Dine Brands, parent of IHOP and Applebee’s, sees what everyone else does—increased reporting on a potential recession and how that could impact consumer sentiment.
However, when CEO John Peyton noted this to investors, he was making an observation about the industry overall, not Applebee’s or IHOP. For them specifically, guests have been resilient dating back to last year.
“We’re closely monitoring traffic and price sensitivity patterns,” Peyton said during Dine Brands’ Q1 earnings call. “One trend that we have noticed is that American consumers are becoming more discerning about the value they expect not just in terms of price, but also in terms of factors like cleanliness, speed of service, and convenience. The key to success now more than ever is the on-premise guest experience. And our franchisees and their teams are focused on delivering outstanding experiences, which helps us to earn and keep guest loyalty and trust.”
First-quarter results demonstrated stability. Applebee’s same-store sales increased 6.1 percent, marking the chain’s ninth straight positive quarter, and IHOP’s comps lifted 8.7 percent, the brand’s eighth consecutive green period. Dine’s adjusted EBITDA was $66.3 million versus $65.2 million last year, and the company opened 21 gross new restaurants across the world—signaling a continued appetite for growth from franchisees, Peyton said. Off-premises sales mixed 23.1 percent.
Applebee’s kept its No. 1 ranking across key consumer metrics like convenience and variety, according to the brand’s proprietary third-party tracker. Brand awareness is at an all-time high as well because of affordability and menu variety, Peyton said. In Q1, Applebee’s sales were fueled by innovative promotions and abundant value programs, like the Two for $25 deal (two entrées and an appetizer) and $14.99 all-you-can-eat boneless wings, riblets, and shrimp. The deals are helping Applebee’s maintain guest appeal, which leans more toward the 18-to-34-year-old demographic than it did before COVID.
Peyton said Applebee’s and IHOP have always been positioned as value brands, and that’s why the chains over-performed during the Great Recession. The restaurants sit in the same position today, which helps explain their long stretch of positive comps. However, at the same time, Applebee’s in particular is seeing more higher-income customers ($100,000-plus household) versus 2019.
“During tough times like this, certainly some of our guests may look elsewhere for less expensive options,” Peyton says. “We also know that we’re gaining guests as well. And overall, we’re pleased with the performance.”
IHOP’s sales were partially due to menu innovation, too. In March, the concept launched its biggest menu evolution in a decade, starting with new Sweet and Savory Crepes served all day. Other items part of the rollout include new Eggs Benedicts, Ultimate Steakburgers, fresh salads, beverages, and fish and shrimp and the return of Cinn-A-Stack Pancakes.
In terms of digital innovation, IHOP’s loyalty program enrolled 5.5 million members in its first year and now mixes 5 percent. There are more than 8,000 app downloads per day. The program drives frequency, share of wallet, and average check, and it allows IHOP to better engage with guests through targeted promotions and differentiated in-restaurant experiences. Also, the breakfast chain introduced two more virtual brands—TenderFix, a chicken tender concept with meat and plant-based options promoted by “Stranger Things” actor Noah Schnapp, and Pardon My Cheesesteak, a virtual brand associated with Barstool Sports podcast Pardon My Take. These two new concepts are in over 500 IHOP restaurants and have quickly become top performers. They join existing ghost concepts, Thrilled Cheese and Super Mega Dilla.
TenderFix, Thrilled Cheese, and Super Mega Dilla come from virtual brand vendor Nextbite, while Pardon My Cheesesteak is supplied by Virtual Dining Concepts. IHOP’s off-premises sales mixed 21.7 percent in Q1.
In addition, IHOP entered licensing agreements to create branded cereal and coffee. The items are available in thousands of stores nationwide, helping the restaurant drive increased exposure, organic traffic, and loyalty.
IHOP brand president said the chain has “a little something for” lower-income and higher-income guests. It tries to maintain that balance at all times.
“One of the things we try to do from a strategy standpoint is to always have value opportunities for our guests, not only in price point, but abundant value,” said IHOP brand president Jay Johns. “And obviously, with our loyalty program, we can give very unique values to people as part of that program. But we need to have great innovation, new products, new reasons to come to see us and give a great experience. And when you balance all those things, we think that is really what keeps the broad swath of Americas that loves IHOP coming back.”
In terms of development, Applebee’s launched a financial development initiative intended to drive openings in 2024 and beyond. The brand is also working on a NextGen prototype that reflects today’s consumer. IHOP—which introduced a financial incentive too—opened 19 units systemwide in Q1. The number of store openings is higher-than-usual because of carryover from 2022. Applebee’s had 1,673 restaurants at the end of Q1, including 1,563 domestically and 110 internationally. IHOP had 1,790 stores—1,683 in the U.S. and 107 across the world.
Dine’s newest concept, Fuzzy’s Taco Shop, is continuing to integrate across HR, finance, technology, QA marketing, and operations. The casual-dining company inherited a 125-unit pipeline, and it plans to use its scale to support the fast casual’s expansion. Dine is seeing interest from IHOP and Applebee’s franchisees and several exploratory meetings have been set up.
Fuzzy’s recently kicked off a Baha branding initiative, which will activate via store design, menu, and other touch points. The chain’s loyalty program has more than 500,000 active members who visit more often and come with a higher average check. As of March 31, 49 franchise groups operated 134 Fuzzy’s restaurants in 18 states and Dine operated three company-owned restaurants in Texas.
Although Peyton said Dine’s customers have remained steadfast, the CEO acknowledges an unpredictable year is ahead. But Applebee’s, IHOP, and Fuzzy’s are prepared.
“One thing that all three of our brands learned during the pandemic is how to become much more agile,” Peyton said. “And their marketing engines are much more responsive to changes in the marketplace today than they were before. So that certainly benefits us during a year like this.”