Chili’s segment-busting sales increases have the restaurant industry in awe. One brand, in particular, sees an opportunity to benefit from Chili’s success.
Applebee’s.
The two archrivals in the bar-and-grill niche have long duked it out for market share. But Chili’s earlier this week reported a stunning 31.6% increase in same-store sales on traffic growth of 21% for the first three months of the year. Meanwhile, Applebee’s, which is scheduled to report first quarter earnings May 7, has had seven consecutive quarters of same-store sales declines.
Still, John Peyton, CEO of Applebee’s parent Dine Brands, sees a rising-tide-for-all-boats opportunity.
Speaking at the 25th Annual Restaurant Industry Conference hosted by UCLA Extension in Los Angeles on Thursday, Peyton offered kudos to Chili’s for a remarkable three or four quarters, saying they didn’t happen by accident.
“They executed a plan over the last several years that is paying off,” he said.
And, at a time when restaurant industry pundits were declaring the death of casual dining, he said, “[Chili’s] did demonstrate that there’s an ability to track new guests. There’s an ability to get more business out of their current guests. And there’s absolutely room for two or three competitors.”
Defensively, Peyton noted that Applebee’s was beating Chili’s in Black Box scores coming out of COVID-19, but Chili’s “owned” 2024.
“Chili’s and Applebee’s, when you look back over the decades, it’s always been a horse race,” said Peyton. “And at one time or another, one nose is ahead of the other.
“And so we know that we can do the same,” he added. “We’re working to do the same.”
Applebee’s earlier this year said it plans to take ownership of 47 restaurants from some franchisees with the goal of showcasing a new Lookin’ Good remodel effort and other improvements. The 1,600-unit chain has been almost entirely franchised for years.
The casual-dining chain is also accelerating development of dual-branded restaurants. Dine Brands is also the parent of IHOP, and the first dual-branded Applebee’s-IHOP unit opened in Texas earlier this year.
Dual-branded IHOP-Applebee’s locations have already been growing internationally, with 19 in overseas markets. Peyton said the company expects to see 40 dual-branded units open by the end of 2025 globally, including 12 to 14 in the U.S.
Dine Brands is uniquely able to capture the AM/PM dayparts with the two concepts, he said. IHOP is more breakfast- and lunch-focused, while Applebee’s hits lunch and dinner, and both can offer late night.
The units have both brands under one roof with a shared kitchen. Back of the house workers are trained on both menus. And the 110-item menu is about the same size as the respective menus for each brand—not all dishes are available, but there are some offerings that are unique to the dual-branded locations, like a Buffalo chicken omelet, for example.
So far on average among the 20 existing dual-branded locations, revenues are up 1.5x to 2x when all four dayparts are activated, Peyton said. At the domestic unit in Texas, which has been open about eight weeks, revenues are tracking to hit an annual rate of about $6 million, which is three times the typical IHOP.
“I don’t think that’ll stay there. But it’s a remarkable increase and start,” said Peyton.
Dine Brands is also parent to the Fuzzy’s Tacos brand. Peyton said the company is not looking at doing a tri-branded unit with all three under one roof.
But a franchisee on Monday opened the first Fuzzy’s Tacos location in California, which is side-by-side with an IHOP. Because the brands overlap dayparts (about 10% of Fuzzy’s sales are at breakfast), the front of the two restaurants is distinct, but they share back-of-house operations and restrooms, Peyton said.
Peyton said, “It’s not easy for mature brands like ours to stay relevant, but it’s certainly possible.”
He pointed to brands like Old Spice, once a deodorant associated with “old men and grandfathers,” which successfully captured a new generation with comical advertising that made it relevant again. (Ironically, Chili’s CEO Kevin Hochman and CMO George Felix once worked on the Old Spice campaign.)
In the “sea of sameness” of casual dining, Applebee’s is focusing on brand experiences that are “different, better and special,” he said.
Innovation at Dine Brands has only two hurdles to pass, he said: “The first one is, will it drive more traffic? And the second one is, will it make our franchisees more money? And if we can meet either or both of those, we’re green.”
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