How Did Denny’s Do It?
There’s a lot of talk about turnarounds these days. Some say casual dining is just dead while others think they’ve cracked the code one quarter only to find a new scapegoat the next.
But Denny’s (NASDAQ: DENN) made it work, and has returned to a place of sales and unit growth after falling on some slow growth years with a sinking AUV, as seen in the chart below.
But in 2016, the brand reported $2.8 billion in sales across its 1,733 restaurants. That's a 3.7% sales growth over end-of-year 2015 according to Franchise Times’ annual Top 200+ research. And it continues to grow. The company reported same-store sales growth of 2.6% in the second quarter of 2016. Even as the same labor pressures and wage pressures slimmed margins year-over-year to 16.9% from 18.4% in 2016, quarterly restaurant margins grew 1.7% at company locations.
How did they achieve comp growth that likely has other casual diners spewing profanity? Steve Dunn, senior vice president and chief of global development at Denny’s, has some bad news.
“There’s no magic pill for this, it’s hard work on all levels,” said Dunn.
It all started around 2011 and 2012, when things were starting to rebound after the Great Recession, but there were signs of weakness—as seen in the chart above in the slow return to growth. That's a key point, noticing that things are slowing down before getting desperate. When the team saw that, they looked first to reinvigorating the brand perception.
“A big part of it was imaging, 60% of our system has been reimaged. We completely rethought our menu, improved it in both taste and quality,” said Dunn.
He said it was a major change with over half the menu changing or being upgraded. It also meant doubling down on value perceptions with an easily understood $2, $4, $6, $8 Value Menu. Various items and meals fit each tier of the menu.
As more locations were converted to newer designs that brought elements in from the surrounding community—localizing it and embedding it in the area—franchisees saw the results and started accelerating their own remodels. With two different tiers that ranged between $150,000 and $250,000, he said it’s been a modest investment for the results.
“We are leading the industry for the amount of capital we spend coupled with the lift that we get, we’re in the upper single digits on average, we see some stores that do way better,” said Dunn. “But for the investment that we make, we’re far ahead of anyone else in the casual dining world.”
Then there was the marketing pivot. Dunn said it was just a matter of speaking to people who already had an affinity for the brand. And with a 96 to 97 unaided brand awareness in consumer research (which rivals Coca Cola), they didn’t have to do much but communicate in their consumer’s channels and become top of mind in a breakfast resurgence.
“The interesting thing, people think Denny’s is kind of for boomers or older groups. Our internal marketing research shows that we are very very popular within the millennials. Those with young families, they like the value, the food is hearty, it’s family friendly, it’s familiar,” said Dunn. “So we made a concerted effort to communicate with millennials and younger, our social media is rated very, very high. Last year, AdWeek we were one of the award-winning brands for our quirky, funny, irreverent social media.”
The AdWeek nod was nice, but Dunn also had some insight closer to home.
“I knew we had something going when my daughter said she followed Denny’s,” said Dunn.
And one can’t talk about Denny’s return to growth without mentioning the delivery program. Since it launched nationwide in May 2017, it’s been an impressive way for the brand to capitalize on convenience that consumers crave so much.
“We didn’t quite know what would be popular when we tested, but it turns out people want the tried and true things, they want a Grand Slam, they want stuff that is tried and true delivered,” said Dunn. “It’s building and we’ve just scratched the surface of the potential, only about a third of the delivery is activated throughout the country so we think there is a lot more growth.”
As John Hamburger discusses in this month’s Monitor, Denny’s is a case of accelerating into that growth curve. Without slashing labor, or cutting quality as so many hopeful turnarounds do, it’s been able to accelerate growth by investing where it counts.