Dive Brief:
- Denny’s will close up to 150 restaurants by 2025 as part of a strategic plan to strengthen its overall system, the company reviewed during its investor day on Tuesday.
- These closures were determined after an extensive review of each domestic restaurant, Steve Dunn, executive vice president and chief global development officer, said during Denny’s investor day on Tuesday. Most of the restaurants performed well following the disruption of the pandemic, but its bottom quintile never fully recovered.
- Several other casual chains have been closing underperforming stores this year because of lackluster sales and traffic, including Shari’s, Hooters, TGI Fridays and Bloomin’ Brands.
Dive Insight:
Denny’s originally assessed 265 of the worst-performing restaurants out of its over 1,300 locations and decided to close 60% of them and rehabilitate the rest. Restaurants slated for closure are old and are in trade areas that saw traffic shifts as customers began to favor QSRs for convenience and never shifted back to casual dining, Dunn said.
Denny’s lowest quintile stores have average unit volumes of $1.1 million, less than half that of the top quintile stores that have average unit volumes of $2.9 million. Average EBITDA for the poorest-performing stores is less than $25,000, compared to $250,000 to $350,000 for the top restaurants, according to the investor presentation.
“We realized that closing underperforming restaurants is strategic, advantageous to a number of our franchisees as it strengthens the bottom line cash flow,” Dunn said. “This cleans up our portfolio and prepares us truly for growth.”
Despite the closures, the chain is still focusing on building new units, especially since sales volumes at these restaurants typically outperform the system average by $400,000.
Denny’s is also looking at various ways to rehabilitate the rest of its underperforming restaurants, including a comprehensive business review, improving customer service training, incremental local store marketing and a review of lease terms for possible savings, according to the investor presentation.
Additionally, Denny’s is focusing on remodels, which typically give its locations a 6.4% sales and 6.5% traffic lift. Denny’s has completed 17 remodels to date and the average investment is about $250,000, according to the investor day presentation.
Earlier this month, Denny’s launched a financial support program offering $100,000 to help franchisees grow, Dunn said. The program also offers increased incentives for each year a remodel is accelerated from its due date and set up a third-party, $25 million remodel loan pool, according to the investor day presentation.
