From new tech to opening drive-thrus, the casual-dining leader is evolving for a post-COVID era.
When COVID-19 slammed the gates on dine-in last year, restaurant chains pivoted to survival tactics. But then came the reset. And the resurgent climate today is as much about giving guests what they missed during lockdowns as it is satisfying shifted preferences brought forward by strange conditions.
By the time 2021 comes to a close, roughly 75 percent of Applebee’s and IHOP’s digital technology tools will be modernized or new, resulting in the most robust tech suite in Dine Brands’ history, CEO John Peyton said Thursday. If that isn’t the definition of compressed innovation, nothing is.
Just this year, Dine Brands implemented a new CRM and digital platform to strengthen marketing, analytics, and guest data management. It rolled app upgrades to boost customization and reduce the number of clicks needed to navigate the menu. There’s fresh functionality such as geo fencing, which tracks guest arrival for pickup and delivery. In the company’s call center, some 150 Applebee’s are even on a new AI and fully automated voice-ordering platform today.
And these are just the off-premises reactions. Applebee’s added handheld devices for servers in 500 locations, which are driving faster table turns, additional drink orders, and helping front-of-house employees earn more money. The chain introduced pay-and-go where customers can check out at the table using their own devices, as well as digital wallet capability that allows people to redeem offers and coupons.
Again, all of these digital set capabilities are new in 2021.
“The restaurant renaissance is clearly driving our rebound at Dine Brands and Americans are returning to indoor dining,” Peyton said. “And now that Americans are back, we're pivoting from triage to acceleration. And what I mean by that is we're accelerating the innovation and the reinvention of the guest experience.”
Applebee’s trailing results reflect Peyton’s positive spin—that the casual-dining giant’s consumer base has never been as engaged or interconnected as it is today. When compared to Applebee’s 2019 baseline, April, May, and June same-store sales lifted 11.8, 8.1, and 11.4 percent, respectively. The combined 10.5 percent figure marked the best quarterly sales performance throughout the 14-year history of Dine Brands’ ownership. That excludes the anomaly of the 2021 versus 2021 comp, where Applebee’s Q2 sales climbed 102.2 percent versus this time last year. In April over the prior-year period—the depths of COVID’s restrictions in 2020—Applebee’s was up 237.4 percent.
Restaurant sales in Q2 ran about $53,000 per week. To put everything into perspective, the months of March, April, May, and June, in sequence, ranked as Applebee’s four highest weekly sales months since Dine took the reins.
According to Black Box Intelligence, Applebee’s outperformed the casual-dining category (in terms of comp sales) for 25 consecutive weeks by an average of nearly 600 basis points.
Returning to the opportunity at hand, Applebee’s off-premises mix, naturally, slid in response to dine-in flooding back. Mix moved from 67 percent in April to 72 percent in June, with 16 percent Carside To-Go and 12 percent delivery in June. Call it the gradual migration to a normalized post-pandemic mix, brand president John Cywinski said.
But that’s the key, really. What is a “normalized post-pandemic mix,” and how can traditionally sit-down chains like Applebee’s leverage it?
The brand’s off-premises weekly sales in June were $14,700 per restaurant. As a percentage of total sales, Cywinski believes its reasonable to predict business outside Applebee’s four walls will ultimately settle in the low- to mid-20 percent range.
That’s still double the chain’s pre-COVID off-premises rate of 12 percent, “illustrating Applebee's enhanced relevance within this convenience-driven occasion,” he said.
So we’re talking a jump from somewhere around $6,500 per restaurant, as it was at the start of Q1 2020.
Either way, the performance is miles from pandemic-crushed days last April when some Applebee’s made only $700 in sales per day.
To Cywinski’s comment, though, and moving forward, Applebee’s standing in the convenience game has changed. The pandemic gave it a chance to serve occasions many guests weren’t considering Applebee’s for previously. Essentially, the dine-in loyal guest trying takeout just to get Applebee’s again, and now layering that into current habits. Or the delivery/aggregator-focused user finding Applebee’s where they wouldn’t have before.
Beyond the tech responses, Applebee’s plans to expand its drive-thru test as a result of this growing business, Cywinski says, to include an additional six restaurants in Q4. It’s a sizable lift considering the initiative was a one-store offshoot before. Now, there will be seven dedicated Applebee’s pickup windows before the fiscal calendar flips over.
Applebee’s off-premises mix also includes its Cosmic Wings virtual brand, which was expected to expand to DoorDash in early May. That didn’t happen as “significant chicken wing supply challenges,” dammed the effort.
Cywinski said Applebee’s still plans to do so, but is leaving the date open “contingent upon supply availability.”
Regardless of the timing, Cosmic Wings’ expansion should generate meaningful incremental demand when the day arrives, he said. Applebee’s simply doesn’t want to get caught in a scenario where demand outpaces its supply and guests get turned off by a poor experience.
Labor also remains a challenge for Applebee’s as it does for all of its category counterparts. The brand held its first national hiring day on May 17 and put digital assets to work. Applebee’s offered a free appetizer in return for an application and interview, or an “app for an app,” as the chain playfully branded it. The result was 40,000 applications on a single day, and, eventually, roughly 5,000 employees hired that week.
Going back to earlier COVID days, Applebee’s purposefully took some awareness hits to keep its marketing powder dry. The brand wanted to level up when dine-in returned, with messaging centered on a “welcome back” campaign.
Recently, Applebee’s shifted to focus on “the genuine emotional connection” it has with guests, Cywinski said.
“A connection we believe is more important and relevant than ever given all this country has endured over the past 16 or 17 months,” he said.
This has played out to the backdrop of theme songs from Cheers and Welcome Back, Kotter. Additionally, the No. 1 song currently on iTunes via Billboard’s top country music chart, “Fancy Like,” from Walker Hayes, just so happens to be about a date night at Applebee’s.
“And it’s gone viral in a big way on social media,” Cywinski says, “TikTok, Instagram, and YouTube, providing great buzz for the Applebee’s brand.”
The chain entered into a relationship recently with The Walt Disney Company around the film “Jungle Cruise,” with campaigns featuring Dwayne “The Rock” Johnson and Emily Blunt.
Both of those debuted July 20 for the NBA championship game. At the same time, Applebee’s struck a partnership with Johnson to introduce his premium tequila brand Teremana as part of a $7 cocktail lineup, including “Mana Margaritas.” They’re “proving to be extremely popular with our guests,” Cywinski said.
It’s a worthy move given recent trends. Applebee’s eased a bit on discounting to instead lean into core equities with full margin. With the return to dine-in, the brand saw higher incidents of appetizers and drinks as people indulge in their return to restaurants.
Late-night business came back on the weekend, too. Applebee's remains, however, a value-oriented brand with value-oriented demographics, Cywinski said. And that’s the long-game journey when the dust settles.
Applebee’s introduced salads and bowls in Q2 and has a new menu hitting restaurants in two weeks.
As a company, Dine Brands Q2 net income totaled $28.7 million, or $1.69 per share. The company lost $134.8 million ($8.33 per share) in Q2 2020.
Revenue of $233.6 million more than doubled from $109.7 million in the year-ago run and beat the FactSet consensus of $228.2 million.
Inflation concerns do await the company in the back half of the year. Peyton said they’re seeing effects on the cost of paper and packaging, oils, poultry, pork products, and eggs. Based on these conditions, Dine Brands expects commodity inflation in the rage of about 4–5 percent for the full year (it was 2 percent in the first half of the year). The company believes some of its tech updates, such as tablets, will help the operating cost of franchisees.
There’s also the unknown of the Delta variant, Peyton said, which has been largely regional to date. “Our outlook would certainly be impacted if large areas of the country return to lockdowns or restaurant guests become uncomfortable dining out,” he said.