Applebee's Loaded Fajitas


Applebee's continues to bring back favorites that left its menu in the last decade.

Applebee's Gets Aggressive in Search of the 'Value Seeker'

Except to see more value deals throughout 2019 and beyond.

In regards to generating top-line results and engaging light users, Applebee’s has pulled all the right strings lately. Yet the brand did make a promotional misstep in the second quarter, announced July 31, that sent its same-store sales back into the red after six straight positive periods. Comps declined 0.5 percent versus the prior-year run of 5.7 percent growth.

The casual-dining giant defines 20 percent of its customer base as “value seekers.” These guests are fundamentally price driven as well as active switchers among brands throughout the category. That’s a pretty significant chunk, and they’re a notoriously fickle base to court. As Applebee’s has witnessed, and the same can be said of many restaurant chains who chase this segment, when you’re aggressive on price, these customers show up. When you’re not? They seek a deal elsewhere with no regard for brand loyalty.

In May, Applebee’s launched Loaded Fajitas systemwide. Looking at one market in particular—Southern California—the item ranged from $12.99 to $16.99 (chicken versus steak).

Brand president John Cywinski said Applebee’s May-June performance could have been stronger if it brought the deal to market “with a compelling nationally advertised price point.”

“While we achieved significant trial, we failed to attract that very important value-seeking guests, resulting in a little less incrementality than anticipated,” he said.

READ MORE: Applebee's is building a brand of high performers

Cywinski added that the “value seeker,” remains Applebee’ primary source of incrementality. So expect the brand to be more overt and aggressive from a value perspective in the back half of the year. Cywinski said Applebee’s would “be foolish” to not learn from the Loaded Fajitas stumble. “Our confidence moving forward is significant,” he said. “And also, one of the benefits, one of the strengths of this model … we have 30 [franchise] partners. And our ability to gather them in a room and meet and discuss tactics quickly and course correct quickly [is key]. We’ve done that.” He said the brand met just last week and put plans in place.

The value-seeker strategy at Applebee’s does have a ladder-up nature to it. And a lot of this has to do with its history as a fundamentally value-oriented concept. Applebee’s tends to take about 1.5–2 percent annual pricing, but is understandably cautious. Its menu architecture measures a more delicate balance than some of its competitors. Naturally, there’s typically an inverse correlation between traffic and pricing. This works for certain chains, especially on the margin line. In some cases, brands don’t have a choice since guest counts are declining anyway and costs, especially labor, are moving in the other direction.

“If you look at the industry over the last several years, clearly, taking check has been a detriment to traffic in the restaurants. And what we want is a much more balanced approach,” Dine Brands CEO Stephen Joyce said.

"We like the idea of doing things to get customers’ attention to bring them into the restaurant. But then, in most cases, what we’re seeing is there are certainly people taking advantage of it, but they’re also coming in and ordering other things.” — John Cywinski, Applebee's president.

This is where scale comes into play. “Now one of the big advantages we have to offset our labor cost increases, obviously, but we've got lower food cost this year than we had last year,” he added. “So that's a big plus from us from the standpoint of our franchisees' profitability overall in the face of strong labor pressures.”

Applebee’s looks at the value dynamic this way, Joyce said: When you bring in an incremental customer, the customer is profitable even at an aggressive price point.

And there’s a trade-up benefit from customers walking in for lower-priced offers and then buying more expensive ones. Aggressive price-point menu options actually mix a rather small portion of overall items ordered at Applebee’s, Joyce added.

“We talk to franchisees about mix and about how to drive people into the restaurant, and also how to optimize price point versus driving traffic, because we think maintaining the traffic in the restaurants with a strong off-premises growth pattern is a winning formula for us,” he said.

“This is a perfect example of scale,” Cywinski said of Applebee’s supply chain organization. “We’ve got 3,400 assets and $8 billion in revenue across those restaurant, and that supply chain organization puts us at an advantage, in particular, relative to mid-sized and small-sized brands out there that just can’t compete on the cost side the same way that we can.”

This allows Applebee’s to compete on value akin to some counter-service competitors, like Wendy’s, for example. The burger chain targets customers with price-point focused deals in hopes they’ll climb the premium ladder once they show up. Or maybe return for dinner or another meal to try something on the higher end.

Cywinski said Applebee’s promotions represent a relatively light proportion of what gets ordered in the restaurant, echoing Joyce’s point. “And so that’s why we like the idea of doing things to get customers’ attention to bring them into the restaurant. But then, in most cases, what we’re seeing is there are certainly people taking advantage of it, but they’re also coming in and ordering other things.”


Applebee's $1 drink deals are key to attracting light users.

The $1 Neighborhood Drink of the Month campaign is a good example. Cywinski said the promotion, made famous by the “Dollarita,” has been Applebee’s primary driver of incrementality and light users in regards to beverage mix. And it’s brought in a younger demographic profile Applebee’s covets. “While it may be a very, very small percentage of dollar sales, the food associated with those tickets is substantial,” he said. Applebee’s is currently in the 14 percent range with alcohol mix.

READ MORE: Inside the saga of Applebee’s $1 margaritas

Like the value-seeker promotions, though, the sentiment doesn’t change: Get customers in the door and then try to attach higher-ticket items to the experience. The proposition remains a price-friendly one, but carries a more expansive reward for Applebee’s.

On the plus side, the chain addressed a gap in its menu, Cywinski said, by introducing a permanent new fajita category as well as a “sizzling” platform for future innovation. The strategy continues Applebee’s efforts to reintroduce familiar favorites that were removed over the past decade. Fajitas now represent the chain’s No. 4 product mix category just below appetizers, burgers, and steaks.

Other trends take form

Cywinski admitted Q2 was a “challenging quarter” for Applebee’s. As noted before, it lapped a strong 5.7 percent comp from 2018 that came following a rough string of results.

Here’s a slice of the same-store sales picture:

  • Q1 2016: –3.7 percent
  • Q2 2016: –4.2 percent
  • Q3 2016: –5.2 percent
  • Q4 2016: –7.2 percent
  • Q1 2017: –7.9 percent
  • Q2 2017: –6.2 percent
  • Q3 2017: –7.7 percent
  • Q4 2017: 1.3 percent
  • Q1 2018: 3.3 percent
  • Q2 2018: 5.7 percent
  • Q3 2018: 7.7 percent
  • Q4 2018: 3.5 percent
  • Q1 2019: 1.3 percent
  • Q2 2019: –0.5 percent

So even down a half percentage point, Applebee’s is riding a two-year stack of 5.2 percent. Broken down quarterly and year to date, the brand experienced just one negative month in Q2 and only two so far this year. Overall, it’s on a trajectory in the 5–6 percent comp sales range.

Building on Joyce’s off-premises comment, Applebee’s growth in the booming channel opened up some of its menu and value efforts. The chain’s off-premises sales rose 27 percent in Q2 on top of last year’s 31 percent growth, driven in large part by delivery.

Given the quick gains, off-premises expansion will moderate moving forward as Applebee’s laps 30–40 percent gains from last year. Still, roughly 65 percent of Applebee’s off-premises orders are now placed digitally or online by customers.

About 75 percent of that mix is to-go and 25 percent delivery. It will evolve as Applebee’s delivery activation tracks toward 1,500 restaurants by year’s end. Cywinski said the company is currently talking with third-party partners to structure a mutually beneficial economic model for growth.

“We also believe guest transparency around delivery fees is important,” he said. “And we believe the majority of these cost need to be passed along to the guest, who we also believe are willing to pay for the convenience of delivery. After all, they can certainly choose Applebee's To Go or dine in at no incremental cost.”


Applebee's plans to begin growing again in 2020.

Closures coming to a close

After shuttering four U.S. units in Q1, Applebee’s closed another 13 in Q2. In total, the brand expects to close 20–30 net units in 2019, with most of those being domestic. This year will mark the “successful completion of Applebee’s three-year strategy,” of trimming its asset base, Cywinski said.

And starting next year, the chain will begin “a smart and very selective,” return to unit development. It’s an important shift of narrative for Applebee’s. The company has closed about 10 percent of its restaurants since 2017, while transacting another 7 percent of the portfolio with a select few additional deals still to come.

Last year, Applebee’s closed 91 domestic locations and 15 international. With openings, it ended 2018 with a net reduction of 99 units. From December 2016 to December 2017, Applebee’s footprint shrunk 80 restaurants from 2,016 to 1,936 locations.

There are currently 1,815 stores (1,676 domestic). IHOP is now the bigger U.S. restaurant—and the largest casual-dining brand in the country—with 1,705 stateside restaurants (there are 123 international as well). IHOP’s same-store sales rose 2 percent in Q2, year-over-year.

As a company, Dine Brands’ came out with quarterly earnings of $1.71 per share. It posted revenues of $228.08 million compared to $184.47 million in the year-ago period.