Dine Brands Global Inc., parent to the Applebee’s Neighborhood Grill & Bar, IHOP and Fuzzy’s Taco Shop restaurants, has seen the consumer grow more prudent in spending during the past two quarters, executives said Thursday.
John Peyton, CEO of Pasadena, Calif.-based Dine Brands Global, which released earnings results for the second quarter ended June 30, said: “In late Q1, we began to see some hints that our guests were growing a bit more cautious in their spending.
“This continued into the second quarter as a percentage of guests selecting from limited time offerings and the value offerings on our Applebee's menu grew from approximately 15% to 19% quarter over quarter,” he said.
Peyton said the restaurant industry is also populated with promotions.
“Across the industry,” he said in prepared remarks, “we noticed our competition leaning heavily into promotions, which also contributed to the headwinds this quarter. Yet, while we saw a slight decline in traffic, average check remained consistent year to date.
“This suggests that consumers are more likely to cut back on restaurant visits than trade down to a less expensive alternative to fight inflation,” he said. Customers increasingly were opting for off-premises pickup orders to avoid the cost of delivery, Peyton added.
“All of this indicates that the pandemic reopening boom of 2022 may now be returning to historically normal and more sustainable levels,” Peyton said.
Applebee’s in June promoted steak on its “2 for $25” value platform, said Tony Moralejo, president of Dine Brand’s casual-dining division. “It's compelling and it provides the value the guests are seeking in this environment,” Moralejo said.
Jay Johns, president of the IHOP division, said the value offerings avoid deep discounting, such as in the savory and sweet crepes the family-dining brand introduced.
“When we rolled those out,” Johns said, “we did those with a buy-one-get-one promotion. And while that may seem like a deep discounting, the purpose of that really was to get trial by two people at a time when they came in to try our new menu and try the new crepes. It worked to perfection. … You can almost marry your new innovation with the value as part of your program to build your overall core business.”
Peyton said Dine Brand’s international division plans to expand its dual-brand Applebee’s-IHOP format, which opened in Dubai earlier this year.
“This model is proving to be a success in its first few months of operation,” Peyton said. “Since then, we've added three more dual-branded units in the Middle East, and we expect to have approximately six to eight open by the end of the year. We're proving that dual-branded restaurants present compelling benefits like having a shared kitchen that allows for more efficient staffing and most importantly consistent sales across all four dayparts due to the complementary business periods of the two brands.
Peyton also said the Applebee’s team continued to assess underperforming markets. In the first six months of the year, Applebee’s and IHOP franchisees had 34 new restaurant openings and closed 42. In guidance, Applebee’s new domestic development activity target was between 25 and 35 net fewer restaurants (vs. 10 to 20 net fewer restaurants previously). Domestic development activity by IHOP franchisees and area licensees was expected to be between 45 and 60 net new openings.
The company is expanding its Fuzzy’s Taco Shop, the 138-unit fast-casual brand it acquired in December for $80 million.
“Last month, the Fuzzy’s team executed a 20-restaurant development deal with one of our largest IHOP franchisees,” Peyton said. “In addition, one of our Fuzzy’s franchisees purchased an existing Applebee's portfolio since our acquisition in December. The Fuzzy’s pipeline continues to grow fueled by both our existing franchisees and the recruitment of new developers.”
For the second quarter ended June 30, Dine Brands’ net income slipped to $18.2 million, or $1.16 a share, from $24 million, or $1.45 a share, in the same period a year ago. Revenues were $208.4 million, down from $238.8 million in the prior-year quarter, reflecting the refranchising of 69 company-operated Applebee’s units in October 2022.
Applebee’s same-store sales declined 1% for the second quarter. Off-premises sales accounted for 22.6% of sales mix, representing per restaurant average weekly sales of about $12,300, the company said.
IHOP’s domestic same-store sales increased 2.1% for the second quarter. Off-premises sales accounted for 20.7% of sales mix, representing per restaurant average weekly sales of about $8,000, the company said.
As of June 30, Dine Brands had more than 3,500 restaurants across 18 international markets.
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