Denny’s, one of America’s classic diner chains, recently announced plans to close 150 restaurants. Following a tough year in 2023, when it closed 57 locations, the company is making more changes to solidify its presence and profitability. Here’s why Denny’s is cutting back and what it means for the brand’s future.
Why Denny’s is Closing 150 Locations
In an investor call this week, Denny’s executives revealed that about 10% of the chain’s locations are set to close. Many of these restaurants have underperformed financially, and the closures aim to strengthen Denny’s overall footprint.
The chain reviewed its domestic locations and identified struggling spots, many of which are older and situated in areas where customer habits have shifted.
CEO Kelli Valade explained that these low-performing locations dragged the entire system down. To ensure Denny’s is operating efficiently and sustainably, the company determined that shutting down these locations is the best course of action.
Half of the slated closures will be completed by the end of 2024, and the remaining restaurants will close their doors by 2025.
Denny’s Financial Snapshot and Recent Performance
Denny’s revealed this closure plan alongside its recent quarterly earnings report on October 22. The report highlighted some challenging financials:
- Same-store sales dipped by 0.1% during the third quarter.
- The restaurant count fell from 1,603 in late June to 1,586 as of September 25, showing a net loss of 17 locations over the quarter.
- New openings included two new Denny’s locations and six remodeled restaurants.
Valade noted that the decline in customer traffic is not limited to Denny’s but is a trend across the family dining sector. Still, the company hopes downsizing will ultimately bolster the brand’s long-term success.
What Denny’s Plans to Do Instead
Although Denny’s is reducing its footprint, it has several strategies to refresh its brand and drive future growth. Chief Development Officer Steve Dunn outlined the company’s plans, which include:
1. Revamping Store Design: To create a more unified look, Denny’s plans to renovate and update its older locations. The goal is to modernize the appearance of these restaurants and improve the dining experience.
2. Expanding Virtual Brands: Denny’s has three virtual restaurant brands—Burger Den, the Meltdown, and Banda Burritos—which offer delivery-only options. These brands have proven successful, bringing in $77 million in sales. Denny’s intends to continue promoting and evolving these virtual options as a convenient choice for customers.
3. New Restaurant Openings: Despite the closures, Denny’s is still opening new locations. The company expects to add 30 to 40 new restaurants by the end of 2024. This includes 12 to 16 locations for Keke’s Breakfast Cafe, another brand under the Denny’s umbrella.
The Strategy Behind Closing Restaurants
While closing locations may seem like a step back, Denny’s executives believe it’s necessary to strengthen the overall system.
By focusing on profitable, high-traffic areas and cutting underperforming locations, Denny’s aims to optimize resources and improve brand health. Valade emphasized that this decision is about strengthening Denny’s “system” and ensuring each location operates successfully.
For instance, some of the locations set to close are in regions where consumer behavior has changed significantly, affecting their viability. By closing these locations, Denny’s can redirect resources to high-demand areas, investing in stores with better financial prospects.
Changes in the Family Dining Industry
The family dining segment has been hit hard recently, and Denny’s isn’t the only brand feeling the pressure. Valade acknowledged that fewer customers are visiting family-style restaurants overall, a shift that’s been challenging for brands that rely on consistent, high-traffic dining rooms.
This is common to Denny’s; other chains are also seeing declines in foot traffic, partly due to changing dining preferences and economic pressures that make customers more selective with their spending. This sector-wide trend likely influenced Denny’s decision to downsize and restructure.
Looking Ahead: Denny’s 2024 Plans and Beyond
Denny’s has laid out a clear roadmap for its future. The company aims to continue reshaping its brand while adapting to new customer needs. Here’s a look at what Denny’s has planned for the coming year:
- Consolidated Restaurant Openings: In 2024, Denny’s is set to open 40 new locations, many of which are planned as part of Keke’s Breakfast Cafe.
- Focus on Virtual Brands: With the success of its virtual brands, Denny’s will continue to push these concepts, especially as online and delivery demand grows.
- Ongoing Remodels and Updates: Denny’s will keep updating its existing restaurants to present a modern and cohesive look. These renovations are aimed at keeping current customers engaged and attracting new ones.
FAQs
Q: How many Denny’s locations will remain open?
A: After the closures, Denny’s will have around 1,436 locations, but this number could vary as new stores open or other locations close.
Q: Why are virtual brands a focus for Denny’s?
A: Virtual brands like Burger Den and the Meltdown cater to customers looking for delivery-only options, an area that has grown significantly in recent years. These brands allow Denny’s to reach more customers without the overhead costs associated with traditional restaurant spaces.
Q: Are there other family dining chains facing similar issues?
A: The family dining segment has been declining overall, and many chains are experiencing reduced customer traffic and increased costs. This is a broader trend across the industry.
In summary, Denny’s is undergoing significant changes to adapt to a shifting market. While the closures may seem like a setback, they are part of a larger strategy to ensure the brand’s long-term health.
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