The restaurant industry’s labor shortage has stalled Denny’s rebound from the pandemic by preventing franchisees from resuming 24-hour operations, a key source of sales for the diner chain, executives said Tuesday.
The operators can’t find enough people to staff the overnight shifts, they explained to financial analysts. “We can't even find the individuals to interview,” said CFO Robert Verostek.
The chain figures that 20,000 people need to be hired.
Only one-third of the chain’s domestic restaurants are slinging eggs and pancakes around the clock again, the officials said. Those 565 stores posted April sales that outstripped the pre-pandemic level of two years ago by 11%. Comparable sales at units still closing at night fell 11% from the 2019 mark.
The staffing struggle comes as Denny’s revs up its two virtual brands, both conceived to be busiest at dinner and late into the night as complements to the mother brand’s daytime strength. The first, The Burger Den, is currently generating about $900 a week per unit in sales, most of it incremental, chain officials said. Margins on that business run from the mid-20% range up to the low 30s, they revealed.
Part of the ventures’ appeal, the officials added, is that their labor needs spike when a Denny’s is normally less busy, enabling the stores to use their current manpower more efficiently. About 70% of Burger Den’s business comes during dinnertime and late into the night, when Denny’s traditional operations field about 35% of daily orders.
“These brands provide opportunities not only at dinner and late night to leverage underutilized labor and kitchen space, but we are also seeing a meaningful number of transactions during the week versus the weekend,” said CEO John Miller.
About 1,100 domestic Denny’s units are now offering delivery of items off Burger Den’s menu, hitting the rollout target set by management in January.
The second virtual concept, a grilled cheese venture called The Meltdown, has been rolled into about 175 stores, with another 175 stores slated to add the brand this week. Management expects half the system—roughly 750 units—to adopt Meltdown during the second quarter.
Nearly all of Denny’s units in the United States now have at least a portion of their dining rooms reopened, with an average of 75% of seating now back in use.
Particularly important to the chain, officials said, was the partial resumption of dine-in service in California during mid-March. About 25% of Denny’s domestic stores are located in the state. Being limited to off-premise business in that market for most of the first quarter cost the chain about six percentage points in same-store sales, President Mark Wolfinger told analysts.
He identified labor as the major problem facing Denny’s in its comeback from the COVID-triggered freefall of 2020. But even with that “headwind,” he said, franchisees are rallying. About 80% of the brand’s operators are generating more than 70% of pre-pandemic sales, the point at which they can cover their fixed and variable costs, Wolfinger explained.
He also noted that only two units were closed during Q1, the smallest quarterly attrition in eight years.
Many restaurant chains have reported that sales are rebounding faster than they can hire enough people to handle the surge. Hiring for late and overnight shifts appears to be particularly difficult for employers. 7-Eleven franchisees asked their franchisor earlier this week to forego 24/7 service because they can't find individuals willing to work the graveyard shift.
Overall for Q1, Denny's same-stores were down 20% from the same period of 2019 and 9.7% from the first quarter of 2020.
Net income jumped 157.2%, to $23.2 million, on revenues of $80.6 million, down 16.7%.