Denny’s is hungry to boost its morning traffic by opening more locations of the just-acquired Keke’s Breakfast Cafe chain. It’s also looking to get more of its existing flagship restaurants back to 24/7 service as it deals with staffing shortages and rising costs.
During a second-quarter earnings call Tuesday, executives of Spartanburg, South Carolina-based Denny’s, which operates more than 1,600 full-service restaurants, said significant expansion is on the table after the company last month completed its $82.5 million acquisition of Keke’s, which currently has just 52 locations, all in Florida.
Denny’s Chief Financial Officer Robert Verostek told analysts the company plans to leverage its franchisee and real estate development infrastructure to significantly boost the pace of new openings for Keke’s, which doubled its restaurant count over the past six years by opening on average four to six new units per year.
“If we don’t accelerate that rate in the future, it’s not going to work for us,” Verostek said, noting multiple Denny’s franchisees have expressed interest in opening new Keke’s locations well beyond Florida. “We have a very talented development team that can go source additional franchisees who are not in either system.”
New Denny’s CEO Kelli Valade, who took the helm in June, said Keke’s has “attractive unit economics and strong potential” to grow sales within the A.M. eatery segment. That category, with full-service restaurants generally focused on breakfast and lunch and operating from 7 a.m. to 3 p.m., including rivals such as First Watch, was among the fastest-growing categories of the past five years by sales, according to industry consulting firm Technomic.
Privately held Keke’s saw a 32% rise in sales in 2018 from the prior year and opened a total of nine restaurants during 2018 and 2019, according to Technomic.
During the second quarter ended June 29, Denny’s opened four franchised restaurants and completed 11 remodels of its flagship restaurant brand. Executives said the company has global commitments in place from franchisees that would add more than 200 restaurants over the next few years. Many of those will be tech-enabled to take advantage of rising customer use of mobile apps to order food for delivery or takeout.
The industry has been steadily rebounding from restrictions in place during the pandemic’s first year while battling rising costs for labor, food and other supplies. Denny’s continues to deal with staffing shortages as it looks to get more of its restaurants operating 24 hours, seven days a week.
More than 80% of its restaurants are operating at least 18 hours a day, but Verostek noted 24-hour restaurants typically bring in 15% to 20% more in sales on average than those with more limited hours. He noted that the company in many locations is just seven or eight workers short of having the approximately 50 needed to successfully run a 24-hour operation.
For the second quarter, Denny’s reported total revenue of $115 million, up from $106.2 million in the year-earlier quarter. Net income was $23 million, compared with a net loss of $828,000 in the year-earlier period.