Financing

Applebee's and IHOP see a more cautious consumer

The Dine Brands concepts said guests are gravitating toward discounts and opting for pickup over delivery as prices continue to rise.
Same-store sales declined 1% at Applebee's in the second quarter. | Photo: Shutterstock

Applebee’s and IHOP customers are becoming more price-conscious as inflation drags on, franchisor Dine Brands said Thursday.

Guests in the second quarter opted for more discounts and deals at the two brands. And those who were getting their food to-go increasingly chose to pick it up themselves rather than pay extra to have it delivered.

The changes were “subtle,” Dine CEO John Peyton said in an interview. For instance, the mix of limited-time offers and other value-oriented items at Applebee’s increased to 19%, from 15%, in the period. But other trends remained stable: Average check size stayed the same, he said, and the company has made no changes to its top-line expectations for the year.

Nonetheless, Applebee’s same-store sales fell 1% in the period, while IHOP’s rose 2.1%.

To appeal to a “slightly more hesitant” consumer, Applebee’s upped the ante on value in the period, adding steak as an option in its regular 2 for $25 promotion in June. Customers could get two 6-ounce Top Sirloins and an app or two side salads for $25. The deal helped boost traffic, executives said.

Some analysts were concerned about the effect a fuller embrace of value could have on margins, especially as competitors like Chili’s and Outback Steakhouse have made a concerted effort to reduce discounting recently. But neither Applebee’s nor IHOP indicated it would waver from their strategy, noting that they have a reputation for value. 

“We've been ... a value-based player in this segment for many, many years,” Applebee’s President Tony Moralejo said. “We have a playbook that's produced strong results.

Applebee’s and IHOP’s traffic problems are not unique among full-service restaurants. In fact, nearly every publicly traded sit-down chain that has reported their Q2 earnings said transactions declined. The only exception was the juggernaut Texas Roadhouse. 

The slowdown is in part a reflection of strong results from a year ago, when consumers were spending more freely as they emerged from the omicron wave.

But it is also a function of ongoing inflation. FSR menu prices in June were 6.2% higher than they were last year. At Dine Brands, prices are 5% to 8% higher year to date.

The good news is that Dine expects its own costs to decrease in the second half of the year, including a 1.5% decline in commodity costs at Applebee's and a 3% drop at IHOP.

“As inflation moderates ... as disposable income improves and guest sentiment improves, you'll find that we'll be very well-positioned to capture more share,” Moralejo said.

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