Denny's embraces new ways of broadening its customer base

The diner chain is trying a number of initiatives to keep its core business fresh and growing. Meanwhile, its parent is getting ready to expand Keke's.
Denny's continues to woo younger patrons. / Photo: Shutterstock

With the installation of new kitchen equipment nearly done, Denny’s intends to stud its next core menu with more draws for diversifying its customer base, executives told investors Monday.

They declined to specify what those products might be, but indicated the items were beyond the capabilities of the diner chain’s previous equipment array. The limitations included an inability to bake or roast, since ovens weren’t part of the old cooklines.

Management has indicated before that the back-of-house revamp, now completed by about 98% of domestic units, will be particularly useful in appealing to a broader array of customers at dinner.

The brand’s next core menu update is slated for next month.

Speaking to financial analysts, new CEO Kelli Valade stressed that diversity will be a watchword of her tenure, and that the 70-year-old chain is already excelling in that regard.

“You may be surprised to learn that Denny's is skewing towards younger generations, with millennials and Gen Z currently representing about 45% of our customer base,” she told the analysts, according to a transcript provided by the financial services firm AlphaSense/Sentieo. “Over half of our total guest base is also ethnically diverse, and our breakfast and late-night dayparts skew younger and more diverse all the time.”

Her comments weigh against a popular impression that Denny’s is a concept for aging Baby Boomers and seniors of an even more advanced age.

Valade and other senior executives stressed that Denny’s and its parent, Denny’s Corp., have a slew of initiatives in the works to keep the brand vibrant and relevant to future generations of consumers.

Those efforts include a continuation of a systemwide facelift for the Denny’s brand, the start of a growth push for the company’s newly acquired Keke’s concept, and an ongoing effort to boost to-go and delivery business, which currently account for 21% of Denny’s sales.

Denny’s two virtual brands, Burger Den and The Melt Shop, have been instrumental in sustaining off-premise sales, Valade remarked. She also noted that the ventures have helped in drawing younger consumers and pulling more dinner and late-night orders.

Restoring overnight service remains a challenge for the Denny’s brand. About 67% of the diner chain has resumed 24/7 service as the pandemic has waned, but the overnight shift remains extremely difficult to staff, executives indicated.

Sales for a store open ‘round the clock tend to outstrip the intake of a unit that shuts overnight by a percentage in the mid-teens, the officials said.

Systemwide, Denny’s same-store sales for the fourth quarter ended Dec. 28 outstripped the year-earlier tally by 2%.

Continuing a systemwide renovation of dining rooms and restaurant exteriors figures prominently in the rejuvenation strategy for Denny’s, but that effort has been tempered by inflation.

A rehab tends to deliver a bump in sales in the mid-single digits, said CFO Robert Verostek. But the cost has soared, shaving returns on the investment.

“With this consideration in mind, we plan to execute lower scope restaurant upgrades at targeted restaurants in 2023 before returning to a full remodel cycle in 2024,” he said.

While striving to keep the Denny’s brand fresh, the corporation intends to begin the expansion of Keke’s, whose 18 units are currently all in Florida.

“We anticipate the first step out of Florida will be with a small number of company restaurants to demonstrate the brand's potential,” said Valade.

Overall, Denny’s Corp. posted a Q4 net income of $12.8 million, a decrease of 70.6% from a year ago, on revenues of $120.8 million, an increase of 12.3%.

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