Applebee’s, a brand that has built a reputation on limited-time deals like $1 margaritas and 50-cent chicken wings, is changing its value strategy after its old playbook failed again to pull in customers.
Same-store sales at the casual-dining chain fell nearly 6% year over year in the third quarter, parent company Dine Brands said Wednesday. It was the sixth straight quarter of negative same-store sales at the 1,620-unit chain.
Executives cited softer demand from low-income consumers and a competitive promotional environment as factors. Specifically, they said Applebee’s traditional strategy of offering rotating, low-cost specials is not working.
“The guest definition and expectation of value shifted over the last couple of quarters there,” Dine CEO John Peyton told analysts Wednesday. “They started to focus on the total cost of the meal. And where Applebee's and IHOP were focused on primarily promoting an element of the menu or menu item, it became clear that guests want to know the total cost of dining in a restaurant … the cost of your sandwich, plus fries and drink.”
Indeed, the number of tickets that included a limited-time offer or value item at Applebee’s dipped 2 points in the quarter, to 31%.
In response, the chain is shifting its value focus to full meals, starting with a Real Big Meal Deal slated to launch next week. The bundle will include a choice of entree and drink at an affordable price, and it will be available longer than a typical limited-time offer. It will be backed by a comprehensive media campaign.
The effort is expected to give Applebee’s traffic and sales a much-needed boost, said President Tony Moralejo. “There are high expectations across the system for this new campaign,” he said.
IHOP, Applebee’s sister brand under Dine, is taking the same tack with the House Faves lineup it launched last month. The program offers four breakfast meals priced at $6 or $7, depending on the market, and has shown encouraging results, said President Jay Johns.
The strategy resembles one that has worked well for Applebee’s biggest rival, Chili’s Grill & Bar. Chili’s $10.99 3 for Me meal, which includes an entree, chips and salsa, fries and a drink, has propelled the chain to double-digit same-store sales growth in recent quarters..
And many other chains, from McDonald’s to 7-Eleven, have been promoting low-price meal packages to appeal to price-sensitive consumers. Applebee’s usual value messaging, which in the third quarter leveraged a high-profile partnership with the NFL to promote 50-cent boneless wings, has struggled to break through.
“There’s a lot of noise out there for consumers to sort through when there are so many brands and so many categories offering so many promotions and deals,” Peyton said. “We have to make sure that we are very sharp in the right promotion, communicated the right way, to drive traffic and repeat traffic.”
Despite the tough quarter, the company did not change its outlook for the rest of the year. It is forecasting same-stores sales of negative 2% to negative 4%, and 25 to 35 net fewer restaurants.
Applebee’s has been working to return to net new unit growth for years. The biggest hurdle has been the cost of building new restaurants, Peyton said. With that in mind, the company is preparing to unveil a new restaurant prototype that will be 30% less expensive to build. That will launch in early 2025.
The company is also excited about co-branded Applebee’s-IHOPs, which have shown strong returns in international markets. An IHOP franchisee will open the first co-branded U.S. location near San Antonio in February, and there are more than 12 others planned for next year, Peyton said.
The joint restaurants offer food from both brands and have been generating sales that are 1.5 to 2 times as high as a stand-alone location.
“That's going to be a big driver of Applebee's beginning to reverse its net closure numbers,” Peyton said.
IHOP's same-store sales fell 2.1% in the quarter. Dine’s total revenues were $195 million, down from $202.6 million a year ago. Net income was $18 million, up from $18.5 million last year.
The company's stock was up more than 12% late Wednesday morning.
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