Welcome to Chopping it Up.
I'm your host, Mike Hallon, the senior restaurant and food Service analyst at Bloomberg Intelligence. Today we're joined by Kelly Valaid, CEO of Denny's. It's good to see you, Kelly.
Good to see you, Good to see you, good to be here.
So I saw on LinkedIn that you recently spoke at the Women's Food Service Forum. You're a fantastic public speaker. I will always remember your address you did at the Hot Schedules user conference like years ago.
Fan of your public speaking skills. Would you discuss at WFF.
Yeah, thank you for that. That was a long time ago, Michael. What it feels like a decade ago?
It might be about six seven years ago at a Hot Schedules event.
Yeah.
At WFAFT they asked me to speak about leadership lessons I have learned along the way.
So and it was a full hour.
So the funny part about it was a real fun part about it was I thought, a whole hour, Okay, I'll get audience participation, There'll be hopefully a good crowd in the room. I can feed off that I do well when I can really look at people and feed off of their energy and there's amazing energy in the room.
And I talked for fifty seven and a half minutes. There was actually no time for Q and A left and it's but it really went well. It was streaming at the same time.
WFF had an amazing turnout, like they always do. And it's just really an honor actually to be able to speak to men and women about things I've learned along the way, which if you know me, there's you know, the intersection between life and work.
You know, they're one and the same.
And I told a lot of personal stories and they said share leadership mistakes too, so I said, no problem, many of those to share.
So we had a great, great conversation.
Very cool. Is there a link to see a replay?
You know, I'm asked about that because I've had some people that couldn't make it ask and I'm waiting to get that from the team at WFF. I think they're probably on a much needed vacation, a few of them after that.
Side, I'm sure. All right, Well, if you get it, please.
Share it, happy to share it, happy to all.
Right, let's address the six hundred pound gorilla in the room or eight hundred pund what is it? Eight hundred pound goerilla? Yeah, the US consumer. So you know, you talked about consumer weakness in January and February on the call. Company owned units outperformed by one hundred and eighty basis points in January four hundred basis points in February due to less exposure to Midwest mid Atlantic, which were hit ordered by the crummy weather. Right, it was the oldest
January fourteen years. We had some snow in February. So there's been a lot of consternation about the consumer, mostly stemming from these sentiment surveys, and I look at them, and surveys aren't always the best indicator moving forward, you know.
That's kind of where we sit.
We think this year is going to be a better year for restaurant spending, but it's clearly off to a slower start than you expected.
What are you seeing in the numbers?
In your numbers that would suggest a weaker consumer beyond just staying home under a pile of blankets until it warms up.
Sure, I think you've articulated it well, right, I think you do have a skittish consumer, if you will. Consumer sentiment numbers, you know, sometimes they follow the hype and they follow the conversation, you know, self fulfilling or not.
There's a lot going on. So you mentioned the worst weather.
I grew up in Upstate New York and got pictures from my brother who lives up there. Still worse in a decade in terms of the snow, and worst around the country in terms of even even the fourth quarter, right with Helen with the fires.
So it's been just crazy time for those reasons.
And one of the things you didn't mention was the flu season, right, which keeps people at home.
Our off premise business. Actually, we can see the hard work we're.
Doing in digital and in that space actually pay off a little bit at this time. So what I can say and what we've shared, you know, obviously it's inner quarter for us. What I can and share is that that consumer does you know everything I think we're seeing.
We too had a had optimism even at ICR in January where we're able to kind of talk about and pre release and share our fourth quarter earnings, and then we just quickly saw some changes like everyone else is quoting and like everybody else is seeing, right, both retail restaurants and just really concerns over tariffs, concerns over what does that mean for our business? And then you have eggs for us, right, so you have flu weather, tariffs.
You know, consumer just just feeling a little bit overwhelmed perhaps, And now I think it's just because it's not clear, right, things just aren't clear where they're going to settle out right. Is it going to sound really aggressive on tariffs and it's going to call it'll dial back all politics aside? You just can't you can't tell yet where it'll land. And that just causes confusion for a lot of people, confusion for consumers.
You add eggs to it, and you just get a really you just get.
A whole bunch of things that are headwinds for us and again for the industry because we can see it.
We can see it everywhere like I know you see it. So yeah, that's exactly what we are seeing.
We're still for us, it's still Look, we've got our playbook, We've got a fiyer strategy we put out for both brands. I love talking about that because we really just feel like heads down pivot where you need to with the consumer and with what we're seeing. And that's what we're doing, but also we've got a great playbook with some great strategies and initiatives that we still think can pay.
Often, Like you, we think it'll get better throughout the year.
It's just about kind of everybody settling down and really being able to understand what's going to happen.
Yeah, for sure.
Something interesting I heard today on the Cracker Barrel call was that it was more broad based as opposed to just the low income consumer.
I think it is broad based.
Obviously, everyone knows as a brand and in family dining we all skew, no matter which big brand, we skew a little more towards the lower end end consumers. That's true for us, although we have a very wide, wide swath of consumer demographics when we talk about it, but I do think it's a little more widespread. So what we're seeing is, you know, attachment rates. We talked about this on our call. We see attachment rates down, and yet the check there's still premium items that we merchandise
in the restaurant. So are Barbell strategy intact and yet you see attachment rates move a little bit.
I think there were others.
That quoted that as well, and I think that's a way of just managing your check in a time of this kind of uncertainty, like we've mentioned already.
Yeah, for sure.
And I guess last one on this and then we'll get more into into your plans. You know, I'm trying to do a little homework for myself here, so it's good to have you here to pick your brain. But you mentioned on the fourth quarter call, Texas, Arizona we're seeing the biggest pullback. Some cell side analysts, from what I've heard, surmised it could be due to the new administration's policy on immigration. But how did those states fare in November and December?
So they they were they were probably still the weaker. They were a little bit weaker. Again, you've got to peel out hurricanes, peel out whether you know in the other the other the East Coast and the West coast, as we already discussed two.
But I think they were a little bit weaker.
But the gap widens pretty big starting in the new year. It started in twenty five, we really started to see that gap widening. And I've said this before, We've said it on the calls, but honestly, California has responded pretty well. To two four six eight and the value offerings there and everything we've been doing, we still see some strength there. And then we're finally talking about strength in a market like Florida again, which that wasn't the case even a
year ago. Right, So we're starting to see a bit more of a bifurcation with those two states showing a little bit more momentum.
Okay, great, and that actually is a great segue into the two four to sixty eight value menu. It did really well for Denny's, you know, going back coming out of the great recession, you know. And it's an example I point to point to a lot just when I talk historically about the business and everyday value versus discounting, and I talked about Denny's versus Bob Evans at the time and a huge difference in perform Rmans, right, And so I thought it was a great idea of bringing
it back. How's it doing so far?
Yeah, it's doing well. So lots of noise, but what we can see when we launched it, and we tested before we launched it, we re engineered it.
We've talked about this. We basically just really looked and worked hard to make it work.
For today, right, It was a promotion to your point that started and think two thousand and ten, right twenty ten.
So it's a decade long promotion that at the.
Beginning of the pandemic was changed and kind of pulled off of the menu. And I firmly believe that people need to count on count on brands for great a great value proposition. But when you're Denny's, right, and we are America's diner for today's America, we really got to meet consumers where they are.
And for us, it was critical we.
Bring back a fan favorite like two four, six eight put concept sort, you know, put all sorts of ideas in a concept sort. And clearly that one in our research, you know, still was at the top. So we went to our franchisees, talked long and hard about it, tested it. So how do we make this relevant for today a
decade later? And we re engineered to in a way that really does help protect profitability and adding we had the two in the four dollar categories that are add on, so you've got to you've got to order an entree to get that add on that is protecting things as well. And then we've added a ten dollar category also and that lots of people were quoting back two for six eight ten.
I'm like, no, just two four six eight two four six eight.
But there are some ten dollars options that come with that menu when that menu is dropped in front of you.
So we feel really good about what we're seeing.
We can see, you know, the biggest preference is in the six and the ten dollars category, interestingly enough, and then we see a lot of those add ons in the two and the four dollars category as well. Again, I mentioned doing well in California for us, and then barring any of this other kind of external noise, it's
been working really well for us. So I think you'll see us continue to kind of re engineer that think about what the consumer might need in this moment, and yet still keep that everyday value platform front and center for our guests that want to count on us.
Yeah, the two and the four making those add ons I thought was a heady move. Those good.
Have you talked about what percentage of sales value items represent and if there's been any change since the menu is relaunched.
Since we relaunched it, yeah, I'd say we were in the mid to high teens in terms of mix or incidents or preference, whichever word you want to use. And I think right now we're at about twenty. So we do see we have seen that grow and we feel really good about where we're seeing. You know, like I said, the six and the ten dollar dollar categories being the really over indexing there and satisfaction scores, excitement around bringing it back, and we know it's got legs and momentum.
You'll see us continue to innovate around what it looks like right what kind of new things we might bring in that platform?
Great, what kind of lift do you see in with the remodels.
Remodels are doing really well.
It's called Diner two point zero, so it's this kind of modern version of America's diner. And we took the best of the previous remodel that wasn't very old. Actually I've only been in place for a year or so. That was called Heritage two point zero, and we took that and then we put in a few more went to guests, went to consumers, does it feel when you're here? And we lightened it up, brightened it up a little bit, and actually put a few more diner esque cues in it.
We are America's diners, so we put a few more diner sques in place to really resonate and even just brighten up the image. So six and a half percent lift, we're seeing traffic sales six four I mean it's roughly the same.
But over six percent. We're thrilled about that.
And actually we're really excited about the conversations we've been having with franchisees and a stimulus package kind of leveraging our balance sheet and leveraging you know, what we can do our strength in terms of what we can do
to help them. So we've reintroduced different stimulus programs. We've often done that, and historically I've always tried to say, we understand, we want the investment in our and improving our assets, and yet we understand, we understand, you know what it looks like for profitability and strengthening those franchisees business models.
So the stimulus package and the.
Things we're doing for them, we really are pretty excited about the momentum and how many remodels we can do this year. We're really excited about that.
Great. You're making some changes to the loyalty program as well.
Correct absolutely so. You know I've said this before.
We have a decent database with a good amount of people in our database, but making it a best in class consumer friendly, really one to one marketing personalized journeys and really moving it from where it is today with a database and a lot of offers going into the database and lots of consumers that response, moving it to truly a CRM loyalty program with rewards.
We're amping it up.
We've invested heavily in a team, a team that has done this before, a team that's created these best in class class programs rather.
And it's coming to fruition. It'll be right now.
Back half of the year is when we know that that full scale launch will happen. But lots of work going on and lots of things that we're able to do right now just to kind of kick the tires on this new approach to it, and we're absolutely thrilled about what we'll be able to do soon.
Okay, cool, you closed a bunch of units. I think it was eighty eight and twenty twenty four.
Exploct to close some more or Dick year is this going to be?
You know?
I saw they were very low volume stores. Now one point one million AUVs. Is this going to be the last year of the outside store closures.
So that the outside store closures.
I love how you said that, right, because this is a brand that and like any other brand, you're always kind of working to call working to you know, prune, and that had always been the case prior to the pandemic for the brand one to two percent, right, and usually in a net positive position. Pandemic for everybody kind of reset things, and I called a reset.
I haven't necessarily though.
We talked about transformative thinking at Denny's in our strategy Rise of a New Day. When we brought that to investors in our five year roadmap, we were very clear about this is what it's going to take to just reset and get us back to net growth.
That's the goal, get us back.
To growing the Denny's brand like we had been doing historically. And so for us, that fife fifty is total. It was about last year in twenty four it was eighty seven. You might have eighty eight, right, I think it was eighty seven, but you're so closed. And then this year we've guided to arrange that is about the same, and that guidance is about saying yes, we will rip that band aid off if you will, to strengthen the rest of the portfolio and help strengthen our franchise. These models,
and we know what this can do for us. We've also talked about and have been very overt about saying for us, it's a path to creating greater AUVs and a stronger portfolio for the whole brand. Right now, one eight we open new is the average unitt bonds. One eight we open new locations, Michael, and they're two two, two three and sometimes even higher. So culling that bottom
and then again really working the strength of portfolio. We've said we want to go from one eight to two two in a five year timeframe, and that's what we laid out in our model, in our long term roadmap.
And that's that's a quarter of it.
It's twenty five percent of it really because of what it will do to increase sales and increase the AUVs, because of those under you know, just under their lower volume, and it makes some changes there. This was a long path to get there and to announce it well underway, you know, earlier in the twenty three into twenty twenty three and conversations with franchisees about what does this do for the health of your business? No one likes doing closures.
It's the only thing talked about when we talk. And I can't wait till we get to the other side, because we will, and we'll show the strength of the Denny's brand again and getting to modest growth, but getting to growth, net growth by twenty six. So will there be some after twenty five, sure, but it will. It is about you will see us in a net growth environment by twenty twenty six.
DESTI goal.
Yeah, it's been ten years since I covered Denny's, almost eleven now, but yeah, I remember John Miller telling me that, like, you know, for a brand of that's been around as long as Denny's, two percent a year was pretty much standard operating rights seizure.
Right, Okay, cool. Do you expect to get a seam store sales boosts to share from the closures?
Oh, that's a that's a good question.
I do expect it. Where it really depends on where those end up happening. And we obviously have that roadmap in front of us and have that physical map, but.
There's still probably still too soon to.
Tell that immediate in twenty five, you know, change or delta there just given. Is it a high density market, is it not? Is it closing because the trade area moved on us?
Or is it a least situation? So it's all those things, right.
The analysis shows us that it's one of four or five different things that could be a reason, so hard to say.
Hard to say yet, Kiki's expansion is pretty robust.
Can you talk about AUV.
Restaurant level margin, cash on cash returns, any other unit economic data you can share there.
Yeah, So we've been talking a little bit more, you know, as of late about some of those things, and we are really excited. So to capsize the growth, the aggressive growth gone from one to seven states. They did that almost overnight. I'm super proud of the Kiki's team led by Dave Schmidt, formerly of Bloomin Brands, so he's got great experience from the portfolio perspective. I worked with them
for a brief stint and bringing them over. He's the right leader for this brand and they've done amazing things. So that one to one to six happened in about seven weeks in the fourth quarter. They are now soon going to be taking vacations late late March April, but they going from one.
The seventh state was Georgia, was an existing Kiki's franchise. So it's been rapid growth.
Spent a lot of time integrating a bit of time early on integrating it into our systems, making sure that we really understood the brand because it's a unique brand that had never gotten outside of Florida. Founder led so in that case really had to put a lot of you had to put some place, if you will. And having done that now we've been really.
Really focused on the growth and really really pleased.
So the AAVs they're greater outside of Florida than actually what they were.
When we purchased it.
So we're really excited about that for Tennessee, Vegas, California, and Colorado. Dallas is now open and there's lots of locations Dell so two million AUVs on average, and excited about that trajectory.
It's got a great ramp up period.
All my experience in the industry with openings was they open, especially if you have a well known brand, they open and it trails off twenty eight percent or so.
Maybe thirty. It just depends.
This brand grows because it's seen as still I think that unique. I don't know if I don't know necessarily who Kiki's is. A lot of people will stop me when I'm in the locations. A lot of people stop me and say, I've never heard of this, right, likely that you haven't, but they rave about what they got. We've obviously got a brand new design and lots of new elements, so it's really pretty cool. Mid teens margins is what we're targeting after the ramp up period. The
build out costs a million and a half. They're inline and almost all cases they're inline, so that's exciting because there's.
A four to five year cash on cash return. So thrilled about it. Seven and a half.
Hours, very different from our mostly twenty four hour brand at Denny's. We've had lots of excitement from Denny's franchisees. Kiki's franchisees are awesome because this was a franchise brand. That was what was attractive about it and why this really from a strategic standpoint, made a lot of sense. So excited about the growth of Kiki's, excited about going to new markets. I would also have to add that we stole share in the fourth quorter in the Florida market,
but we absolutely did. We were positive three percent and created some momentum in that fourth quorter doing things like new marketing and local store marketing, but having presence and working on the website that didn't exist before. I'm working on and having off premise and OLO in our locations right which is nearly complete. But those things weren't in place, and there was really no off premise business. Now it's
a good part of what we're doing. So really thrilled that all those things were put in place in the last year and a half and then solidified in that fourth.
Quarter and then we started to see the momentum three percent.
If it had not been for the hurricane, the hurricane attributed we think one hundred and ten basis points drag, so could do the math and that would have been a really st out order for the Kiki's brand.
That's great, and I love that one shift model. I mean, I'm sure turnover is much cheaper, much better. It's uh, you don't have to worry about, you know, spending more on late shift employees and all that kind of stuff. How many of the twenty twenty five units are going to be developed in new markets versus you know, in field of existing ones.
We've got a couple other states lined up.
We haven't put them on the website and haven't announced them yet, but there's definitely a few more states you'll see us expand too, and probably be out with that soon.
Okay, cool?
And what percentage of the new units are opened by existing kikiS franchisees.
Good question.
So we've got some being opened, some were opening ourselves, seeding feach strategy, working to refranchise them as soon as possible. But in this environment, what we've learned and talking to our franchisees for both brands, the build out costs and the things, if there's if there's a scale that we can leverage to get them open and then turn the keys over, that's what we'll do. So you'll also see
us pretty quickly work to refranchise some markets. Dallas is a company will market as we speak today, and so so's Tennessee.
Right.
So we've been pretty overt about kind of leveraging our balance sheet to do that as well in our cash but you'll see us you'll move that. So what our Keiky's franchises would be a small percentage because the percentages are you know, the amount of locations is getting bigger.
So a handful of Kiki's franchises will open.
We'll do a couple more company markets and open up a company market only to hopefully flip them and have people lined up to.
Do that.
We're having conversations with right now. So and then Denny's franchisees. There's a small handful of Denny's franchise is ready to go this year.
Also, Okay, great, and you mentioned the seed and feed strategy. You know, long term, what do you think the right mix of company versus franchise?
Yeah, great question, Michael.
We talked about it a lot right when we when we acquire the brand, talking about eighty five fifteen and right now, obviously it's a little greater company.
We still want to be eighty five fifteen ninety ten.
We want to keep them as many asset light you know, brands would say heavily franchised. You want to keep a handful to be smart and still be in the game. I'm an operator and hearts and by trade. So you want to be in there and in it with them and have skin in the game. And you want to be able to have a place where you can test crazy stuff. So we'll have a handful, but the goal is really to get it to be just like Denny's, you know, as many franchise locations be asset light leverage
our approach to franchising, you know. So we'll get back to that, and we'll get back to it as soon as we can. We just we really wanted to get some markets open and establish that presence and that's really working for us right now.
All right, good stuff, and where's that cash going to go? Is that going to go back to buying shares already that yeah.
Yes, yes, So back to buying shares back to again, whether it's stimulus package or things that we're able to do to help our franchise ease, get that flyweel turning, get those remodels going, and because we know the lift that comes with that. We're still in the sting in technology with both I mentioned our CRM loyalty program, but
also Xenial. You know, our company operations have the new POS platform, cloud based handheld order taking things like that, so that rollout's happening as well, so we'll leverage it to be great stewards of our business. We'll leverage it
to continue investing in media, marketing, food. But also, yes, buying back shares is a critical part of our It's an important part of our strategy to be consistently in the market buying back shares, and we are not precluded from doing that while we do the seed and feed strategy.
That's the good news.
Okay, great, And recently there were two permanent closures. You know, when were those stores opened? And and have you been making refinements to your site selection tools since then?
Are you're referring to the Kikey's locations chacki Keys?
Yeah, Yeah, So that was.
An it's an interesting situation where we were able to exercise our rights and go in and help out with a franchisea that was struggling. So we've pretty much what we've said about that. It really wasn't so it wasn't something we had opened. It was something that existed long before. But we also know we'll be able to we'll be able to flip that, we'll be able to to to be able to really work with with what we've got and then they're good locations, they were good performing locations.
Really was just about exercising our rights, do the best thing for the brand, the team, that location, those locations, et cetera. So you'll see more from us on that going forward.
Okay, great, So what's your favorite Denny's order?
Oh?
My Denny's order since I was you know, I don't know ten Moon's over Miammi.
Superbirds a close second for me. And uh and then when I'm being really good, you know, I do the Fit Slam, So how many times.
That week or how much travel I'm doing, But Moon's over Miami can't go wrong with that.
It's just fabulous.
Yeah.
Yeah, I've gone with the Moons over Miami omelet before the Grand Slam's great Santa Fe skill.
It's great.
I think next time I show up, I think I'm going to try that Philly cheese cheese steak ommelet.
I don't think I've had that one yet.
We've got some great skillets out. Sounds like you had that one, But there's some really great skillets out right now. They're they're they're they're awesome. Our burgers shakes, unbelievable quality and just craveable.
We launched a with the Beatle Juice August September time frame when that came out.
That movie came out and we launched a Beatle Juicy Burger.
So we created this Triple Patty Burger and it went crazy, right Beatle Juicy Burger launched it with the integration of the movie.
And that's now permanently on the menu.
So the next time you go, you got to look at the the the triple Patty Burger that's on the menu now.
It's phenomenon Triple Patty Bakerberger.
Yeah, good stuff. You're making me hungry.
All right, thanks for doing this. Where can our listeners go to find their closest Denny's And which social.
Media channel should we be following the chain on?
You should follow us wherever you can ye Denny's dot com to find your local Denny's, Denny's on demand to.
Find your off premise order and order your your.
Denny's online and then yeah, social pages all though usual on Twitter, Facebook, Big can follow me on LinkedIn. I'm always talking about the great things that we're doing and really proud of the fact that when needed, we're out there across the country helping guests, helping consumers with our mobile relief diner and just trying to do good wherever we can. So yeah, you can find us doing good things in the world at the same time. So come see us, come see us anywhere.
Love it.
I want to thank the audience for tuning in. If you liked our discussion, please leave us a review. Check back soon for an interview with Noah Glass, the founder and CEO of OLO