What’s next for Applebee’s and IHOP?

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Coming off head-turning rebounds at both its Applebee’s and IHOP brands in 2018, Dine Brands Global is looking hard at ways to sustain the momentum.

Pursuit of more off-premise business, including a charge into catering, will be a key part of the effort, Dine Brands CEO Steve Joyce told Restaurant Business. He estimated that the company’s two franchise empires collectively boosted their takeout and delivery sales by 30% to 35% last year, with minimal contribution from catering, “a natural for Applebee’s. We haven’t even really started there yet.” 

IHOP similarly faces a blue ocean in breakfast delivery, where competition is negligible, Joyce says. 

Expansion will also add topspin, he and other executives told investors Thursday. Joyce mentioned the opportunities IHOP enjoys in nontraditional locations, particularly colleges and universities, airports, train stations and highway rest stops. The 1,808-unit chain grew by a net of 34 units in 2018, according to Rebelez.

A smaller prototype developed for the family-focused chain will also facilitate expansion into urban and rural areas, according to Joyce, who noted that Applebee’s may also experiment with scaled-down formats. 

Applebee’s 32 franchisees have virtually stabilized their operations and should “normalize” closings at roughly 1% of the system per year, or approximately 20 units annually by 2020, according to the president of the brand, John Cywinski. Joyce said the operators should start opening new stores again by the end of 2019. The system stood at 1,846 restaurants at year end.

Meanwhile, Dine Brands is continuing its hunt for a third brand to buy. Joyce set a time frame of acquiring a new growth vehicle within the first 18 months of his tenure as CEO, which would put the informal deadline at about July 1.

Joyce reminded financial analysts during a discussion of Dine Brands’ fourth quarter and full year 2018 results that the company is shopping for a regional brand with national potential—something in the neighborhood of 40 to 80 units and a valuation under $100 million. Joyce told RBthat his team has looked at a slew of possibilities, “But nothing’s been right yet.” He declined to comment on reports that Pei Wei Asian Diner, the Asian fast-casual chain, is one of the brands that has been considered.

Joyce noted that an acquisition would have to come with its own management team because Dine Brands doesn’t want to distract the leadership of its two current brands from rejuvenating their charges. Same-store sales for the fourth quarter rose 3.5% at Applebee’s and 3% at IHOP, yielding comp gains for 2018 of 5% and 1.5%, respectively. 

“This momentum continued into January,” said Joyce.

Cywinski characterized the year as Applebee’s best since 1993, when the brand was still in its fast-growth heyday. “We set a goal to become the most improved restaurant brand in America in 2018, and we absolutely delivered on that goal,” he said.

Joyce, Cywinski and IHOP President Darren Rebelez stressed during Dine Brands’ conference call with analysts that the strategic directions set for the chains in 2018 will continue to drive sales, traffic and profits in 2019 and beyond. 

“It wasn’t any one thing, it’s four or five major prongs,” Joyce said in an interview with RBafter the call. “We’re working on all of them.”

He ticked off such factors as giving each brand an effective leadership team, investing in consumer research and focusing intensely on operations. “Our restaurants have never been better run,” he said. 

He also mentioned a commitment by both brands to drawing diners’ attention through menu innovation and crafty use of social media. “We’re giving [customers] a reason to come into our restaurants every month,” Joyce commented. 

The company plans to invest in more technology this year, including devices IHOP patrons can use to order and pay for their meals. The customer-facing technology is incorporated in a new prototype the chain is testing. A new tool for predicting wait times more accurately is already in the adoption stage, Joyce said. 

Still, he indicated, the strategy pursued by Dine Brands in 2019 will not be fundamentally different from the plan that was implemented and executed last year. “We stayed the course and executed against a multipronged strategy focused on returning Dine Brands to a growth company,” he told financial analysts. “With the performance-driven, value-based culture firmly in place, I'm very confident in our go-forward plans.”

Overall, Dine Brands posted a net income for 2018 of $80.4 million, compared with a year-earlier loss of $342.8 million. Revenues for 2018 rose 6.7%, to $780.9 million.

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