IHOP’s foray into the world of fast casuals is resuming in 2021.
President Jay Johns announced Tuesday that the chain plans to open fast-casual offshoot Flip’d by IHOP later this year after first unveiling the concept in late 2019.
The new brand, which includes Pancake Bowls, Ultimate Sandwiches, grab-and-go salads and wraps, made-to-order breakfast burritos, digital kiosks, and designated to-go areas, was originally scheduled to open April 2020 in Atlanta. Additional sites in New York City, Washington, D.C., Denver, and San Francisco were under exploration for 2020, as well. A few months after the brand’s announcement, the U.S. was wrapped in a global pandemic.
Though Johns didn’t provide much detail surrounding the opening of Flip’d, the executive told FSR in December 2019, “We think this really gives us a great growth opportunity and there’s a lot of whitespace here. And clearly breakfast is still one of the fastest-growing areas in the restaurant business and it’s a big opportunity for us.”
Flip’d intends to differentiate itself by operating as a breakfast fast-casual that leads with food instead of beverages.
“There’s a tremendous amount of people who we know go out and get their morning coffee and settle for whatever food they happen to have [at the restaurant]. We’re going to flip that expectation in the other direction,” Johns previously said.
While IHOP is pushing those plans forward, it’s currently waging a legal battle over the Flip’d trademark. In February, the chain sued the U.S. Patent and Trademark Office after the Trademark Trial and Appeal Board rejected the chain’s application to trademark “Flip’d” and “Flip’d by IHOP.” The brand first submitted an application in May 2019, but two months later, the office preliminarily refused the registration because of potential confusion with Flipt, a restaurant based in Rivers Casino.
IHOP argued that confusion wasn’t likely, but the office still refused the registration. In July 2020, the chain filed its appeal and was rejected by the appellate board in December.
“Plaintiff is dissatisfied with the decision of the TTAB [Trademark Trial and Appeal Board] affirming the refusal of the Examining Attorney to register Plaintiff’s FLIP’D and FLIP’D BY IHOP marks and its erroneous conclusion that there is a likelihood of confusion between Plaintiff’s Marks and the mark of the Cited Registration,” the lawsuit stated.
Flip’d is part of a four-pronged strategy of development for IHOP. In addition to the fast casual, IHOP plans to test a smaller prototype this year. Johns said the brand expects the prototype to provide a higher return on investment and allow operators to enter “areas we might not have been able to penetrate previously.”
Another avenue of growth will be traditional development, which will come from a “stable pipeline” as a result of franchisee obligations that were deferred during the pandemic. The final channel is non-traditional locations, spearheaded by IHOP’s 94-unit partnership with TravelCenters of America—the largest deal in company history.
“For 2021 we expect to continue to reinvigorate our growth that was hindered by the pandemic,” Johns said during Dine Brands’ Q4 earnings call.
The objectives are notable, considering the chain previously announced in October the net closure of 100 stores over the course of six months. However, the program concluded with 41 closures—well below the initial call. Johns emphasized IHOP evaluated “greatly underperforming restaurants that we determined had a greater chance of not being viable coming out of the pandemic.”
Generally, the stores were some of the lowest-performing units in the system, based on sales and franchisee profitability. As Johns noted before, the brand is confident it can replace these locations with better-performing restaurants that can match pre-COVID AUV of roughly $1.9 million.
IHOP ended Q4 with 1,772 stores systemwide—1,670 domestic and 102 international. In 2021, the chain closed a net of 69 restaurants. Johns estimated about 33 IHOPs are temporarily closed and roughly 200 are mainly using off-premises and outdoor patios.
Johns said IHOP isn’t giving guidance yet on when the brand will return to net unit growth.
“We clearly have franchisees that are interested in developing, but they’re still in the middle of COVID right now,” Johns said. “The rate at which that comes back, we’re just going to have to wait and see how that plays out.”
A Noisy Few Months
As Johns described, the COVID environment is ever-changing, and the chain’s weekly results reflect as much.
Domestic same-store sales declined 28.1 percent in the week ending February 21, compared to a 40.6 percent drop in the final week of December. With the impact of different holidays, rolling over the canceled National Pancake Day, and extreme weather events—which closed roughly 200 stores for multiple days—Johns said there’s been “lots of things that don’t sync up really well.”
Despite the noise, Johns is choosing to look at the bigger picture, which indicates IHOP is trending in the right direction.
“We keep having these little hiccups that happen on given weeks, but I feel that this is about ready to make a nice move forward for us as the capacity restrictions are lifted,” Johns said during Dine Brands’ Q4 earnings call.
Here’s how IHOP’s U.S. same-store sales have trended from the beginning of Q4 through Q1 thus far:
Q4 (–30.1 percent overall)
- Week ended October 4: –24.3 percent
- Week ended October 11: –26.3 percent
- Week ended October 18: –23.5 percent
- Week ended October 25: –21.4 percent
- Week ended November 1: –21.1 percent
- Week ended November 8: –23.3 percent
- Week ended November 15: –24.8 percent
- Week ended November 22: –30.4 percent
- Week ended November 29: –38.5 percent
- Week ended December 6: –32.8 percent
- Week ended December 13: –36.4 percent
- Week ended December 20: –38.9 percent
- Week ended December 27: –40.6 percent
Q1 (–27.2 percent quarter-to-date)
- Week ended January 3: –33.8 percent
- Week ended January 10: –26.9 percent
- Week ended January 17: –26.6 percent
- Week ended January 24: –28.5 percent
- Week ended January 31: –25.1 percent
- Week ended February 7: –28.1 percent
- Week ended February 14: –26.6 percent
- Week ended February 21: –28.1 percent
Other than unit development, one of IHOP’s major levers for driving growth is maintaining increases in off-premises. The channel increased 130.4 percent year-over-year in Q4, driven primarily by traffic. It represented 33.3 percent of sales, including 15.6 percent delivery and 17.7 percent takeout. Online sales mixed 22.7 percent.
The chain believes its new Burritos and Bowls lineup, which is highly portable, will help with this endeavor. The items have captured roughly 8 percent of check at order incidents, based on a soft launch without full media and marketing campaigns.
“We believe that we can retain a significant amount of this growth, even as dining rooms capacity restrictions are eased over time,” Johns said. “Conducive to this is the high portability of IHOP’s menu and our proprietary off-premise packaging, which keeps our food warm approximately 40 minutes after leaving the restaurant.”
The remaining strategies for growth are focused on the afternoon daypart and value, which IHOP is achieving through its IHOPPY Hour, introduced in September. The first afternoon- and evening-focused value menu in IHOP’s history offers $5 entrees ($6 in some markets), $3 Snack & Sides, and $1 or $1.50 beverages from 2 to 10 p.m. It’s longer in certain spots, and available for to-go orders at select locations as well.
Johns said the program is leading to incremental sales in the mid to high teens, and driving a roughly 20 percent incremental increase in traffic compared to the rest of the day. That equates to a low- to mid-single digit lift in both sales and traffic for the entire week. The executive said IHOPPY Hour is consistently four times more effective in boosting traffic than any window IHOP has had during that time.
“We’ve done the heavy lifting to position the brand for long-term success and build an insurmountable lead in family dining,” Johns said. “I’m pleased with what our franchisees and team members have accomplished during a very challenging year, and I’m very optimistic about the road ahead.”