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.”