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Applebee's bets more discounts will reverse sales declines

The casual-dining chain lost business from lower-income guests but believes promotions like $1 margaritas will bring them back.
Applebee's restaurant exterior
Same-store sales fell 4.6% in the first quarter. | Photo: Shutterstock

Applebee’s has long been known as a place to get a good deal. And as price-sensitive consumers pull away from the casual-dining brand, it is doubling down on that identity to get them back.

Same-store sales at the 1,635-unit chain declined 4.6% in the first quarter, which executives blamed on bad weather in January and a slowdown in spending among lower-income consumers due to inflation.

But sales improved each month of the period thanks to a flurry of promotions like all-you-can-eat appetizers and 50-cent wings. The chain ran three discounted offers in the quarter, and 28% of transactions included one, up from 18% a year ago.

That has given Applebee’s confidence that by running a new promotion every four to eight weeks, it can still hit its same-store sales target for the year—flat to 2%—even though it has started in a deep hole. That strategy continues this month with the return of the popular Dollarita. 

“The confidence we have is because we moved in the right direction at the end of Q1 and certainly at the beginning of Q2,” Applebee’s President Tony Moralejo told analysts Wednesday. He added that 50-cent boneless wings “really changed the trend line” in March.

Traffic declines have plagued much of the industry to start the year, and many chains have responded by pushing value. Applebee’s has been more aggressive than most. And while the promotions are intended to drive incremental traffic, they’re also built to be profitable, executives said. 

“A margarita for $1 is profitable in itself,” said John Peyton, CEO of Applebee's parent company Dine Brands. And more than 90% of customers who buy one also order something else. He also noted that Applebee’s coordinates its promotions with commodity costs. If chicken prices are down, Applebee’s might run a chicken deal, for instance. 

“We believe that as long as the promotions are designed to drive profit as a standalone and then drive additional business, that is the strategy that we’re following,” Peyton said.

The chain is also looking to off-premise to help grow traffic. For instance, the 50-cent wing special was available for both dine-in and to-go guests, a first for an Applebee’s promotion. Off-premise made up 22% of sales in the first quarter, which was about the same as last year.

“We are absolutely identifying and implementing more ways to leverage that channel,” Peyton said in an interview Wednesday. “We believe it should be actively managed, not passively.”

That effort includes a new website and mobile app that Peyton said have increased conversions and check averages.

But the chain will stop short of bringing back delivery-only virtual brands such as the defunct Cosmic Wings concept. Peyton said they don’t make sense for Applebee’s like they do for its sister brand, IHOP, which uses virtual brands to drive sales later in the day.

IHOP's same-store sales fell 1.7% in the quarter. 

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