Red Lobster collapses, Denny’s may follow in brutal restaurant shakeout

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Denny’s used to be a bellwether for middle America. Open late, breakfast all day, booths filled with families and night-shift workers. Now it looks like a relic from an economy that no longer exists. Its stock has collapsed to levels last seen during the 2008 crash. That is not just a chart pattern. It is a sign of deep structural distress.

Red Lobster fell first. Now Denny’s is flashing the same warnings. A once-iconic name in American dining is fighting to stay solvent while everything around it shifts. The casual sit-down model, where people linger and servers hover, has lost its edge. Younger customers want speed. Older ones are staying home. And everyone is watching their wallets.

Foot traffic is collapsing. Denny’s saw a steep decline in physical visits even after lockdowns ended. Inflation hit their core customers the hardest. Wages are up, but not enough to make a $14 meal at a diner feel like a good deal when fast food is faster and often cheaper. Once you lose the value pitch, nostalgia can’t carry you.

Costs are up across the board. Eggs, bacon, coffee, staff, rent. None of it has returned to pre-pandemic pricing. Margins that were already thin are now paper-thin. And delivery? Denny’s tried it, but it’s not built for that. The model doesn’t scale into apps and ghost kitchens. You can’t UberEats a Grand Slam breakfast without a quality hit.

Fast-casual chains figured out the math. Chipotle, Panera, even Chick-fil-A. They focused on throughput and mobile orders. Denny’s never made that jump. Their digital footprint is small, their brand rooted in a world before smartphones and subscriptions. That matters when investors are choosing who gets capital and who gets cut.

We’ve seen this pattern before. Red Lobster’s bankruptcy was not about one bad shrimp deal. It was about an entire category of restaurants falling out of favor. Denny’s is not exempt. This could lead to closures, asset sales, or worse. Once the market starts pricing in bankruptcy, it rarely stops on its own.

More than a dozen publicly traded chains are quietly teetering. Their financials still say “in operation” but their charts scream otherwise. Private equity is circling. Landlords are nervous. Employees are already dusting off resumes. The sit-down model must either reinvent or surrender. There is no middle ground anymore.