The current economic environment has not been easy on the average Denny’s customer.
People earning between $50,000 and $70,000 a year have been hit hardest by inflation, rising interest rates and a weak job market, Denny’s CEO Kelli Valade said Monday, which has made them less likely to visit Denny’s.
The family-dining chain has extended a hand to those customers with a parade of low-priced promotions, such as a $2 $4 $6 $8 value menu, a buy one, get one deal and now a selection of meals under $10.
These offers have had the desired effect. In the second quarter, 20% of Denny’s orders included a value-oriented dish, and the chain saw sales improve among the $50,000-$70,000 income bracket.
It was not enough for Denny’s to completely overcome a “choppy” macroeconomic backdrop, as same-store sales declined 1.3% in the period. But it was an improvement compared to the first three months of the year, when same-store sales slid 3%.
“We are encouraged by what we're seeing as of late and the response to all the things that we are doing with some of these offers,” Valade told analysts during an earnings call Monday, according to a transcript from financial services site AlphaSense. “The macro environment moderating will really be what we need.”
In the second quarter, Denny’s ran a buy one, get one offer that gave customers who ordered a Grand Slam or All-American Slam breakfast a second one for $1. Valade said the deal drove traffic from new and lapsed users, 15% of whom have come back again since.
In June, it replaced that deal with a selection of Slam breakfasts for under $10. Asked why Denny’s decided to move away from the successful BOGO deal, Valade said it wanted to refresh the lineup for summer with seasonal options like the Red White and Berry Everyday Value Slam.
She noted that the four under $10 menu has been generating similar levels of traffic from new and lapsed users as the BOGO.
In addition to continuing the drumbeat of value, Denny’s has high hopes for its growing digital business. Off-premise accounted for 21% of sales in the second quarter, and off-premise same-store sales ticked up 1.5%. Executives said investments in its website and in third-party delivery promotions helped drive conversions and sales.
Denny’s has also been rolling out a new delivery-only virtual brand, Nathan’s Famous Hot Dogs, to company-owned stores. Nathan’s is now in 70% of those locations and contributed 50 basis points to same-store sales at company-owned Denny’s in the quarter. The company is now considering making Nathan’s an option for franchisees, joining its other virtual brands, The Meltdown and Banda Burrito.
The chain also has high hopes for a new loyalty program set to launch later this quarter. The new program will allow Denny’s to target offers to individual loyalty members, rather than provide the same coupon or offer to everyone. These members already tend to visit more often and spend more, and Denny’s believes the new format will allow it to engage with them even better. It expects the revamped program to contribute 50 to 100 basis points in traffic over time.
For the full year, Denny’s is still expecting same-store sales growth between negative 2% and positive 1%. It believes it still has a path to the low end of that range, said CFO Robert Verostek, who noted the aforementioned value offers and digital initiatives as well as a slate of up to 60 restaurant remodels.
Elsewhere, the 74-unit Keke’s concept continues to be a bright spot for Denny’s. Same-store sales rose 4% at Keke’s in the quarter, and it opened eight new locations. Executives cited Keke’s operations, speed, the addition of alcohol and growing off-premise sales for the improvement.
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