Dine Brands Global Inc., parent company to Applebee’s and IHOP, is demonstrating that restaurant brand strength in today’s market transcends the sheer number of brick-and-mortar locations. CEO John Peyton highlighted in a recent interview following the Q4 earnings report that both Applebee’s and IHOP are emerging from the pandemic period stronger, leaner, and strategically positioned for future growth, largely due to a focused pivot towards off-premises dining and technology integration.
Over the five years leading up to fiscal year 2021, Applebee’s strategically streamlined its physical footprint by closing approximately 300 underperforming restaurants. This decisive action concluded in 2021, leaving the chain with a robust count of 1,578 units across the United States. Looking ahead, while fiscal year 2022 is anticipated to be a year of transition with a slight net decrease of 5 to 15 Applebee’s locations, Peyton projects a return to net unit growth in 2023. This optimistic forecast is underpinned by revenue streams generated from recent innovations, including virtual restaurant concepts, ghost kitchens, and the strategic addition of drive-thru pickup lanes at suitable locations.
Peyton firmly asserts that the casual dining sector no longer faces a binary choice between prioritizing the in-restaurant experience and off-premises services. “It’s not an ‘either/or’ proposition; it’s ‘and’,” he stated, emphasizing the synergistic potential of both approaches. He elaborated on this evolving paradigm, noting, “Years ago, a brand’s strength was often measured by its extensive network of brick-and-mortar restaurants. While a significant physical presence remains crucial to meet guests where they are – and with approximately 1,600 Applebee’s and IHOP locations nationwide, we possess that essential scale – true strength today also necessitates technology. This technology empowers us to serve guests on their terms, catering to their preferences regarding when, where, and how they choose to engage with our brands.”
Dine Brands has made substantial investments in technology over the past two years to enhance the guest experience across both Applebee’s and IHOP. These advancements include the widespread adoption of QR codes for digital menu access, streamlined mobile payment options, and the introduction of tablets for servers to optimize table service. Further technological upgrades are on the horizon. IHOP is slated to receive a new point-of-sales (POS) system this year, with Applebee’s following suit in 2023. Both brands are also set to unveil enhanced websites and mobile applications. Back-of-house operations are continually being refined to better support the growing off-premises business. Initiatives like Applebee’s Carside Express and IHOP’s Curbside pickup, leveraging geo-fencing technology to expedite order hand-offs, exemplify this commitment. IHOP is also preparing to launch a new loyalty program to further engage and reward its customer base.
Beyond enhancing core brand operations, Dine Brands is actively exploring the potential of virtual brands to maximize kitchen utilization. Applebee’s Cosmic Wings, which experienced a temporary pause due to supply chain constraints, is now back in operation and will be accessible through major third-party delivery platforms by April. IHOP is currently piloting two virtual brands – Thrilled Cheese (a grilled cheese concept) and Super Mega Dilla (a quesadilla concept) – across 50 restaurants in seven markets spanning Texas, Arizona, and Kentucky. These virtual brands are the result of a collaboration with a virtual restaurant developer, whose identity remains undisclosed. Peyton is enthusiastic about the virtual brand space, identifying it as a “really big opportunity” for Dine Brands. He pointed to several key advantages, including low entry costs, the ability to target specific dayparts and demographics, the potential to test new markets using ghost kitchens, and the agility to refine concepts rapidly and cost-effectively without disrupting the core consumer experience. For IHOP, virtual brands present an ideal strategy to leverage kitchen capacity during slower dinner hours, utilizing existing flat-top grills and menu items without necessitating additional staffing or complex inventory management.
IHOP concluded the fiscal year with 1,751 units and anticipates opening 50 to 65 new restaurants in 2022, predominantly in the traditional full-service format. The company is continuing to monitor the performance of its fast-casual Flip’d by IHOP concept in New York and Kansas, with plans for further expansion contingent on refining the model.
In terms of financial performance, Applebee’s domestic same-store sales for the fourth quarter ending December 31st showed a robust 9.1% increase compared to pre-pandemic levels in 2019. Year-over-year, domestic same-store sales surged by 34.8%, partly reflecting dining room closures in late 2020. For the full year, same-store sales were up 6.2% compared to 2019. Applebee’s domestic locations also saw a 12.6% increase in average weekly sales compared to 2019, reaching $51,900. Off-premises channels accounted for approximately 27% of Applebee’s sales mix during Q4, with delivery contributing 13% and Carside To-Go accounting for 14%.
Applebee’s President John Cywinski highlighted the brand’s commitment to expanding its ghost kitchen presence. Currently, a streamlined Applebee’s menu is available for delivery from two ghost kitchens in Philadelphia, with a third location scheduled to open in Miami and more planned for later in the year. Cywinski also expressed excitement about the addition of drive-thru pickup windows, currently being tested at two locations with a third underway in Columbia, S.C. He indicated that up to 10 to 15 existing Applebee’s restaurants could incorporate drive-thru lanes by year-end. “I am more convinced than ever that our off-premises business is a genuine core competency and a very leverageable point of difference for the Applebee’s brand,” Cywinski stated.
Peyton acknowledged that the Omicron variant briefly impacted staffing and customer traffic in Q4, but noted that these effects had largely subsided by mid-February, with both Applebee’s and IHOP restaurants approaching pre-pandemic operating hours. While Applebee’s is still working to fully staff late-night shifts, Peyton remains optimistic about achieving full staffing levels across the board.
IHOP’s two-year same-store sales declined by 3%, partly attributed to ongoing staffing challenges. Nationally, IHOP is staffed at approximately 85% to 90%, with only about a quarter of domestic units operating 24/7. IHOP ended the year with 1,657 U.S. units. Year-over-year, IHOP’s comp sales for Q4 were up 39.2%. Average weekly sales at domestic units increased slightly by 0.5% to $37,500, and off-premises sales represented 23.7% of the sales mix.
Peyton concluded with an optimistic outlook, stating that the most severe impacts of the pandemic and associated restrictions are now in the past. “Despite these headwinds, we are increasingly encouraged that we’re at the beginning-of-the-end of COVID — and, as we transition to the endemic phase of the virus, we are optimistic that the days of mask requirements, proof of vaccination and capacity restrictions are behind us,” Peyton affirmed during the earnings report.
Dine Brands reported total revenues of $229.6 million for the fourth quarter and $896 million for the full year. Net income for the quarter was $19.8 million, or $1.14 per share, a significant improvement from a loss of $1.6 million, or 10 cents per share, in the same quarter the previous year. For the full year, net income reached $97.8 million, or $5.66 per share, a substantial turnaround from a loss of $103.9 million, or $6.43 per share, in the prior year.
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