant economic uncertainty, negative news headlines, and political unrest. In response, many people are turning to the comfort of the familiar to help navigate an uncertain and rapidly changing world,” Eric Yaverbaum, CEO of Ericho Communications and author of Public Relations for Dummies, told Modern Restaurant Management.
Denny’s certainly fits the blast from the past model, but nostalgia alone has not been enough to keep the brand relevant. In response to falling sales, the chain has been closing dozens of restaurants and plans to close many more as part of its efforts to become a more profitable company.
Denny’s has struggled
It’s important to note that while the Denny’s brand has struggled, it’s still profitable. The chain recently shared its second-quarter results.
“Total operating revenue was $117.7 million compared to $115.9 million for the prior year quarter. This increase was primarily driven by additional Keke’s company equivalent units and partially offset by the company’s previously communicated strategy to intentionally close lower volume Denny’s franchised restaurants to improve the overall health of the brand,” the company shared in an earnings report.
The overall numbers were a mixed bag.
Denny’s Q2 financial results
- ·Total operating revenue was $117.7 million, and total operating income was $8.6 million.
- Denny’s domestic system-wide same-restaurant sales were down 1.3% compared to the prior year quarter.
- Keke’s domestic system-wide same-restaurant sales increased 4% compared to the prior year quarter.
- Adjusted franchise operating margin was $30.0 million, or 50.7% of franchise and license revenue, and adjusted company restaurant operating margin was $6.7 million, or 11.5% of company restaurant sales.
- Net income was $2.5 million, or $0.05 per diluted share.
- Adjusted net income and adjusted net income per share were $4.8 million and $0.09, respectively.
- Adjusted EBITDA was $18.8 million.
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Denny’s has a plan to close more restaurants
Denny’s CEO Kelli F. Valade updated shareholders on her company’s plan to close more restaurants during its second-quarter earnings call.
“I also want to take a moment and provide an update on our previously communicated strategy to close underperforming restaurants and return to pre-pandemic growth of flat to slightly positive in future years. The surgical and methodical approach, which began in 2023 and will be completed by the end of this year, was specifically designed to optimize and enhance the overall health of the franchise system with the goal of returning to net flat to positive growth by 2026,” she shared.
That, she noted, has been working.
“Rationalizing the portfolio was the right thing to do, and we’re seeing the results that we wanted and expected from this process. It has already resulted in a franchise AUV (average unit volume) increase of approximately 5% or nearly $100,000 in AUVs,” she added.
Closing stores is not Denny’s only strategy. The company has also worked to improve profitability in other ways.
“One more important action we’re taking to improve not only the lower quintile restaurants, but the entire portfolio is protecting margins and leaving no stone unturned,” Valade said.
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Those efforts have been working as well.
“Our margin improvement efforts to-date have already identified significant savings through reduced food and non-food costs and waste savings. These savings are a result of supplier negotiations, product spec changes, recipe changes, menu enhancements and operational procedure modifications,” she shared.
Denny’s 2025 restaurant closures
- Total planned closures: Denny’s announced plans to close between 70 and 90 locations in 2025, adding to the 88 closures from 2024.
- Reason for closures: The closures are part of a strategy to improve profitability by eliminating underperforming restaurants.
Source: Nation’s Restaurant News - Average unit volume of closed locations: The closed restaurants had average unit volumes below $1.1 million and had been open for an average of about 30 years.
Source: Restaurant Dive - Future openings: Despite the closures, Denny’s plans to open between 25 and 40 new locations in 2025, with half expected to be Denny’s and the other half Keke’s Breakfast Café.
Source: Denny’s earnings call - Denny’s has not shared a list of which locations will close and some of the shutdowns have been without notice.
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