Denny’s orientation towards the struggling lower-income demo was evident by a relatively low +1.5% same-store-sales increase during 3Q22. Of this, +7% was driven by menu price increases and +2% from a product mix improvement which was offset by a -7.5% traffic decline. Corporate did report that its traffic trends began to improve along with consumer confidence & consumer sentiment in August helped by Denny’s effective value equation & messaging. We would point out that this recovery is consistent with a decline in gasoline prices (which has been so influential on the lower-income demo) during this period.
Denny’s noted that its sales have been suppressed by the staffing challenge to restore its operating hours to pre-covid levels. In particular, the chain is working hard to increase the percentage of its system open 24/7 from 60% currently to 90% expected by 2023 (helped by franchisor financial incentives to encourage franchisees to implement this sales driving strategy).
Corporate reported industry stats that 30% to 40% of FSR units have failed to return to late-night operations and pre-covid operating hours.