Denny’s likes to consider itself “America’s 24-hour diner,” but that status took a hit during the pandemic and when a labor shortage made it almost impossible for franchisees to remain open all night.
But the company is getting there. Executives said on Tuesday that 870 of the family-dining chain’s more than 1,600 locations are open 24 hours, and the company is working to increase that number. “We are a 24-hour brand,” CEO Kelli Valade told investors on Tuesday, according to a transcript on the financial services site Sentieo. “We have a significant tailwind opportunity as demand for the late-night dining occasion is ever present.”
Denny’s believes there is some real potential by doing so. Same-store sales at franchise restaurants rose 1.1% in the quarter ended Sept. 28. But at company restaurants, where labor is less of a problem, same-store sales rose 7.1%.
Same-store sales at restaurants that were open 24 hours outperformed those that were limited by the “mid-teens” in same-store sales.
To get operators to open all night, the company is using a carrot-and-stick approach. Denny’s is giving financial incentives to operators to encourage them to open 24 hours. Executives described it as a “tiered” approach to those incentives, with more financial assistance available the earlier operators take the step to open all night.
Eventually, however, the company will move to “accountability.”
“We launched a modest financial incentive to motivate franchisees to accelerate their path, to be followed by an enhanced measure of accountability,” Valade said.
While there is anecdotal evidence that labor markets are improving, and Valade noted improvements within the Denny’s system, a lack of available workers is still keeping a large sector of the restaurant industry closed more than it prefers. A study last week by Datassential found that the average restaurant week is 6.4 hours shorter than it was before the pandemic.
And all-night restaurants were hit hardest. About 30% to 40% of full-service restaurants that were open all night have not returned to those operating hours, Valade said.
About 5% of Denny’s restaurants were not open 24 hours before the pandemic due to local regulations or other issues, and Valade said that another 5% will likely be allowed to close during those hours. That still leaves just more than a third of the family dining chain’s restaurants closed at night.
The company did try incentives in the fourth quarter of 2020, in the hopes of getting more restaurants to open. But executives admitted on Tuesday that it wasn’t the right time. “The timing was not right,” Robert Verostek, Denny’s CFO, said on the earnings call, according to Sentieo. “States didn’t even open. California didn’t even get fully open to on-premise business until April. So, the timing was not ideal to really get there.”
Those limitations are no longer there, however, and thus the company believes that incentives can get more restaurants to open all night.
Denny’s has held virtual hiring events and shared best practices with employees on hiring, Valade said. The company has started having one-on-one discussions with franchisees on opening all night, and she said the number of operators getting back to 24-hour operations is increasing. She expects to triple the rate of adoption before the addition of financial incentives.
“We’re pretty relentless in our focus on this,” Valade said.
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