The franchisor of Applebee’s and IHOP expects more units of both chains to close because of the pandemic, but it sees an opportunity in the higher carnage expected for the industry as a whole.
Executives of Dine Brands Global would not project how many branches of either brand might be unable to survive the crisis, despite several requests for an exact a number during the company’s quarterly conference call with financial analysts on Wednesday. Applebee’s President John Cywinski said 56 of his charge’s units are either temporarily or permanently closed, but would not break down that figure.
His counterpart at IHOP, Jay Johns, was more reticent, revealing only that 92% of the family chain’s outlets were open as of Monday. He would not say how many of the remaining 8% were permanently dark.
Their boss, Dine Brands CEO Steve Joyce, said that number is likely to change short term because 41 IHOPs that had presumably closed for good are poised to resume operations after being sold by their bankrupt operator to a healthier franchisee. A total of 49 properties changed hands in the deal.
“There is no question, we will close some restaurants,” said Joyce. “But we don't think the number is going to be a big number.”
He suggested that a higher casualty rate for other full-service operations, particularly independent restaurants, will provide Dine’s two brands with “potential opportunities to increase our market share.”
“We're seeing where people are projecting upwards of 75% or higher of independents closing,” Joyce said. “So obviously there is going to be a lot of buildings available for conversion. And you had several brands that pre-virus were struggling. They're closing a lot of restaurants. We're obviously looking at this all very carefully.”
Both Cywinski and Johns took up the theme.
“The one category that is absolutely disproportionately reliant upon independent restaurants is casual dining--90-plus percent of all restaurants in casual dining are independent, which means strong vibrant brands with scale who are well positioned will benefit significantly,” said Cywinski. “It would be the one category that stands out in terms of opportunity.”
Added Johns, “This scenario actually provides an opportunity for IHOP to increase its market share as some independents close their doors permanently, and IHOP continues to grow through traditional and nontraditional development.”
Still, all three executives emphasized that the financial health of franchisees will be closely monitored to spot and resolve the sort of problems that could lead to closures.
“We've got individual franchisees that we're working with who are going to need some assistance from a short-term basis to weather the storm, and we plan on doing that individually with them,” said Joyce. “There is a handful that we may or may not begin talking with, but it's not it's nothing like the previous downturn for the Applebee's franchisees.”
Under a prior management regime, Applebee’s sales were thrown into a freefall by a disastrous effort to make the brand more upscale. A number of franchisees fell into deep financial trouble, and hundreds of units were forced to close.
During the second quarter, Dine Brands deferred $56 million in royalties and other fees from IHOP’s franchisees.
The company posted a loss for the second quarter of $134.8 million, compared with a year-ago profit of $21.4 million. Revenues slid 51.9%, to $109.7 million.
Same-store sales fell 49.4% for Applebee’s and 59.1% for IHOP. The company said that comps improved for the first 26 days of July to -18.4% for Applebee’s and -37.6% for IHOP.