Overnight staffing issues keep a brake on Denny's sales

The diner chain saw a 22-point comp sales gap between 24-hour units and stores that couldn't field an overnight staff.
Photograph: Shutterstock

Denny’s tale of two rebounds continued into the second quarter, with same-store sales shooting 12% past 2019 levels at units open 24/7 but falling 10% short of pre-pandemic benchmarks at branches that close at night.  

Yet 60% of the diner chain’s domestic restaurants have yet to resume round-the-clock service, a reflection not of demand but of the difficulties in recruiting workers for the overnight shift, executives told investors Tuesday.

The officials said they are encouraged by a 2.7% increase in comparable sales across all domestic units in July, as well as the initial results of several new recruitment tactics. The chain conducted a weeklong cross-country tour of its mobile diner to let the public know Denny’s was hiring. The awareness effort generated 13,000 applications—though Denny’s needed to fill 20,000 vacant posts.

The sales and labor challenges were eased somewhat by Denny’s two new virtual brands, The Burger Den and The Meltdown. About 70% of the former’s sales come at dinner and afterward, while 60% of the grilled-cheese upstart’s orders are placed during those times. Only about 35% of Denny’s business is generated during that stretch, allowing units to generate additional sales without overtaxing the staff on hand.

The executives revealed that Burger Den, now in about 1,100 locations, generates about $600 per week in sales, and that Meltdown draws about $1,200 per week for the 700 units that now offer its delivery-only menu. Because of the labor savings and having 70% of each brand’s ingredients already in stock, margins typically range from 20% to 30%, even with third-party delivery fees, said CFO Robert Verostek.

Despite Denny’s labor challenges, profit margins at company stores rose to 20.5%, a result of paying less in wages because the recipients could not be found.

Verostek said that number will likely recede as more workers are hired, but the chain expects operating profits to remain in a range of 18% to 19%.

“We'll also have the benefits of more of these units coming online 24/7,” he said.

Denny’s is far from the only employer to have difficulties staffing its late and overnight shifts. Franchisees of the  7-Eleven c-store chain are pressing their franchisor to waive its 24-hour requirement for operations because of recruitment difficulties.

Good Times Restaurants recently dropped the closing times for its namesake brand and a secondary concept called Bad Daddy’s because of difficulties in finding staff.

Denny’s CEO John Miller was asked what impact his charge might feel from the surge in new COVID-19 cases from the delta strain of coronavirus, and how he sees customers reacting.

“What you're seeing so far, because we are talking about it a lot and watching it very closely, is we're not really seeing any change whatsoever, or if any, certainly immaterial in any consumer behavior at this point,” Miller responded. “That's not to say they aren't concerned or thinking about it.”

Overall, Denny’s posted a Q2 net income of $22.4 million, compared with a year-ago loss of $14 million. Revenues increased by $50 million, to $186.7 million.

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