Dive Brief:
- Denny’s franchisee Denn-Ohio filed for bankruptcy on Oct. 31, according to court documents. The company currently operates 10 Denny’s restaurants in Michigan, Ohio and Kentucky.
- The operator reported “substantial growth from 2009 to 2019,” but around 2020, it was hit by economic challenges related to the COVID-19 pandemic and other ongoing negative conditions inherent to the restaurant industry, the company’s CFO, COO and co-founder Thomas Pilbeam said in a court document.
- Denn-Ohio joins a handful of other franchisees to file for bankruptcy in 2023 following tough economic conditions during the last few years.
Dive Insight:
Denn-Ohio was hit by increased labor, food and delivery costs that hurt the company’s net operating income, Pilbeam said, adding that required renovations and post-pandemic trends toward increased delivery sales added to its financial troubles. Co-founder Jack Thompson also passed away in 2019, adding to the company’s hardships. During 2022, the company had total receipts of $17.6 million, but a net business income of negative $1.3 million.
Following these economic hardships, the company closed nine underperforming stores and expects to close two more locations. At its height, the franchisee operated 27 restaurants. Pilbeam said that its remaining eight stores will be positioned to provide “sufficient sales to pay its ongoing reduced operating expenses and successfully reorganize its pre-bankruptcy debt through its Chapter 11 proceeding.”
Prior to declaring bankruptcy, Pilbeam contacted Denny’s corporate, other franchisees, commercial brokers, lenders and investors to see if he could sell or refinance its restaurants, but discovered that there was “extremely limited” demand for Denny’s locations.
Denny’s itself has been undergoing several operational changes, including rolling out a new menu and updated loyalty program. The company is also scaling a virtual brand, Banda Burrito, into 80 more restaurants, two years after it launched two virtual brands.
The company is moving toward new remodels and prototypes under Modern American Diner, as well, which highlights the off-premise channels with a designated pickup area that will be staffed by a to-go specialist, Denny’s CEO and President Kelli Valade said during the company’s October earnings call.
Off-premise sales made up 19% of sales during the third quarter, which started to rise above 20% at the end of the quarter. Domestic same-store sales were up by 1.8% during the quarter, which includes a 2.1% increase from domestic franchised restaurants.
