One of the takeaways from Dine Brands’ earnings call Wednesday morning is that its Applebee’s system plans to close 25 to 35 restaurants this year. Dine Brands CEO John Peyton notes that this is not a right-sizing effort but rather a “deliberate effort to allow franchisees to close unprofitable restaurants, where the market may have moved away from them.”
Given the chain’s 1,660-ish-unit footprint, this 1-2% closure rate is common among brands this size and age, Peyton said during an interview.
“We see this with restaurants that have been open for 10, 20, 30 years, their developments expired. This closure rate is a historic rate,” he said.
Still, the company has an urgency to get back to net new unit growth, similar to its sister brand IHOP, which is forecasting between 15 and 25 net new openings. To do that, Applebee’s is creating a new prototype with a stronger return on investment for franchisees.
“The challenge now is our pipeline needs to be enhanced. We have to work on that pipeline and what’s driving that cost to build new Applebee’s is more expensive relative to the ROI franchisees are looking for,” Peyton said.
The details of this prototype are still being ironed out, but Peyton said the front of house design and guest experience components are completed, but there is still an opportunity to reduce costs in the back of house.
“We’re looking at the space allocated to the kitchen, automation, the equipment we use and how to be more current and efficient. It could potentially be a smaller (building) footprint and is likely to be,” Peyton said.
He anticipates the new prototype to hit the market in 2025 “and beyond” and is optimistic that franchisees will return to that development cadence once it does. The company recently named Scott Gladstone as its chief development officer to help facilitate that development. In the meantime, he optimistic about other initiatives moving forward with the Applebee’s brand, despite a slight Q4 comp sales decline of -0.5%.
These initiatives include a new website and app launched in Q4, a more aggressive on-air advertising presence, and a stronger promotional calendar supported by an accelerated menu innovation program recently put into place by Chef Shannon Johnson, who came on board in September.
The website and app have enhanced the ordering experience for customers, Peyton said, and have so far driven a higher digital mix and increased check averages. The menu program won’t stray from Applebee’s “balanced” strategy and will pull from the more than 200 items that have been tested since the fall. The first of those items will launch in Q2.
“In this environment, when a lot of brands are engaged in discounting, experience becomes a part of the value proposition. So, ours includes new products, then we introduce new promotional partners that excite and engage customers and sprinkle in tried-and-true promotions,” Applebee’s President Tony Moralejo said during the call.
One of those tried-and-true promotions was the Dollarita. Launched in October, the Dollarita attracted new and younger consumers, and generated a high food attachment; 94% of Dollaritas included a menu item order.
“That is exactly what franchisees were hoping for,” Peyton said. “It drove profitable sales and traffic. We will continue to execute on that formula and build on the success of Dollarita.”
Another working strategy is Applebee’s limited time offers, which generated 19% of all transactions in Q4. This is where the benefit of having an accelerated menu program will kick in, Peyton said, adding that the chain will continue to embrace value-driven offerings as he expects the price-sensitive environment to continue this year.
“We saw limited discretionary spending continue in Q4, which allowed us to leverage our expertise in delivering value,” he said. “We are not seeing (income cohort) shifts. I will say we are impressed and a little surprised by the resilience of our guests who continued to dine out. Our data shows us that they may have dined out one or two times less, but when they did, they were looking for full service.”
Applebee’s/Dine Brands by the numbers
- Applebee’s year-over-year comparable same-restaurant sales declined 0.5% for the fourth quarter of 2023. Off-premises sales accounted for 20.8% of sales mix, representing per restaurant average weekly sales of approximately $10,900.
- IHOP’s year-over-year domestic comparable same-restaurant sales increased 1.6% for the fourth quarter of 2023. Off-premises sales accounted for 20.4% of sales mix, representing per restaurant average weekly sales of approximately $8,000.
- Total revenues for the fourth quarter of 2023 were $206.3 million compared to $208.0 million for the fourth quarter of 2022. The decline was primarily due to the refranchising of the 69 company-operated Applebee’s units in October 2022 and the negative comparable same-restaurant sales growth at Applebee’s, offset by the positive comparable same-restaurants sales growth at IHOP and a full quarter’s revenue contribution from Fuzzy’s acquired in December 2022.
- Development activity by Applebee’s and IHOP franchisees for the fourth quarter of 2023 resulted in 24 new restaurant openings and the closure of 14 restaurants.
Contact Alicia Kelso at [email protected]
