The chain closed 36 U.S. restaurants in 2023 and opened only three.

At one point, Applebee’s planned to reach net unit growth domestically in 2023. That prediction then shifted to either 2023 or 2024. Now, it appears the casual-dining chain is still a few years away from reaching that positive growth target.

The category giant told investors during its Q4 earnings call it shuttered a net of 33 restaurants in 2023 after shutting down a net of nine in 2022. This year, Applebee’s expects 25 to 35 net closures.

Applebee’s president Tony Moralejo said the normal attrition rate for a mature brand like Applebee’s is somewhere around 1 to 2 percent, meaning the number of closures last year wasn’t unusual. It’s more about how tough it is to open new restaurants. In 2023, Applebee’s opened three stores and shuttered 36.

Addressing this point, Dine Brands CEO John Peyton cautioned the industry is different than it was three years ago when Applebee’s first began discussing the possibility of unit expansion. Mostly because of the cost to build. That’s why the chain is focused on assembling a prototype with better ROI for franchisees and grabbing more second-generation opportunities.

Peyton assured investors Applebee’s goal is “absolutely that it will return to net unit growth.”

“We have got work to do to build the pipeline for Applebee’s over the next couple of years,” Peyton said during Dine’s Q4 earnings call.

Applebee’s has experienced eight straight years of negative unit growth domestically. In that time, a net of nearly 350 restaurants have closed.

  • 2016 EOY: 1,858 (–20)
  • 2017 EOY: 1,782 (–76)
  • 2018 EOY: 1,693 (–89)
  • 2019 EOY: 1,665 (–28)
  • 2020 EOY: 1,598 (–67)
  • 2021 EOY: 1,578 (–20)
  • 2022 EOY: 1,569 (–9)
  • 2023 EOY: 1,536 (–33)

Moralejo said closures aren’t a sign of struggling trade areas as opposed to hurting franchisees. He added the leadership team is “pulling every lever we have” to offset the shutdowns.

“What we need to do now is leverage our new development structure, leverage the initiatives that are underweight, like the new prototype, to build a more robust pipeline of new openings so that we can finally return to positive net unit growth,” he said. “… Closing a restaurant is an incredibly difficult decision. It is really a decision of last resort for a franchisor and a franchisee. So we will work closely with our franchisees to minimize closures and then build the pipeline of new openings to get us back to net unit growth.”

There are signs of optimism, however. Applebee’s announced during the earnings call that Flynn Group—the world’s largest franchise group and the biggest operator for Applebee’s—is planning to open 25 restaurants in the next seven years.

The chain also believes there may be more whitespace internationally, especially through a co-branded model with IHOP. There are eight around the world, including the latest in Leone, Mexico. The stores are performing so well that Dine is thinking about introducing the concept in the U.S. The company is finding that in the same box size as an Applebee’s or IHOP, the co-branded unit sees two times or more as much revenue.

“With the two brands, we can address all four dayparts, and that is a big innovation that we are nurturing overseas,” Peyton said.

Another difficult part of the decision-making process is that Dine partners with numerous franchisees, and not all of them are working to solve the same problem. Some are looking for different forms of financial support while others need help with real estate opportunities, assistance with permitting and construction processes, or pre-opening marketing.

“We will address these specific needs in a targeted and analytical way to create profitable growth for Dine and our franchisees,” said Peyton, who noted that any investment would be from Dine’s existing cost structure and not an increase in overall spend.

IHOP is having better success with growth. In 2023, the breakfast chain opened a net of 19 stores in the U.S., bumping its footprint to 1,696. It is the second-largest full-service chain in the country in terms of store count, following only Waffle House. This year, IHOP projects 15 to 25 net new restaurants domestically.

Applebee’s same-store sales declined 0.5 percent in Q4, but rose 0.6 percent in full-year 2023. Average weekly sales per store were $54,000, or about $2.8 million in annualized AUV. Of that, about 22 percent was off-premises, split evenly between to-go and delivery.

IHOP’s comps grew 1.6 percent in Q4 and 3.5 percent in full-year 2023. Average weekly sales per unit were roughly $38,000, or $1.98 million in annualized AUV. About 21 percent of sales were off-premises—9 percent to-go and 12 percent delivery.

As for Fuzzy’s Taco Shop, which Dine agreed to acquire at the end of 2022, the approach is to recruit new franchisees to develop unfilled markets. It also wants to use IHOP and Applebee’s franchisee network to expand. Dine finished integrating Fuzzy’s into its systems last year and will start providing more details on the fast casual’s performance in Q1.

Chain Restaurants, Feature, Finance, Franchising, Growth, Applebee's