Denny’s is shutting down 150 stores to boost cash flow amid declining sales

10/29/2024 / By Belle Carter

Twenty-four-hour diner and breakfast restaurant Denny’s recently announced the closure of 150 branches out of its 1,700 locations worldwide – 50 store closures by the end of this year and the remaining 100 locations will be shut in 2025.

According to a Securities and Exchange filing from the chain on Tuesday, Oct. 22, the company aims to strengthen its cash flow as the chain will try to reach a goal of growing annual unit volume sales to $2.2 million.

“We believe this is absolutely the right thing to do to make our system stronger,” Denny’s CEO Kelli Valade said.

The more than a hundred branches that will be shut make for roughly 10 percent of Denny’s stores. It has not yet been announced which locations will close down but Valade said that it is the “underperforming” restaurants that would stop operations. Among the restaurants closing are older locations that are too old to remodel or are based in unprofitable locations, said its Executive Vice President and Chief Global Development Officer Stephen Dunn.

“Some of these restaurants can be very old. So, when you think of a 70-year-old plus brand, you have a lot of restaurants that have been out there for a very long time,” he told investors at the meeting.

Meanwhile, Denny’s reported its fifth straight quarter of declines in sales at locations that were open for at least a year. Since the Wuhan coronavirus (COVID-19) pandemic, the restaurant has not returned to its usual around-the-clock hours in around a quarter of its locations. Because of this, the chain has now officially slashed its hours. This came after Dunn said it “didn’t make sense” especially since foot traffic and changing consumer behaviors continue to show as effects from the pandemic.

Moreover, it has also limited its menu options from 97 to 46. According to the management, adults who were looking for cheaper options began ordering from the kids’ menu. The restaurant has begun offering value options to lure in customers, just like Applebee’s “Whole Lotta Burger” with fries deal for $9.99 and Chili’s $10.99 burger meal that is bigger and cheaper than the Big Mac.

Gregg Majewski, CEO and founder of Craveworthy Brands, told Business Insider that the move should not be viewed as a negative reflection on Denny’s or the broader restaurant industry “but rather as a strategic adjustment to maintain financial health in a difficult economic environment.” He added that shifts are currently happening in all kinds of dining spaces, and sometimes consolidation is necessary to help the overall brand.

Denny’s (DENN) shares also dove by 17 percent Tuesday after earnings missed analysts’ expectations. The stock is reportedly down 50 percent for the year.

There are currently 1,358 Denny’s locations in the U.S., with a heavy presence in California, Texas, Florida and Arizona. Recently Denny’s closed a location in San Francisco due to rising rates of crime after running for 25 years, and another location in Pennsylvania closed after a 45-year service.

Inflation continues to haunt consumers, affecting restaurant family dining

Neil Saunders, the managing director of GlobalData’s U.S. retail and consumer division, told Business Insider that although restaurant spending is forecast to grow by almost five percent in 2024, this is predominantly driven by higher prices and inflation.

“Generally, the family dining segment where Denny’s sits is more pressured as families have been hit hard by inflation and so are dining out less or are trimming spending when they do eat out,” he said.

In fact, analysts report that 2024 has so far been a tough year for the fast-food industry. Starbucks, McDonald’s, KFC, In-N-Out and Olive Garden are some of the chains that have raised prices in response to the soaring cost of labor and commodities. During the summer, Red Lobster closed over 100 restaurants across the United States and Applebee’s closed dozens. (Related: Dozens of KFC restaurants across Midwest CLOSE SUDDENLY – Is EYM Group (Pizza Hut, Burger King) struggling to survive?)

“Operational costs have skyrocketed with food prices rising with inflation,” Tomas Gorny, the CEO of Nextiva, a customer experience management company, said, adding that workers are also becoming harder to find and customers have less discretionary money to indulge in meals out.

“They demand cheaper meals and have higher expectations,” Gorny said.

Furthermore, more customers are looking to order food rather than go out, impacting family dining.

“Fewer customers dine out and that includes families,” Elijah Puzhakov, said the chief communications officer at Restaurantanji.com. “Quick-service restaurants can appeal more to people looking for a fast meal. They are drawing customers away from traditional family dining establishments.”

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