Management sees opportunity as independent restaurants close
.svg?width=1280&auto=webp&quality=95&format=jpg&disable=upscale "Nation's Restaurant News")
After a quarter that was bad, but better than expected, the management at Dine Brands Global sees a future with more profitable restaurants and fewer competitors.
The company based in Glendale, Calif., that is the parent of casual-dining concept Applebee’s Neighborhood Grill & Bar and family-dining chain IHOP, reported a net loss of $134.8 million, or $8.04 per share, for the quarter ended June 30, with same-store sales down by 49.4% at Applebee’s and 59.1% at IHOP.
“It’s hard to get too optimistic at this point,” Steve Joyce told Nation’s Restaurant News after what was actually an upbeat conference call with investors. “But it was better than people thought [it would be] and the momentum was great.”
He added that the difficult restaurant climate could provide the opportunity to acquire more restaurant concepts.
Same-store sales at Dine Brands’ current concepts did improve more-or-less continuously over the course of the quarter, the first full quarter to feel the withering effects of the novel coronavirus pandemic and the government-ordered dining-room shutdowns that came with it.
Applebee’s comps improved for 11 of the quarter’s 13 weeks, and IHOP saw 12 consecutive weeks of growth in the quarter.
At the start of the quarter, Applebee’s sales were down by 77% compared to the same week last year, and by the end of it they were down by 17.8%. For IHOP the decline went from 81.5% to 34.4%.
To cut costs, both chains reduced the number of menu items by around one third, focusing on menu items that sold best and traveled well as takeout and delivery became increasingly significant parts of the business.
Joyce said there are no plans to bring those items back as dining room restrictions ease and the economy improves.
“Any brand that has the venerability of our brands has had decades of additions, and we always talk about it, but we can never seem to get rid of the product, because someone’s selling it to somebody,” Joyce said.
But the cratering of sales as the pandemic hit in mid-March gave franchisees the motivation to agree to the cuts, Joyce said, adding that, for Applebee’s, they have a plan not to add any permanent items for the rest of the year.
“Whether or not we hold that into next year — it would be a historic reverse trend in the industry — but we’ll see, but franchisees are excited about having a menu that’s easier to execute,” Joyce said, adding that customers are accepting the reduced number of choices, and also tipping well.
“Our execution has gotten better … and our costs have gone down because we’ve eliminated SKUs,” he said, adding that, even with the added costs of personal protection equipment for staff and more sanitation procedures, the restaurants had better margins.
IHOP president Jay Johns told investors that wasn’t necessarily true for his brand, whose franchisees were telling him that the costs were outweighing the savings.
But, he added, “We have a huge topline opportunity coming out of this.”
“We have taught people how to use us for to-go and to do off-premise,” he said. ”If we can maintain even half of the increase we’ve gotten on that, and get our dining rooms back with full capacity ... that’s going to lead to higher profits.”
He said off-premise same-store sales were up by 145% and that delivery now accounts for 23.4% of the sales mix and takeout is an additional 33.5%
Digital sales have soared by 28 percentage points to 35% of total sales, he said.
Applebee’s president John Cywinski said that off-premise sales now accounted for 36% of all sales, and that of that, 68% was curbside pickup and the rest was delivery.
He said that, as dining rooms reopen, off-premise sales are only cannibalized by 15%-20%, “suggesting the relevance and staying power of Applebee’s to-go and delivery.”
Looking ahead, all three executives, plus chief financial officer Thomas Song said that, as the pandemic and economic recession continue to take their toll on restaurants, particularly independents, Dine Brands stood to gain market share.
“The coronavirus has had a profound impact on businesses across the country and the globe,” Joyce told investors. “As you know, the restaurant industry has been especially hard hit. As a result, industry analysts estimate that a substantial number of independent restaurants that have closed due to COVID-19 will not survive. In contrast, Dine Brands has the advantage of scale, a strong cash position and liquidity, experienced restaurant operators and an asset-light business model. Collectively, this profile has enabled us to withstand the challenges facing our industry, which makes me more optimistic about our future. Looking ahead, we believe that there are potential opportunities to increase our market share due to expected closure of independent restaurants.”
Song acknowledged that CFRA, a franchisee with 49 IHOP locations declared bankruptcy during the quarter, but he said that 41 of those had been sold to another franchisee and were back in operation
As of June 30, of Applebee’s 1,639 domestic franchised restaurants, 1,523 were open for in-restaurant dining and another 70 were open for off-premise. For IHOP, of its 1.695 domestic franchised and licensed restaurants, 1,485 were open for in-restaurant dining and 76 for off-premise only.
The rest remain closed.
Joyce told NRN last year that he was shopping for another chain to add to the company , and he said on Wednesday that they hadn’t given up the search. In fact, he said the pandemic and recession would likely make more options available.
“We are still very interested in adding brands, and this is clearly going to make things more affordable and available,” he said, adding that landlords “are offering us very aggressive terms to get some good product in.”
But if Joyce is to oversee that purchase, he’ll have to hurry; he’s slated to leave the company in February.
Contact Bret Thorn at [email protected]
Follow him on Twitter: @foodwriterdiary
