Denny’s Corporation (DENN), one of America’s largest full-service family restaurant chains, opened its first Denny’s Café on November 12. The new Café marks Denny’s first fast-casual restaurant.
Based in Orange, California, the new Café is expected to offer the same family restaurant experience of the traditional Denny’s brand in a faster casual format. Apart from the core traditional menu, the Café will concentrate on “$2 $4 $6 $8” value offerings.
Denny’s plans to open a handful of company-operated café test locations over the next several months. This Café concept will be implemented in urban settings where footprints will be approximately 25% less than traditional Denny’s restaurants in order to access more streamlined menu and counter service ordering. Denny’s is expected to open its second café in Livermore, California in December 2010.
Both these cafes are company-owned with an area of 3,000 square feet, accommodating guests in the range of 75 to 90. Besides, Denny’s fast-casual Café test units are expected to cost approximately $800,000 each.
From an investment perspective, this fast-casual concept is envisaged to garner attractive rates of return by leveraging lower capital and lower labor requirements, for e.g. this limited service concept will enable guests to order at the counter.
Spartanburg-based Denny’s recently delivered mixed third-quarter results and reaffirmed its company-operated same-store sales outlook for 2010. Although the company’s earnings and revenue topped expectation, its same-stores sales fell both at company-owned and franchised level.
However, the company is trying to turn around with its expansion plan and various strategic initiatives. In terms of stores, Denny’s plans to open 24 new company units compared with the previous guidance of 11 units. However, new franchise units are expected to rise to 102 from the earlier projection of 100.
Denny’s is focused on a franchise-driven operating model and its Franchise Growth Initiative continues to convert company-owned stores to franchisees and spur additional unit growth. Once the fast-casual restaurant concept gains momentum, the company’s franchisees are anticipated to open vast majority of Café units in the coming years.
Most of the company’s peers such as Buffalo Wild Wings Inc.(BWLD), BJ’s Restaurants Inc. (BJRI), and Red Robin Gourmet Burgers Inc. (RRGB) are on a modest expansion mode this year. Denny’s currently retains a Zacks #3 Rank (short-term Hold recommendation) on the shares.
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