With Applebee’s and IHOP both sustaining their turnarounds during the first quarter, parent Dine Brands Global plans to divert a portion of its surging cash flow into sweeping technology upgrades at both brands.
The list of planned investments reads like a full rundown of the shiny new things that have snagged operators’ attention in recent years and months: systems that customers can use to pay remotely or from their tables. Geofencing gizmos that signal the kitchen to get out a takeout order. A tool that helps guests arrive exactly when their table is ready. And new capabilities for strengthening ties with regular customers. The company also plans to outfit both heavily franchised chains with the latest in Wi-Fi for guests.
“We are focusing on technology at both Applebee's and IHOP to improve the guest experience, remove friction points, and improve operational efficiency,” Dine Brands CEO Steve Joyce told financial analysts after the company posted positive results for Q1.
He suggested that investments of that scale can be covered by Dine Brands’ free cash flow, which is running 81% above the level of a year ago. Among the contributing factors was a steep decline in expenses to cover bad debt, the company said.
It also is no longer supplementing the contributions of Applebee’s franchisees to the chain’s cooperative advertising fund, a saving to the franchisor of $13.5 million from the prior year.
Dine Brands reported a net profit for the quarter of $31.6 million, up 85.4% from a year ago, on revenues of $237.2 million, up 26%.
Applebee’s President John Cywinski said the technology initiative would be a topic of discussion during meetings with all franchisees today and tomorrow.
Also on the agenda, he said, will be a discussion of off-premise business, which has been growing at a year-over-year rate of 40%. Cywinski said that those quantum leaps would likely temper as the delivery and takeout channels mature, but he has said in past discussions with analysts that he expects the mix of off-premise to hit 30%. About 1,200 Applebee’s restaurants currently offer delivery, and that count will likely fall between 1,400 and 1,500 by year’s end, according to Cywinski.
The chain’s “ultimate objective” with delivery, he said during Wednesday’s conference call with analysts, was to keep that channel “margin neutral.”
IHOP will incorporate new technology into its restaurants as the system is retrofitted with a new design package called Rise ‘N Shine 2.0. Thirty-five units were renovated during Q1, with another 180 or so scheduled for the update by the end of 2019. Going forward, 200 to 250 stores will be rehabbed each year, said IHOP President Darren Rebelez.
The family chain also plans to open new stores in densely populated urban markets and nontraditional locations such as colleges and travel centers.
IHOP posted a same-store sales gain of 1.2% for Q1, and Applebee’s clocked a 1.8% rise, the fifth and sixth consecutive quarters of positive gains, respectively.
But not all of the results released by the brands were positive.
Cywinski, for instance, noted that February was a difficult month for Applebee’s, partly because of bad weather, but also because the chain did not air a value-oriented marketing message.
He also revealed that 20 to 30 Applebee’s restaurants are likely to close this year, including the four that were shuttered in Q1. Closures should stabilize at a rate of about 1% of the system starting in 2020, he said.