Financing

Dine Brands says customer spending 'steady' as inflation drags on

Value-hungry consumers continue to visit Applebee’s and IHOP. And executives said prices could start to ease soon.
Applebee's exterior
Same-store sales rose 6.1% at Applebee's in the first quarter. / Photo: Shutterstock

Dine Brands executives acknowledged Wednesday that they have some concerns about the economy. But they said the troubles they see on the horizon have not yet impacted the company’s restaurants.

Visitors to Applebee’s, IHOP and Fuzzy’s Taco Shop have been “resilient” and “steady,” even as inflation marches on, said Dine CEO John Peyton in an interview Wednesday. He noted that average check size has stayed about the same, though guests have been shifting more spending to value options like five wings for $1 at Applebee’s and IHOPPY Hour at IHOP.

The brands’ reputation for value has helped them weather economic storms before, Peyton said, and this time should be no different.

“We know that those three brands tend to overperform during recessions and tough times,” he said. So Dine has largely stuck to its strategy of offering everyday value plus rotating specials. This has apparently prevented customers from trading down to lower-cost restaurants. But Peyton did not rule out leaning further into value promotions if the situation calls for it. 

“If economic times become worse, or if there is a recession and it’s deeper or longer than one might expect, you can make a value offer more valuable,” he said. “We’re not at that point yet.” 

Dine’s top-line performance seems to back that up. Applebee’s same-store sales rose 6.1% year over year in the first quarter, while IHOP’s rose 8.7%. Dine did not report sales results for the recently acquired Fuzzy’s.

Peyton said price increases (5.6% at Applebee’s, 8% at IHOP), accounted for much of the growth. That suggests traffic at the chains has not changed much compared to a year ago.

“Our performance in Q1 demonstrates that franchisees are not pricing out of our guests’ comfort zone,” said Applebee’s President Tony Moralejo in a call with analysts Wednesday.

While consumers may not be resisting higher prices, Peyton said they now expect a better experience when dining out. In the immediate aftermath of COVID-19, customers were more forgiving about things like understaffing and delays. But this year, as prices have increased, “we see them holding us to pre-pandemic standards.”

But executives said that costs are finally starting to ease, meaning franchisees should be able to take less price going forward. For the first time since before the pandemic, Dine’s average sales rose enough to offset labor inflation for the quarter, Peyton told analysts. The cost of coffee, eggs and poultry also dropped significantly. 

“The pressure to raise prices that our franchisees across the brands felt last year is easing a bit because the rate of inflation peaked in mid last year,” Peyton said during the call.

But for the current quarter, at least, prices at IHOP will still be about 8% higher than last year, brand President Jay Johns said. Moralejo did not say whether price hikes would slow at Applebee’s this quarter.

“These decisions are the decision of the franchisee and not the franchisor,” he said. “They are highly strategic.”

Dine also opened a net 21 new restaurants in the quarter. Applebee’s ended the period with 1,673 global restaurants, three fewer than a year ago. IHOP had 1,773 outlets worldwide, an increase of 32 units.

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