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Denny's: Progress and Opportunities Noted

|Includes: Denny's Corporation (DENN)

We got a chance recently to checkout Denny's. Visiting a company operated store in San Diego, in one of the highest volume patches of restaurants around (very volume CMG, CPK, CAKE, JACK and Pei Wei nearby).

We have read the proxy and continue to follow the Committee to Improve Denny's points, and their quest to add more board members.  Here's some notes that might be relevant

Store quality, service and cleanliness during our visit were good.

Denny's has made menu progress in some ways, with new skillets, samplers,  homestyle burgers and dinner entree items, being added. These items didn't exist years ago.

But while we know its a 24 hour place appealing to a broad audience, the menu was too large, with too many options. I'm sure a sales mix analysis will show some menu sub-components at low sales rates, which ties up inventory and confuses customers.

At dinner time, the store was crowded with shopper-families, and the store had a clown in place, tying balloons and doing a very nice job. You don't see clowns at restaurants anymore, and it made a big hit with the kids. 

But with drink and a tip, you are easily talking $13 for a midpriced sandwich item, which now begins to unforgivably compete with the casual dining subsector with their 2 for deals underway. 

In one of the recent earnings calls, CEO Nelson Marcholi noted the heavy skew of Denny's mid and lower income customers. Given this, we recommend their strategy needs to consider affordability and new locations. And refranchsing existing locations tends to focus attention on prior units, not new units.

John A. Gordon
Chain Restaurant Earnings and Economics Experts

Disclosure: no positions