The two concepts will be in roughly 1,000 locations within the next few months.
As IHOP exits the pandemic, it remains focused on delivering multiple restaurant formats that drive significant, incremental revenue with lower capital commitments.
Last year, the breakfast chain achieved this goal through the long-awaited debut of Flip’d by IHOP, its fast-casual spinoff. The rising concept currently has two stores in Lawrence, Kansas, and New York City. The company is also testing a smaller prototype, investing in ghost kitchens, and diving further into economically priced conversions.
But in terms of scale and pace of growth, there may not be a better opportunity than expansion of virtual brands Thrilled Cheese and Super Mega Dilla. The digital-only concepts are available in 280 restaurants, up from 80 stores at the end of the first quarter. IHOP is on track to implement the virtual concepts in roughly 1,000 locations over the next several months, which is about 60 percent of the chain’s U.S. footprint.
In the first round of tests, Thrilled Cheese and Super Mega Dilla earned about $1,000 per week per restaurant.
“On our virtual brands, we're really excited about the way this has begun,” IHOP president Jay Johns said during the company’s Q1 earnings call. “It's a little soon to be able to predict what's going to happen as we expand in more and more restaurants. But we're still very bullish on the way this looks.”
Both brands were crafted in partnership with Nextbite, a company that supplies delivery-only concepts to restaurants nationwide. Thrilled Cheese and Super Mega Dilla are available through Uber Eats and DoorDash.
Johns believes virtual concepts could be the key to most of IHOP’s domestic footprint returning to 24/7 operations. Sales from these brands mostly come in the evening, and those incremental dollars could give franchisees more of a reason to stay open later.
“Franchisees have to make a P&L decision on, is it worth being open overnight in a market," Johns said. " … To get [a cook] to work overnight, you may pay [$25 per hour]. … Well, if I can get a virtual brand going, now it makes much more sense to also open up the IHOP business and do both of them at once. So the more [virtual brands] we can get that out there, I think the more that will also help our overnight business.”
IHOP’s same-store sales increased 18.1 percent in Q1, driven by positive comps in all dayparts, especially late-night and breakfast. January’s comps grew 24.9 percent and February’s lifted 28 percent. March’s same-store sales increased only 7.5 percent as IHOP lapped the strongest month of Q1 2021.
“We've got opportunities, I think, across the board to continue to work on our comp sales as we move forward,” Johns said. “Breakfast has actually recovered more than any other daypart for us right now, though. So breakfast is strong. And as you think about it, that's what we're most known for. It's probably what our guests were missing the most about IHOP if they hadn't been in a long time.”
Average weekly sales in Q1 were $36,000 per week per restaurant ($1.87 million annualized AUV), up 19 percent year-over-year. The metric reached a weekly high of $41,000 ($2.13 million annualized AUV) in March, which is more than what IHOP saw in any week during the month last year.
Dine-in accounted for 75.4 percent of sales, while off-premises mixed 24.6 percent. Of the latter number, 15.3 percent was delivery and 9.3 percent was takeout. Off-premises average weekly sales per restaurant was roughly $8,900, still more than double pre-pandemic levels. The business was recently boosted by the implementation of Flybuy, a company that allows curbside customers to notify restaurants when they’re in the parking lot.
Also in Q1, IHOP rolled out its first loyalty program, International Bank of Pancakes. Customers can buy food and earn PanCoins, digital currency used to redeem exclusive rewards and prizes.
“This is a true earn-and-burn program, designed to enhance our direct relationship with our guests and ultimately drive additional visits to IHOP,” Johns said. “The program is a one-of-a-kind and first in our category.”
IHOP franchisees opened 10 stores in Q1, including eight in the U.S. The company finished the quarter with 1,661 U.S. restaurants and 95 units internationally.