Where are we now
When understanding how IHOP’s bold marketing and performance align, it’s always worth noting something less sexy. IHOP’s four-wall profits over the past few years have served steady, especially measured against other casual brands, including Applebee’s, because its food and labor costs are lower. Comparing the first half of 2019 to the same period of 2018, IHOP franchisees actually had higher margins, CFO Thomas Song said.
The market basket for IHOP’s cost of goods is expected to be favorable by about 90 basis points for 2019. Breakfast, and breakfast foods, just tend to show a higher-profit mix than other commodity targets. It’s why quick-serves market so aggressively to guard share in the street fight that is early occasion and habitual dining. McDonald’s captures about 25 percent of its sales from breakfast, despite recent struggles. Taco Bell hit 10 percent mix within two years of launch in 2014 and has run up positive comps in 17 of the last 18 quarters since, including 12 consecutively.
Just look at Wendy’s. The burger brand is making its fifth attempt at daypart expansion in Q1 2020 when it plans to launch breakfast nationwide. Wendy’s is targeting 10 percent, which would represent a $1 billion slice. And its planning to do so with only three additional employees per restaurant, focused on the drive thru.
Beyond that factor, though, IHOP is clearly doing something different than before. It’s always served and centered on breakfast, but it just now put together its longest sustained positive sales performance in three years.
Jay Johns, who took over when Darren Rebelez left for Casey’s General Stores in June, said after Q3 the results are a “direct reflection of the work we’ve done against our strategy to defend and grow our brand.” Johns served as IHOP’s SVP of operations since April 2017 and has been with the brand for a decade.
Johns said IHOP sharpened its focus on operations during this run, which helps keep current guests, drive frequency, and attract new ones. “At the end of the day, best-in-class operations comes down to having great talent in our restaurants,” he said, in uncomplicated fashion.
IHOP got there, to an extent, by rolling out a certified leader program this year that aids retention and continual training. Johns said IHOP will certify more than 2,000 managers by the end of next year. Given that inspiring retention on the crew member level is a somewhat unrealistic goal to any major, consistent degree in this business, and like adding house money to the deck, keeping managers on staff is really where the labor war will be won for service-oriented restaurants.