Denny's counts on menu tweaks and a to-go push to get it through a traffic slide

While considering more virtual concepts, the diner chain plans to roll out a simplified bill of fare next week.
The Grand Slam is back in the spotlight, this time for $5.99. | Photo: Shutterstock

A downturn in traffic has Denny’s rethinking its food and beverage options.

The diner chain said Monday that it will adopt a new menu next week that incorporates what extensive research has revealed about the preferences and expectations of Denny’s customers. The revamped bill of fare will omit several plugs for build-your-own customizable items to provide a larger billboard for proven morning draws like the brand’s signature Slam line.

That array is being extended with premium choices like a Strawberry Stuffed French Toast Slam. But Denny’s is also tweaking the line-up to snag bargain-hunters. In addition to adding a $7.99 Signature Super Slam, the franchisor is testing a discounted $5.99 price for its original Slam breakfast.

To date, the sales trial has brought “a profitable traffic lift and little impact to check,” CEO Kelli Valade told financial analysts during Denny’s third-quarter earnings conference call.

She mentioned in passing that the menu revamp will extend to beverages as well as food. Valade gave the example of adding cold-brew coffee, a move suggested by the company’s consumer research.

The menu changes are intended to boost kitchen efficiencies as well as strengthen the brand’s consumer appeal, according to the CEO. Valade explained that the labor savings and improved throughput will help Denny’s offset the upswing in wages the chain will likely face in California as the result of recent legislation.

A first-of-its-kind law there will raise the minimum wage for fast-food workers to $20 an hour as of April 1. Although full-service concepts like Denny’s are not required to pay that amount, they stand to lose potential hires to the quick-service segment unless they offer a competitive wage.

Denny’s CFO Robert Verostek projected based on “back-of-the-envelope math” that corporate stores in California will need to raise prices by about 3% to cover the impact of the legislation.

New virtual concept

While pushing for more dine-in business, Denny’s is also taking steps to bolster to-go and delivery orders. Toward that end, it will expand the test of a new virtual Mexican concept, Banda Burritos, to 80 stores after an initial trial in 10.

“We are primarily focusing this concept in California and believe it has potential to efficiently expand our off-premise business with popular regional flavors while leveraging many existing SKUs in our pantry,” Valade said.

The new venture will be an addition to Denny’s current virtual concepts, a grilled-cheese option called Melt Down and a burger specialist called Burger Den. Those delivery choices helped to raise Denny’s off-premise business to more than 20% of sales by the end of the third quarter ended Sept. 27.

Verostek revealed that more virtual concepts may be added to Denny’s stable through a relationship with Franklin Junction, a company that offers the specialties of more than 20 delivery-only brands from centralized “cloud kitchens.” A Denny’s franchisee is currently serving as one of those kitchens, preparing items from several of the Franklin Junction brands as well as Denny’s bill of fare.

“We look to finalize an agreement with Franklin Junction over the next several months to expand this test, and if all goes well, really to roll it out more broadly to the entire system,” Verostek revealed.

Denny’s intends to boost to-go orders off its own menu through a tweak to its store design. The chain introduced franchisees last week to a new prototype that sports a designated pickup area for delivery and takeout. The station will be manned by what Valade described as “dedicated to-go specialists.”

The push for more off-premise orders follows a softening of traffic for Denny’s during Q3.

“This was similar to the trend experienced across the industry,” said Valade.

She attributed the fall-off to consumer confidence being shaken by rising interest rates and “the potential economic impacts of recent geopolitical events,” an apparent reference to the conflict in the Gaza Strip between Israel and Hamas forces.

“We anticipate consumer uncertainty and discretionary spending pressure to persist, at least in the near term,” Valade said.

Denny’s posted a 1.8% gain in same-store sales for Q3.  That figure reflects an 8.6% increase in pricing.  

Verostek said the company expects comp gains for domestic Denny’s units to land between 2.75% and 3.5% for fiscal 2023.

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