Applebee’s will close more restaurants than initially expected this year, complicating its long-running plans to return to net new unit growth.
The 1,661-unit franchisor now expects to finish 2023 with 25 to 35 net fewer U.S. restaurants, compared to the previously forecasted 10 to 20.
The updated unit-count guidance represents an acceleration of closures. The last time Applebee's finished a year with more than 30 net closures was in 2020, when it had 67 fewer restaurants than the year before.
In the second quarter alone, it closed 10 domestic Applebee’s and opened one for a net loss of nine locations. It also closed four international stores and opened one.
Applebee’s has shut down about 300 stores since 2017 in an effort to weed out underperforming locations and return to growth mode. It had initially targeted 2023 as the year it would open more restaurants than it closed, marking an end to the strategic pruning. But rising development costs have slowed new openings.
Then, a recent review of the portfolio found additional stores that weren’t doing well, President Tony Moralejo said on an earnings call Thursday. That called for even more closures.
Many of the restaurants slated for retirement are at least 20 years old and have struggled for years as the areas around them have changed, especially after the pandemic.
“Think about how certain malls no longer have the traffic they did before COVID,” said John Peyton, CEO of owner Dine Brands, in an interview. “The market can shift over time. And COVID accelerated the shift.”
Others were unable to renew their leases, Moralejo said, noting that some of the closures are “cyclical.”
“Keep in mind this is a function of opening up many, many restaurants 20 years ago,” he said.
Applebee’s plans to work with the operators of the closed restaurants to relocate them to more fruitful areas. As proof of the success of its new development strategy, the four Applebee’s that opened last year are doing well, with AUVs of about $4 million—far higher than the system average of nearly $3 million, Peyton said.
The obstacle there is development costs, which have risen about 30% for Applebee’s. To ease that issue, Dine is offering incentives to operators who agree to expand beyond their contractually required number of stores. It has also worked with franchisees to create a new, more affordable Applebee’s prototype that will be available next year. Peyton declined to provide details about what it will look like.
The news of additional closures comes after a quarter in which Applebee’s same-store sales declined 1%. Executives cited difficult year-over-year comparisons and a “modest” change in consumer behavior and traffic for the decline. Guests shifted to more value-focused menu items and favored pickup over delivery in the period, though average check size remained the same.
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