) has recently forged a deal with Great China International Group
("GCIG") to expand its footprint in one of the most dynamic markets
in the world. Per the agreement, the group will set up 50 Denny's
restaurants in China over the next 15 years.
The terms of the deal were not disclosed. The outlets will be
located in six provinces of southern China namely Guangdong,
Fujian, Guizhou, Jiangxi, Chongqing and Sichuan. The first unit is
slated for a 2013 opening.
The latest alliance replicates management's intent to make China
one of the prime markets for international expansion considering
its stepped-up economic growth and under-penetration of
quick-service restaurants in North American countries. The deal
also marks the company's entry into China and the brand's biggest
international expansion plan to date.
Operating 1,680 franchised, licensed, and company-owned eateries
globally, Denny's presently remains on an expansion spree both on
domestic and international fronts. Apart from last month's entry
into the Dominican Republic, Denny's has its presence in other
south and Latin American countries like Costa Rica, Mexico,
Honduras, Curaçao and Puerto Rico.
According to the company, the brand has so far been well
accepted abroad. In fact, Denny's intends to capitalize on this
opportunity by expanding in new as well as existing markets. The
latest China deal with GCIG is one such effort.
GCIG, one of the largest business groups in China, has superior
local market knowledge and a proven track record of venturing into
industries as diverse as finance, real estate, commercial
development, hotels, food service, television media, energy
resources and port logistics.
The group has also developed some eminent Western hotel brands like
Hilton and Sheraton. The franchise partner also seems excited about
working with one of America's largest full-service family
restaurant chains encouraged by strong international response to
However, the Chinese market is not free from competition. Following
the growing demand for American dining brands, several U.S.
Yum! Brands Inc.
) are currently serving the market with a much wider scale of
In fact, since the last couple of quarters, China is driving Yum!
Brands' growth story. In February, Yum! commented that Chinese
consumers are likely to double over the next decade as urbanization
steps up. Growing income for the larger populace also makes China a
lucrative investment proposition. However, to be distinctive in
this competitive market, Denny's will have to bring about varieties
in menu to attract consumers from various social strata as well as
focus on value offerings.
Denny's currently retains a Zacks #3 Rank that translates into a
short-term Hold rating. We are maintaining our long-term Neutral
recommendation on the stock.
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