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FDD Talk 2015: The Denny’s Franchise Opportunity (Financial Performance Analysis, Estimated Costs, and Other Important Stuff You Need to Know)

by Franchise Chatter on July 30, 2015

in Casual-Dining Restaurant Franchise, FDD Talk 2017: Food Franchises, Franchise Earnings

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Denny's Franchise Photo by AnnaleeBlysse

In this FDD Talk 2015 post, you’ll learn the following:

  • Section I – Background information on the Denny’s franchise opportunity, including relevant news updates
  • Section II – Estimated initial investment for a Denny’s franchise, based on Item 7 of the company’s 2015 FDD
  • Section III – Presentation and analysis of Denny’s financial performance representations, based on Item 19 of the company’s 2015 FDD, including information on the:
  • 2014 average net sales; food costs; crew labor; management labor; gross profit; taxes/fringe benefits; utilities; repairs and maintenance; other expenses; and EBITDA before royalties, advertising, occupancy cost, and management fees for the Top Third, Middle Third, and Bottom Third of 160 Denny’s restaurants owned and operated by the company in the United States during the twelve month period beginning December 26, 2013 and ending December 31, 2014, excluding only those restaurants which were open for only part of such period
  • 2014 average sales for the 160 company-owned and 1,387 franchised Denny’s restaurants that were open the entire calendar year

Section I – Background Information

Denny’s Looking Good for 2015

With a nearly 33 percent increase in net income for the first quarter, Denny’s began the year on a high note. Same-store sales rose 7.6 percent at domestic company stores and 7.1 percent at domestic franchised locations, the strongest performance in same-store sales in more than a decade.

The promising numbers came at a time when the company is undergoing a revitalization that includes remodeling at some units with the new Heritage design. The remodeled restaurants (about 20 percent of the chain’s locations) are enjoying higher sales averages.

“We are benefiting from solid execution of our brand revitalization strategy focused on elevating food, service and atmosphere, which is resonating with our guests,” Denny’s President and CEO John Miller said in a press release in May 2015.

The company expects to add 35 to 45 franchised locations in 2015 and projects same-store sales to increase from 2.5 percent to 3.5 percent, up from previous projections of 1.5 percent to 3 percent.

Denny’s was No. 8 on Entrepreneur’s 2015 Franchise 500 and No. 20 in Entrepreneur’s 2015 Global Franchise Rankings.

Chain Started as Donut Shop

Denny’s started in 1953 when Harold Butler and Richard Jezak opened Danny’s Donuts in Lakewood, California. Jezak departed in 1955, when the chain had six stores. Four years later, the company had 20 stores and had been renamed Denny’s. Franchising began in 1963.

The company, whose corporate headquarters are in Spartanburg, South Carolina, went public in 1966 and introduced its iconic Grand Slam breakfast in 1977. Today, the chain has more than 1,700 restaurants, 90 percent of them franchised, that are open 24 hours a day, all year long.

New Digs in Manhattan

Denny’s opened a swanky location in Manhattan in August 2014 that offers a $300 Grand Cru Slam breakfast, which pairs two Grand Slam breakfasts with a bottle of 2003 Dom Perignon Premier Cru champagne and adds a “bartender high five.” Upscale cocktails are also available in the restaurant, which is outfitted with leather booths and flat-screen TVs.

Atari-Denny’s Partnership Tweaks Classic Games

Denny’s teamed up with Atari in July 2014 for a marketing campaign that brought three classic Atari hits – Centipede, Asteroids and Breakout – to the restaurant chain’s mobile app, albeit with a Denny’s difference.

In Asteroids, renamed Hashteroids, players shoot hash browns with ketchup from a bottle shaped like a spaceship. Centipede was changed to Centipup, after Denny’s pancakes, and Breakout’s new name was Take-Out.

The partnership was Atari’s biggest since it emerged from bankruptcy in December 2013, and was viewed by the video-game company as an opportunity to expose the brand to new fans.

The campaign, which Denny’s used to reach Gen X families with kids, highlighted “Greatest Hits Remixed,” a limited-time menu that featured Denny’s classic menu items such as the Grand Slam and Moons Over My Hammy, though “remixed.” For example, the Grand Slam was renamed the Red, White and Blue Slam, including pancakes with blueberries and strawberry toppings.

Rap Song Becomes Social Media Marketing Tool

Denny’s Restaurants capitalized on a popular rap song in May 2015 to make a social media marketing ploy. The chain tweeted the phrase “look at da flicka da grits,” a slight variation on “Flicka da Wrist” by Chedda da Connect. Within 24 hours, the tweet was favorited more than 18,000 times and retweeted more than 24,000 times.

‘Fantastic Four’ Sparks Slamtastic 4 Menu

Denny’s offered its new Slamtastic 4 Menu in June 2015 to cross-promote the “Fantastic Four” movie, featuring giant-size breakfast items, a burger, a smoothie and a dessert. On the menu are the Thing Burger, the Human Torch Skillet, Invisible Woman Slam, Fantastic Four Cheese Omelet, Fantastic Four Fruit Smoothie and Doom Lava Cake.

Sriracha Spices Up Menu

Sriracha has made it onto the Denny’s menu in April 2015 with the Sriracha Spicy Super Chick’n, which features Sriracha marinated grilled chicken with bacon, tomato, Swiss cheese and spicy Sriracha mayonnaise.

‘The Den’ Spinoff

A spinoff venture, The Den by Denny’s, will move from college campuses to more traditional locations designed to appeal to younger diners, Denny’s Corp. announced in February 2015. The first off-campus location opened early in 2015 near San Diego State University.

Section II – Estimated Costs

  • Please click here for detailed estimates of Denny’s franchise costs, based on Item 7 of the company’s 2015 FDD.

Section III – Financial Performance Representations (Item 19, 2015 FDD) and Analysis

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