Denny’s Franchise: Not the best business model for Covid times
Denny’s restaurants are a full service, family style restaurant that offer and serve a wide variety of food. The chain offers a casual dining atmosphere with moderate priced food in order to appeal to the average consumer.
Denny’s was founded in 1959 under the name of Denny’s, Inc and began offering franchises in 1963. Over the years, through different acquisitions and name changes, it evolved into Denny’s Corporation, which is based in Delaware.
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Currently there are over 1,500 Denny’s around the United States, and you could own the next one.
John Miller is the CEO of Denny’s Corporation. He was named the CEO in 2011. Prior to that he was the CEO of Taco Bueno Restaurants.
Competitors of Denny’s include other companies in the food and beverage industry like McDonald’s, Burger King, Applebees, etc as well as other Denny’s nearby.
We will analyze if the potential returns are worth the initial investment.
How Much is a Denny’s Franchise?
The initial fee for a Denny’s franchise is $30,000. The upfront fee must be paid before opening the restaurant. A fee of $30,000 must be paid for any additional franchise.
Denny’s Franchise Cost:
The estimated total investment for beginning operations of a Denny’s franchise is between $1,428,422 and $2,326,537.
| Item | Amount | Method of Payment | When Due | To Whom Payment is to be Made |
|---|---|---|---|---|
| Initial Franchise | $30,000 | Lump Sum | Upon signing Franchie Agreement | DFO |
| Site Improvements | $0 – $300,000 | As required | As incurred | Seller, Vendors |
| Building and Improvements | $800,000 – $1,000,000 | As required | As incurred | Seller, Vendors |
| Architectural Design and Engineering | $30,000 – $60,000 | As required | As incurred | Architect and Engineering |
| Equipment, Fixtures and Firnishings | $350,000 – $450,000 | As required | As incurred | Contractor, Vendors |
| Signs | $40,000 – $90,000 | As required | As incurred | Vendor |
| Standard Enterprise Technology Platform | $25,000 – $40,000 | As required | As incurred | Vendor |
| Subtotal (Building and Equipment) | $1,275,000 to $2,000,000 | |||
| Opening Inventory and Supplies | $20,000 – $30,000 | Lump Sum | As incurred | Vendors |
| Opening Advertising | $3,000 – $5,000 | Lump Sum | As incurred | Vendors |
| Opening Menus | $340 – $465 | Lump Sum | Prior to Opening | DI or Vendors |
| Opening Gift Cards | $72.25 | Lump Sum | Prior to Opening | Vendor |
| New Restaurant Opening Training Team | $0 – $36,000 | Lump Sum | 40 days prior to training | DFO |
| Security Deposits | $10,000 – $15,000 | As required | As incurred | Lessor, Utilities |
| Insurance | $15,000 – $20,000 | As required | As incurred | Insurer |
| Soft Costs (Permits, Survey, Inspections) | $5,000 – $100,000 | As required | As incurred | City, County, and/or State Agencies |
| Additional Funds – 3 Months | $100,000 – $150,000 | As required | As incurred | Employees, Vendors, Utilities |
| Total Estimated Initial Investment (Exclusive of land) | $1,428,422.25 to $2,326,537.25 | |||
Other fees:
Royalty fee: 4.5-7% of Gross sales
Brand Building Fund: 3.25% of Gross Sales
Virtual Brand Offering Fee: 7.5% of Gross Sales
What do you need to open a Denny’s Franchise?
Denny’s Corporation is continuously looking for passionate individuals that want to grow in an opportunity market. In order to qualify for a Denny’s Franchise, you should have a net worth of at least 1 million dollars and a liquid capital of at least 500,000 dollars. Denny’s Corporation also asks potential franchisees to have some kind of restaurant, retail, or hospitality experience.
The process to open a franchise is similar to most other franchises. You fill up an application and if you qualify, there will be an interview.
How much do Denny’s Franchise owners make?
| Franchised Restaurant Sales | |||
|---|---|---|---|
| Fiscal Year | 2020 | 2019 | 2018 |
| Number of domestic restaurants (open for all 12 months) | 1,026 | 1,357 | 1,359 |
| Average Sales | 1,220,099 | 1,655,403 | 1,613,649 |
| Number/percentage of restaurants greater than average | 446 / 43% | 590 / 43% | 597 / 44% |
| Median Sales | 1,145,598 | 1,569,215 | 1,538,345 |
| Highest Sales | 3,764,654 | 3,941,971 | 3,820,130 |
| Lowest Sales | 530,475 | 527,967 | 621,115 |
2020 Denny’s Median Franchise Sales: $1,145,598
The highest earning franchise made around $3.7 million in revenue whereas the lowest-earning franchise made $530,475. These numbers indicate that potential earnings can vary significantly and it depends on factors such as locations and how well the business is run.
1- Based on a midpoint investment of $1,877,479 with estimated profits of $114,459 at a 10% profit margin it would take about 18 years to recoup your investment.
2- Based on a midpoint investment of $1,877,479 with estimated profits of $171,839 at a 15% profit margin it would take about 13 years to recoup your investment.
3- Based on a midpoint investment of $1,877,479 with estimated profits of $229,119 at a 20% profit margin it would take about 10 years to recoup your investment.
Is Denny’s Franchise Profit Worth the Franchise Cost?
After a few years in the business, when you go to sell your franchise based on the median multiple of .34 and net sales of 2020 of $1,145,598 it would sell for about $389,503. This is only 20% of the midpoint initial investment.
The median multiple franchises selling more than $5 million is .86. If you had 10 Denny’s restaurants (about $11,455,980 in sales), assuming that every location has the same initial investment, selling would earn you around 52% of your initial investment.
The key to making your money back with a Denny’s franchise is opening multiple locations. Also, you can profit from the development of your franchise real estate and then selling the real estate and building.
Denny’s Corporation Income Statement:
| 2020 | 2019 | 2018 | ||
|---|---|---|---|---|
| Revenue: | ||||
| Franchise and license fees | $74,833 | 115,354 | 107,979 | |
| Advertising | 53,744 | 81,144 | 78,308 | |
| Rent | 5 | 6 | 7 | |
| 128,582 | 196,504 | 186,294 | ||
| Expenses: | ||||
| Advertising, net | 57,744 | 81,144 | 78,309 | |
| Depreciation | 6 | 12 | 21 | |
| General and administrative | 26,683 | 31,211 | 32,26 | |
| Gains on dispositions of properties | (6,310) | (4,645) | – | |
| 74,123 | 107,722 | 110,656 | ||
| Income before income taxes | 54,459 | 88,782 | 75,638 | |
| Provision for income taxes | 667 | 1,143 | 1,042 | |
| Net income | $53,792 | 87,639 | 74,596 | |
Denny’s Corporation is highly profitable. The company saw a lot of growth from 2018 to 2019, but then it shrunk in 2020. The shrinkage was most likely due to the Covid-19 pandemic, it is important to keep in mind that this is a franchise that can be affected by future crises.
How Many Denny’s Units Have Opened and Closed?
| Outlet Type | Year | Outlets at the Start of the Year | Outlets at the End of the Year | Net Change |
|---|---|---|---|---|
| Franchised | 2018 2019 2020 | 1429 1405 1491 | 1405 1491 1439 | -24 +86 -52 |
| Company-Owned | 2018 2019 2020 | 178 173 68 | 173 68 68 | -5 -105 -3 |
| Total Outlets | 2018 2019 2020 | 1607 1578 1559 | 1578 1559 1504 | -29 -19 -55 |
The number of total franchises has been decreasing year after year. However, 2019 seems to have been a good year for franchisees as 86 new units were opened, while 105 company owned units closed. That aside, 52 franchised owned units closed in 2020 which appears to have been a tough year for Denny’s overall.
Conclusion
Denny’s is one of the biggest restaurant chains in the fast food industry in America. People continue to consume it after all these years because of its style and pricing. However, the recent rise of healthier food options will have an impact on restaurants like Denny’s so keep that in mind.
If you open a Denny’s franchise you can recoup your investment in 10 to 18 years depending on profitability, which is a very long time. On top of that, when you go and sell your franchise it will most likely not make your initial investment back if you just develop one location. However, if you develop 5 or more locations you can make a healthy profit margin.
Denny’s also had a hard time during the pandemic. Its family dining style which encourages people to sit down at the restaurant is not very appealing during Covid times. This is something that you should definitely take into consideration when thinking about developing a franchise.
Our suggestion is to think a lot about the location of your Denny’s restaurant and your plans for fighting against crises like the pandemic, and to speak to at least one franchise owner before opening a franchise.
If you think Denny’s is the right franchise for you, or you would like to explore other franchise opportunities, check out our listing page on the Vetted Biz website for thousands of franchises available for your investment.
