Dine Brands’ freshly minted CEO John Peyton has spent two months traveling the Applebee’s and IHOP trail and taking stock of things. And what he’s seen is an inflection point. “I believe we’re on the cusp of the restaurant renaissance,” he said Tuesday during a conference call.
Peyton, the former president and CEO of Realogy Franchise Group, and a 17-year veteran of Starwood Hotels and Resorts Worldwide, said America is approaching the beginning of the end of the pandemic. But that’s only one phase for Dine Brands, the first of a three-objective strategy Peyton outlined for the coming 12–24 months.
The second is to win the recovery and the “new normal” that follows, he said. Thirdly, Dine Brands will evaluate long-term growth vehicles—a comment that encompasses traditional and non-traditional development, everything from new prototypes for both restaurants, virtual concepts, ghost kitchens, international growth, and potentially even acquiring a third brand at the right time.
“I want to emphasize the Dine [Brands] views the crisis as both a threat and an opportunity,” Peyton said. “And while we knew it was important to play defense to protect our liquidity and our flexibility, we also played offense so that we would emerge from the crisis in a position to serve more guests both inside and outside of our restaurants.”
The “offense” Peyton referenced concerns digital and CRM products, which are coming online early summer, as well as menu innovation like IHOP’s new IHOPPY Hour and Burritos and Bowls, as well as “Cosmic Wings,” Applebee’s virtual concept that launched in February.
Dine Brands recently invested in business and consumer insights, CRM, and digital, which Peyton said it will use to reactivate guests via one-to-one and highly targeted marketing during the recovery stretch. “And we’ll realign our menu to reflect learnings in the past 12 months and we’ll reset the channel mix to reflect those learnings as well,” he said.
It’s been a jumpy ride for Applebee’s, to make a vast understatement. Its same-store sales progressed from negative 49.4 percent in Q2 to negative 13.3 percent in Q3 to negative 1.9 percent in October.
This progression is an important case study for what could come next, brand president John Cywinski said.
Almost immediately after that October result, the country experienced an abrupt resurgence of COVID-19 infections, opening the floodgates for heightened restrictions in markets that had begun to loosen. In turn, November comps fell to negative 15 percent for Applebee’s and December dropped further to negative 30.1 percent.
Yet in January, and the first three weeks of February, Applebee’s combined same-store sales improved to negative 18.1 percent, rolling over a 3.3 percent increase from the prior-year period.
Only during COVID-19 would something like this seem remotely logical.
However, what it does suggest to Cywinski is pent-up demand for dining out isn’t a unicorn sighting. Applebee’s saw this trajectory right until the winter resurgence, “and I’m confident we’ll see it again this year very soon,” he said.
Back in December, Applebee’s did something it’s done throughout COVID-19, which is to keep the keys to its marketing war chest handy. When restrictions pick up, it scales back. It did so with media spending in December, January, and February.
What’s worth noting, too, is Applebee’s appreciates a disproportionately heavy penetration of its restaurants in the Northeast and Midwest—two geographies hit hardest when dine-in restrictions mount.
Applebee’s kept its marketing powder dry, though. This past week, it launched its latest national event: Five boneless wings for $1 with the purchase of a burger.
The result—Applebee’s achieved its single highest sales volume week since the pandemic’s outbreak. That’s a 50-week timeframe.
Applebee’s saw the chance to pull this lever once the landscape changed. At the end of December, 412 of its dining rooms were closed due to government imposed mandates. Today, virtually all of Applebee’s 1,600 domestic dining rooms are back on line. About 10 aren’t, half in California and half in Oregon.
“In many respects, our current operating environment feels very similar to late summer of last year if you recall when we saw Applebee’s sales momentum accelerate as restrictions were eased, including our first positive sales week at the end of September,” Cywinski said. “And barring unforeseen circumstances, I anticipate a similar dynamic to unfold very soon here in .”
Applebee’s permanently closed a total of 19 franchise restaurants in Q4, which ended December 31. With two openings, the system retracted 17 stores to 1,600, on the number. There are also 111 international venues. Applebee’s had 1,665 U.S. restaurants this time last year.
Here’s a look at the sales trends Cywinski highlighted (same-store sales):
Q4: –17.6 percent
- Week ended October 4: –1.6 percent
- Week ended October 11: –1.4 percent
- Week ended October 18: –1.9 percent
- Week ended October 25: –2.5 percent
- Week ended November 1: –11.7 percent
- Week ended November 8: –12.3 percent
- Week ended November 15: –14.5 percent
- Week ended November 22: –21.8 percent
- Week ended November 29: –29.3 percent
- Week ended December 6: –26.7 percent
- Week ended December 13: –26.8 percent
- Week ended December 20: –31.1 percent
- Week ended December 27: –36.5 percent
- Week ended January 3: –27.3 percent
Into January and February (preliminary)
- Week ended January 10: –18.9 percent
- Week ended January 17: –15.9 percent
- Week ended January 24: –19.9 percent
- Week ended January 31: –17 percent
- Week ended February 7: –16.9 percent
- Week ended February 14: –19 percent
- Week ended February 21: –19.1 percent
Regardless of what wild swing comes next, Applebee’s understands its future lies as a dine-in concept. Yet it’s hoping for the same incremental boost competitors across all segments have mentioned in regards to recent consumer behavior. Namely, the notion off-premises gains of the past year will carry over in some form. If nowhere near current levels, definitely higher than pre-COVID-19 thanks to higher adoption rates and more streamlined options.
In the month of February, Applebee’s sales mix consisted of 63 percent dine-in, 22 percent Carside To-Go, and 15 percent delivery. It’s planning to introduce third-party app FlyBuy, which will notify restaurant teams through geofencing when a guest pulls up to the lot for curbside.
A franchise partner in Arkansas even recently opened the company’s first drive-thru window. Cywinski said it’s eliminated weather challenges, improved throughput, and extended the restaurant’s late-night to-go operating hours. There was no word if more are planned.
Returning to Applebee’s four walls, however, Cywinski said he firmly believes dining-room service “will be an unmistakable core strength for Applebee’s as guests look for that long overdue escape from home, where they can once again connect with one another over a good meal and perhaps a drink.”
“Most importantly, these guests will naturally gravitate to brands that have earned their trust and loyalty throughout the pandemic,” he said. “On this front, we’re confident Applebee’s is exceptionally well positioned.”
Applebee’s has further guest-facing digital technology coming, such as its pay-and-go initiative designed to provide customers mobile payment options without the need for a server.
Cywinski spent a few minutes discussing Applebee’s Cosmic Wings launch as well. Before bringing the brand to 1,250 kitchens in partnership with Uber Eats, it tested “Neighborhood Wings” at several hundred restaurants. A key learning emerged. Applebee’s realized it had to differentiate and separate the virtual concept from its own label.
Cosmic Wings targets a younger audience around the wings meal occasion. In addition to wings, tenders, waffle fries, and onion rings, it launched with a proprietary menu of Cheetos original wings, Flamin’ Hot wings, and Cheetos cheese bites. The innovation is exclusive to Applebee’s through an ongoing partnership with PepsiCo and Frito-Lay.
While still early innings, Cywinski said the brand averaged $510 of incremental sales, per restaurant, last week in its first full period of operation, “showing a steady build from day to day.”
Applebee’s also piloted its first ghost kitchens in partnership with franchisees. There are currently two in Philadelphia, one in Los Angeles, and another soon to come in Miami.
They’re low-capital, small-footprint kitchens without a street front presence, built to satisfy online delivery demand for Applebee’s where it doesn’t currently have any penetration. Put simply, Applebee’s can pop up as Applebee’s on aggregator platforms without actually opening a restaurant. “The business model here appears attractive in the right geographies, where a brick-and-mortar presence may not be feasible,” Cywinski said.
What will soon kickstart restaurant recovery isn’t complicated, Peyton said. “In the short term, the biggest opportunity is vaccines, vaccines, vaccines. We are optimistic that people, all of us, are anxious to get out, see other people, hug other people, and reestablish a sense of connection and community, and restaurants is a place to do that,” he said. “Over the long-term, we are focused on and we’ve been investing throughout 2020 in the digital technology that’s necessary to facilitate off-premises dining.”
Peyton briefly touched on the M&A topic, too. He said Dine Brands could target a brand substantial enough to be accretive, but, importantly, has the potential to grow to the size of IHOP and Applebee’s, or close to it. “We’re certainly interested in a high growth category that is complementary to the two segments that we’re in and not competitive with our existing brands,” he said.