Denny’s Corp. is testing a third virtual brand, Banda Burrito, and a franchisee is working with the Franklin Junction marketplace as the family-dining concept looks to continue capturing off-premises business, company executives said Monday.
Off-premises sales were about 19% of its total sales in the third quarter, said Kelli Valade, CEO of the Spartanburg, S.C.-based Denny’s, which released earnings Monday for period ended Sept. 27.
“We feel good about this, especially considering that many in our industry are experiencing actual sales declines in this channel,” Valade said on an earnings call. “Even better, most recently, we've started to see an uptick in our off-premises sales, hitting above 20% by the end of quarter three, further showing that off-premises channels are consistently strong for us and a way to leverage operating capacity at dinner and late night to a new consumer.”
Denny’s has two existing virtual brands, the Burger Den and The Meltdown, both introduced in 2021, and is testing a third in California: Banda Burrito.
“We've been in alpha testing of Banda Burrito in 10 locations, and based on positive results, we'll be expanding it to an additional 80 locations next month,” Valade told analysts. “We are primarily focusing this concept in California and believe it has potential to efficiently expand our off-premises business with popular regional flavors while leveraging many existing SKUs [stock keeping units] in our pantry.”
Robert Verostek, Denny’s chief financial officer, added that a Denny’s franchisee “is currently in test with Franklin Junction” with virtual brands in about 20 restaurants. Atlanta-based Franklin Junction is a host kitchen marketplace with more than a dozen brands, ranging from Arthur Treacher’s Fish & Chips to Wing Depo.
“We look to finalize an agreement with Franklin Junction over the next several months to expand this test,” Verostek said, adding that it could be rolled out to the entire system. “This would clearly be an opportunity to expand upon our already a successful off-premises business. And it leverages — as we’ve talked about with our virtual brands for some time — it really leverages dayparts that we have capacity to expand into, which is that kind of that dinner and continuing to leverage late night, which has really been one of the standout dayparts for us is that late-night daypart.”
A dedicated off-premises area was included in Denny’s first complete remodel under the “Modern America Diner” banner, which was unveiled last week at the brand’s annual franchisee convention. It is an area “staffed by a dedicated to-go specialist,” the executives said.
Denny’s said it was seeing interest among franchisees for the Keke’s concept, which it acquired in 2022.
A company-owned unit is under construction in Tennessee, Valade said. “We’ve got others that have signed agreements for the East Coast as well as Texas and California,” she said, adding that the company has about 100 agreements among 14 different franchisees. Verostek said 11 of those 14 were already Denny’s franchisees.
For the third quarter ended Sept. 27, Denny’s reported net income of $7.9 million, or 14 cents a share, compared to $17.1 million, or 29 cents a share, in the prior-year period. Revenues slipped to $114.2 million from $117.5 million in the prior-year quarter.
Denny's domestic systemwide same-store sales were up 1.8% compared to the period in 2022, including an increase of 2.1% at franchised restaurants and a decline of 1.4% at company restaurants.
The company opened eight franchised restaurants in the quarter, including two international Denny's locations and one Keke's location.
Denny’s, as of Sept. 27, had 1,644 restaurants, 1,570 of which were franchised and licensed restaurants and 74 of which were company operated. Of those, 1,588 were Denny’s (1,522 franchised and 66 company-owned) and 56 were Keke’s (48 franchised and eight company-owned).
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