Something happened in Q1 that hasn’t happened in the past 11 quarters – IHOP experienced a same-store sales decrease (-1.7%). The company’s results certainly weren’t unusual; much of the industry turned in a dismal performance at the start of the year as consumers aggressively tightened their spending reins.
For IHOP, these results signaled an urgency to change its strategy, and to do so quick. Fortuitously, the company had already been laying a strong foundation to be able to do just that. When Kieran Donahue was named chief marketing officer in 2021, one of her initial priorities was to build out a deeper innovation pipeline – specifically, a pantry that is 24 months out by the end of 2024. Having a more robust playbook in place has since allowed the company to pivot much faster.
“We call it 24 in ’24. We’ve never had a pipeline out this far and when Covid hit, we had no pipeline at all, for obvious reasons. So, it took some time to get it back and the team had to do double time,” Donahue said during a recent interview. “But now there’s hundreds of items and they’re savory, value, waffles, pancakes – all these different things – and we can use them when we think it’s the right time. You can’t create any nimbleness if you don’t have something to work with and 24 in ‘24 gives us a ton of options.”
The company found that “right time” following Q1, when executives across the industry noticed a more discerning dine-out consumer, a trend corroborated by traffic declines. With a fuller pantry in place, IHOP can pull more levers – LTO here, value offering there – and that is exactly what the company has started to do. In June, for instance, IHOP launched the 2 x 2 x 2 Combo which includes two eggs, two pieces of meat, and two pancakes for $6 in most markets. Q1 is typically a value period, but IHOP moved its calendar to include this deal in Q2.
“Going out to eat has gotten really expensive. We always talk to franchisees about their four-wall profit, but our guest is looking at their own four-wall profit and they’re asking if they should cook at home. Generally, people have started putting on the brakes because they realized their dollar wasn’t going as far as they wanted it to,” she said. “We started to see that maybe we needed to do something different, so we pivoted.”
IHOP has plans for more such adjustments during back-to-school season and perhaps even Q4 as the economic backdrop remains pressured. Notably, two-thirds of IHOP’s guests make less than $75,000 in household income, so the company’s base is “hypersensitive on price.”
“It’s not easy to pivot in a 100% franchised organization, but our franchisees and our brand are trying to meet this moment as best as we can in the environment we’re in,” Donahue said. “We’re going to grit our way through this.”
As the company shifts, it will remain focused on millennial families – its core demographic – while sharpening its focus on its core equity of breakfast food, no matter the time of day. President Jay Johns said a conscious decision was made a year ago to lean into families and breakfast.
“In essence, these are our absolute strengths. We tried for a long time to work on dinner and other dayparts, and it’s not that we don’t want to still work on that, but we’re best known for breakfast,” he said.
Most consumers have expressed their desire to order breakfast any time of day and Johns said IHOP is going to take advantage of that by leveraging some of its best-selling items in new and different ways; think steak and eggs, chicken and waffles, or eggs on burgers.
“Most of our competitors close at 2 (p.m.) and we’re fine with that. We think there’s a bigger market than that. Younger generations especially don’t have rules – they eat whatever they want, whenever they want,” Johns said. “If you want pancakes at 8 p.m., we’re the place for you.”
Johns makes it a point to mention that with these adjustments, IHOP has also changed up its creative. In April, the company rolled out a new commercial featuring families and kids enjoying their time over a meal at the chain. The spot, Donahue adds, represents “relatable moments” for families, such as celebrating a basketball win or a positive report card. It is meant to complement all the other work that has been done to “meet the moment” – the deeper pantry, the shift to value, the focus on breakfast.
“It is the right strategy at the right time,” she said. “Sixty-nine percent of our consumers would eat out just about every day if they could afford it. That tells us that experiences are still valuable, they just need to be able to afford it. Our target consumers care about experiences as a family and dining out is at the top of that list. The desire is there and, even though we still have some work to do, I’m encouraged by that statistic.”
Contact Alicia Kelso at [email protected]
