Guided by intensive new customer research, Denny’s Inc. is tweaking its strategy for rejuvenating the company’s namesake brand while fine-tuning its younger and smaller Keke’s Breakfast Cafe concept for widespread expansion.
“We learned a lot, and it is absolutely informing decisions you'll see us make even starting in October,” said CEO Kelli Valade, who joined the two-chain company 13 months ago.
She indicated that the adjustments suggested by the separate profiles of Denny’s and Keke’s customers amount more to shifts in emphasis than radical changes in course.
The information gathered on Denny’s customers, for instance, underscored the drawing power of moderate prices for “craveable food,” Valade told financial analysts during a discussion of the company’s second-quarter results.
“The return of our signature Super Slam, starting at $7.99, was a highlight of the quarter, delivering what our guests truly want, that combination of craveable food and unbeatable value,” she said.
She credited the introduction as a factor for Denny’s same-store sales gain of 3% for Q2. But executives also revealed that prices during the period were more than 8% higher than they were a year ago, signaling that traffic was down. Management did not disclose how guest counts had trended.
Officials did reveal that 16% of Denny’s Q2 sales were generated by the brand’s value-priced items, a full point uptick from the first quarter.
The Denny’s chain intends to capitalize on its value perception by “leaning into craveability,” Valade continued. But “we're also leaning into simplification. Great food doesn't have to be complicated, and there's great work underway that will provide a streamlined menu that will be a huge win for our guests and our operators.”
She also revealed that Denny’s intends to adopt “a new pricing model” but did not disclose any details.
Indeed, she seemed reluctant to share many particulars from the snapshot of Denny’s patrons and their preferences. But she did reveal that the research highlighted an opportunity in appealing to young night owls hunting for a post-midnight bite.
Valade stressed that the company has an edge in landing those patrons because 75% of its restaurants are now open ‘round the clock, and a number of the stores offer the menus of two virtual concepts, Burger Den and The Melt Down.
Both are popular late-night options, she continued, adding that Denny’s seems to be catching a tailwind from so many operations backing away from virtual concepts and closing earlier because of staffing difficulties.
Takeout and delivery currently account for 19% of the Denny’s chain’s sales. That mix includes the contribution of Burger Den and The Melt Down.
Who’s eating at Keke’s?
The research on Keke’s, the breakfast-and-lunch concept Denny’s Inc. acquired almost exactly a year ago, revealed that consumers have embraced the brand because of its culinary chops, according to Valade.
“Keke's is known for its high-quality ingredients, made-from-scratch philosophy and providing guests with some of the most generous portions in the industry,” she said. “As with Denny's, we now have a playbook built on Keke's that articulates what makes this brand so special.”
She cited such appreciated practices by the chain as preparing its own whipped cream and grinding its coffee beans in-store.
“We've begun to make brand decisions and test elements that are going to support what we believe to be a long runway of growth in Florida and beyond,” Valade said.
Currently, all 55 Keke’s restaurants are located in Florida. Denny’s Inc. intends to test the concept’s viability outside of the Sunshine State by opening a unit in the Nashville area.
CFO Robert Verostek said the company will likely build corporate stores in the Southern city “for the next few years” to refine the concept and build a support structure. He suggested that at least six company units will be developed there.
All told, Keke’s will grow by eight to 12 stores toward the end of the current fiscal year, Verostek said. Presumably that expansion drive will be focused on Florida.
Simultaneously, the corporation is introducing the concept as a future development option to Denny’s operators.
“We have recently conducted over a dozen meetings with Denny's franchisees who are interested in the Keke's brand,” said Verostek. “A similar number of meetings with Denny's franchisees are scheduled to take place over the next few weeks as we prepare to accelerate the growth of Keke's over the next several years.”
While that brand is growing, the company’s restaurant portfolio is shrinking overall. Denny’s and Keke’s will open between 35 and 45 restaurants this year in total, but closings will result in a net decline by year’s end of 15 to 25 restaurants, Verostek said.
The Denny’s chain currently extends to 1,646 locations.
Its parent company posted a net income for Q2 of $8.5 million, down 62.9% from the year-ago quarter, on revenues of $116.9 million, an uptick of 1.7%.
Verostek noted that profits were dampened by share-based compensation expenses being paid in 2023 for the prior year.
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