The diner is the latest chain this earnings season to talk up the importance of delivery for their business, as it gradually sells company-owned stores to franchisees.
— Danni Santana
Denny’s growth strategy remains tied to expanding delivery and refranchising its company-owned stores, even as the latter eats at net sales in the short term.
The company reported first quarter same-store sales growth of 1.3 percent Tuesday, with total sales slipping 2.6 percent to $98.5 million. According to CEO John Miller, the diner’s growing delivery business, however, continues to be incremental, reaching new customers it otherwise wouldn’t have.
Denny’s off-premise segment now accounts for 12 percent of total sales. The number of restaurants actively engaged with at least one delivery partner also grew to 79 percent over the period, the company said. Nearly one quarter of transactions across all dayparts (the brand defines four, including late night) are tagged for delivery or takeout, the chain noted at an investor conference last month. About 90 percent of the company’s 1,705 restaurants are now eligible for third-party delivery.
“This means we have an opportunity to further grow our off-premise business as more restaurants eligible for delivery sign on to actively participate with delivery partners,” Miller said, on an earnings call with analysts. “These transactions continue to be incremental and deliver total margin rates from the high teens to the low twenties range, inclusive of the delivery fee.”
Refranchising and Remodeling
In October, Denny’s announced it would become 95 to 97 percent franchised by the end of 2020. To do this, the company will sell 90 to 125 of its company-owned restaurants to franchisees. These deals include mandates to improve acquired stores, in line with the brand’s established Heritage Remodel Program, it said.
Remodels include new wood floors, contemporary color schemes, and furniture that appeals to a younger demographic. During the first quarter, Denny’s completed 45 remodels between franchise and company-operated outposts. Approximately 83 percent of its stores now have the updated look, which Miller says continues to provide immediate single-digit sales lifts for owners.
Proceeds from Denny’s refranchising efforts are anticipated to generate $30 million, according to the company. A total of 14 restaurants have been sold so far, including three in the first quarter.
“We are excited to use this refranchising strategy to stimulate additional growth for our franchise partners and to attract new franchisees to the Denny’s brand,” CFO Mark Wolfinger said.