Denny's is the only national chain positioned as a system of local diners serving classic American comfort food at a fair price around the clock. The brand seeks to move its positioning beyond breakfast all-day towards an unpretentious diner with trusted burgers, salads, etc. (i.e. more credibility with the other dayparts). The chain's brand revitalization, which is in middle innings, includes store remodels (almost complete) and improvements in food quality & service (still a work in progress). Denny's menu positioning largely reflects the idea that consumers want to indulge when they dine out because they can stay at home for something plain & simple and its core menu equity reflects: 24/7 availability; everyday value; LTO innovation; and warm, friendly “come as you are” atmosphere. Everyday value comes in the form of its $2 $4 $6 $8 menu platform (particularly its $4 Value Slam LTO), senior discounts and kids eat free deals. Access benefits from progress in on-demand & delivery and Denny's 24/7 operating model allows Millennials a unique opportunity to order breakfast for late-night off-premise occasions. While comps have been positive for the last 7 calendar years and outperformed the segment average over the last 4 years, full-year 2018 comp guidance of 0% to +2% reflects a competitive operating environment, requiring an even greater value emphasis which is difficult given ongoing labor cost pressures. The chain's challenge remains to drive repeat business beyond an occasional breakfast and to grow other dayparts without diminishing the brand's very important breakfast business. Also, the reality is that this is a 60 year old system which includes older, underperforming stores. In conclusion, we expect Denny's to continue gaining traction in a difficult operating environment as it focuses on making “America’s Diner" ever more relevant.




Report Highlights
  • Remodel data and analysis on 50+ national chains, including: (1) remodel progress/system condition; (2) investment costs; (3) post remodel sales increases; (4) estimated return on investment; (5) program scope; and (6) franchisor remodel incentives.
  • 2018 represents a transition year for remodels as 24% of the $1B+ chains recently unveiled new or revised programs. As a result, the % of system stores that reflect the current image fell to a 5-year low as chains held-off on remodels until the new image. Notably, it will take some time to determine how effective these remodels will be at driving incremental sales and ROI which have been trending down over the last several years.




Subway is the largest sub sandwich chain by far with the 2nd largest ad spend in all of QSR behind McDonald's with core brand equity in the form of: customization (made-to-order); interaction between sandwich artists & guests; tasty sub sandwiches which include lots of veggies; and bread baked in-house. However, a very long sales and traffic decline highlights the brand's struggles with: stagnation of its menu, marketing & facilities; heightened competition around its fresh/healthy halo with the emergence & growth of upscale sub chains; and a value equation weakened by increased QSR discounting & aggravated by Subway's cumulative menu price increases. Adaptation has not come easy and the brand continues to struggle with finding its true North in terms of where exactly it fits in today's consumer landscape, particularly as it relates to the brand's core middle income demo. Specifically, the brand is challenged to find a proper price value formula that can reverse traffic declines while also restoring store-level profitability. This would require Subway to process more lower priced (i.e. affordable) transactions at faster speeds and could necessitate operational changes. In any case, the chain has finally embarked on a new course with initiatives like: a new premium wrap platform which is a first step in innovating with flavor & quality towards more Millennial friendly fare; a 2019 roll-out of its Fresh Now platform (Signature Flavor & Fresh Pour Beverage stations) which will be fully funded by the franchisor; and an ongoing roll-out of its Fresh Forward remodel decor package which features: vivid color palette; new ordering kiosks; and digital menu boards. The system further benefits from plans to cull and relocate its weakest stores, providing a needed sales boost to existing stores in search of capital to pay for the remodels. In conclusion, while it is difficult to assess how long it will take the chain to reignite sustainable sales given that Subway is currently in the early stages of a brand repositioning, at least it has overcome the most difficult challenge, that is, to start the process of change. 



Burger King

Burger King is the 3rd largest QSR sandwich player in terms of US system sales with healthy system fundamentals in the form of: a strong value equation; a flame-grilled distinction which includes signature Whopper configurations & various premium "King" burger varieties; ample innovation around core platforms (line extensions) designed to interest core, younger QSR customers; effective marketing; and remodeling with a new tech upgrade component. A promotional focus on its Whopper along with quality upgrades is helping return this key platform to its original flagship menu positioning. The chain is also gaining traction with upgraded chicken products which include its Crispy line and unique Chicken Fries which serve as a unique innovation platform. Marketing is effective at communicating the clear difference of the brand's flame-grilling brand equity relative to competitors' use of flat top grills and a steady stream of hi/lo promotions alternate between strong value platforms, innovative LTOs and premium products. In general, Burger King makes it a point to outperform McDonald's on value with a wide price range of deals with broad appeal. Digital marketing benefits from "trolling" and quirky menu innovation well suited to social media. Customer experience benefits from process/equipment improvements and tighter quality control initiatives to go with remodeling progress that now includes a new tech initiative to upgrade in-store access. All this translates into positive sales comp growth over the last 4.5 calendar years (through 1H18) in a very competitive environment. In conclusion, Burger King is doing a good job of leveraging: affordable value up and down the menu; its flame-grilled brand equity; a little bit of adventure; and a consistent experience to keep them coming back. 


2Q:18 Same Store Sales