One of the pointed questions raised about virtual restaurant brands is how they’ll fare after restaurant sales rebound to pre-pandemic heights and kitchens are running at top capacity again. Can a humming facility produce the menu of a second concept even if the orders are just for delivery and takeout?
That’s not a worry to John Peyton, the new CEO of Applebee’s and IHOP parent Dine Brands Global. Four months into the job, the alumnus of real estate and hotel franchising is looking at ways of growing his charge’s business, and both virtual concepts and their fellow travelers, ghost kitchens, figure prominently in his current thinking.
“What I like about virtual brands is the flexibility,” he explains. “You can target a brand by daypart. You can target a brand by a demographic so you reach a type of customer who’s not currently with you. You can design a virtual brand for a particular cuisine that’s underrepresented in an area. Done well and done thoughtfully, there are a lot of options.”
A kitchen might be cranking at maximum output during the mother concept’s peak hours, but chances are it’s not chugging full-bore from opening to closing. In Peyton’s view, lulls are where the opportunities lie for a virtual upstart, and he intends to have Dine Brands pursue them with operationally appropriate ventures, building off the experiences of Applebee’s second brickless and mortarless venture, a chicken wings specialist called Cosmic Wings.
Peyton describes virtual brands and restaurant kitchens as “building blocks of the restaurant renaissance” he sees unfolding for the industry as a whole and for Dine’s two brands in particular. He describes that rebirth as a period of creativity and experimentation where “we’re changing the way people think.” And that can require acting with a degree of uncertainty.
“Right now we’re in test-and-learn mode,” he says during a telephone interview with Restaurant Business. “Virtual brands are a great example of that. There are many players that are all learning as we speak. The same thing can be said of ghost kitchens.”
Indeed, “the biggest challenge facing the industry right now is the unknown,” says Peyton. “We just don’t know how the combination of spring weather, vaccinations, the re-openings of more state, the desire of people to get out of the house, all those things will affect our business.”
But Peyton is betting that some factors are givens. For instance, he says, “we’re looking at our off-premise business.” For instance, “to-go packaging as a way of supporting that business.”
Takeout and delivery are currently generating about one-third of total sales for an Applebee’s or an IHOP restaurant, and that mix has held steady as the overall volume of revenues has increased, suggesting a continuing climb in off-premise dollars. Peyton points out that Applebee’s and IHOP likely weren’t in the mental list of possibilities when consumers thought about a to-go meal pre-pandemic, making off-premise another building block in the renaissance.
Peyton suggested in reporting Dine’s first-quarter sales that the development of smaller-sized formats for Applebee’s and IHOP will be a keystone of sorts, particularly for IHOP. Among the priorities he spelled out for financial analysts during their quarterly conference call was leaning into the development of the pancake specialist’s fast-casual spinoff, Flip’d, a scaled-down version designed to handle primarily off-premise sales. The concept was developed pre-pandemic but then put on hold as the crisis festered.
He notes that there’s no pandemic chapter in the management handbook. Other unknowns could be expected because Peyton joined Dine from the real estate industry, where he spent six years leading Realogy, the franchisor of such businesses as Coldwell Banker, Century 21 and Sotheby’s International Realty.
But he’s no stranger to dining rooms and kitchens. Before Realogy, Peyton spent 18 years with Starwood Hotels, the parent company of Westin, Sheraton and a host of other lodging brands, most recently as CMO.
Both jobs, he says, put him in good stead for his current post at Dine, an asset-light franchisor.
“What I would argue is that the business of franchising has a lot of commonality across other industries,” Peyton says. “One of the reasons I think the board chose me was because I had a lot of franchising experience.”
Peyton took over the CEO’s post from Steve Joyce, whose contract wasn’t renewed by the board. Each of Dine’s brands has a seasoned executive as president, John Cywinski at Applebee’s and Jay Johns at IHOP, both of whom their new boss praises effusively for their leadership abilities.
“The Number One matter we’re focused on right now is overcoming the pandemic,” says Peyton. “ Phase Two is transitioning out of it, as we’re doing right now.”
Part of that effort will be what he describes as a top-to-bottom strategic review that will lay serve as a springboard for a long-range growth plan.
“I do believe there could be an opportunity to add a third brand if we found the right fit,” he says, echoing a mission that was interrupted for his predecessor by the pandemic.
In the meantime, there are some virtual concepts to explore.