Americans no longer know exactly what they want to eat.
Rising prices and changing habits have challenged restaurant chains to give the public what they want, largely because people have proven inconsistent.
There was a period, for example, where fast-casual chains like Chipotle could get away with higher prices because they offered fresher food. In recent months, however, social media have carried a sharp backlash to that effort: Consumers have posted that the chain offers smaller portions at higher prices. (Chipotle has raised prices but denied reducing portion sizes.)
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Even fast-food chains like McDonald's have faced pushback over prices, although the chain itself has pushed back on viral images of highly priced Big Macs.
"I can tell you that it frustrates and worries me, and many of our franchisees, when I hear about an $18 Big Mac meal being sold — even if it was at one location in the U.S. out of more than 13,700," McDonald's President Joe Erlinger wrote in an open letter to customers.
"More worrying, though, is when people believe that this is the rule and not the exception, or when folks start to suggest that the prices of a Big Mac have risen 100% since 2019."
He made clear that prices have gone up but not nearly as much as social media would suggest.
"The average price of a Big Mac in the U.S. was $4.39 in 2019. Despite a global pandemic and historic rises in supply chain costs, wages, and other inflationary pressures in the years that followed, the average cost is now $5.29. That’s an increase of 21% (not 100%)," he added.
Value seems to have become a key factor for restaurants, but a chain that has long been marketed as providing good value has been steadily closing locations.
Image source: Shutterstock
America's Diner closing more locations
Denny's offers simple comfort food at affordable prices. It's a classic American dining concept that offers breakfast all day and lots of value-based menu items.
"We are the classic American diner and proud of everything that means," the chain says on its website. "Since 1953, we've served quality food and healthy portions at a fair price. No matter where we are, our light is always on, inviting guests around the world into a place where everyone is welcome."
Some of those lights, however, have been turned off as Denny's closed about 60 locations in 2023. That's partly because rising costs have pushed the break-even number for each location 20% higher, to $1.2 million from $1 million.
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"Having come through the inflation environment that we had, although it did temper quite a bit in 2023," the break-even point for a unit at Denny's restaurant to remain open "has really kind of elevated from about $1 million to about $1.2 million," explained Denny's' chief financial officer, Robert Verostek, during the chain's fourth-quarter earnings call.
"So we are continuing to work through some additional closures that as a result of those inflationary pressures."
Even as the inflation picture improves, the chain has lost more restaurants.
Denny's closing 8 more restaurants
Verostek made clear that a franchise owner's decision to close is complicated. Losing money isn't the only reason a franchisee may choose to close.
"The other [piece] that makes this a little bit harder to predict is that" the chain has many franchisees with multiple restaurants "and they all have different motivations, right?" he said. So if a unit is covering costs but but isn't necessarily profitable, "it may be a restaurant that remains open in that scenario."
Denny's (DENN) , which also operates the Keke's brand, a breakfast and lunch chain, will also be opening new locations in 2024.
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"The volume of the openings are about double that of our closings, the executive added. "And we are at that level of openings. The guidance actually suggests the highest number of Denny's openings since 2017.
"So we have that machine back open and with the 12 to 16 Keke's, that's three to four times the level of openings that we have seen out of that brand at any point in its history really. So we're really excited about what that starting to produce for us."
