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Thursday, Jun 1, 2023

Change on the Menu

After two years of sluggish sales, Applebee’s Grill & Bar recently unveiled a series of television ads featuring its old signature tagline: “Eatin’ good in the neighborhood.” But reintroducing the well-known slogan isn’t the only change happening at Applebee’s and its parent company, Glendale-based Dine Brands Global Inc., which also owns IHOP. As part of a broader rebranding effort, the company changed its name from DineEquity Inc. last month and announced a detailed plan to invest in its two restaurant chains and return to growth. The company reported annual revenue of $605 million last year, down nearly 5 percent from 2016. Adjusted earnings were $73.7 million, down about a third from the previous year. “We are a company in transition,” said Dine Brands Chief Executive Steve Joyce, during a conference call with investors last month. “The new name Dine Brands reflects a shift in our culture, our way of thinking and a new strategy.” Joyce, the former chief executive at Choice Hotels International Inc., which owns Best Western and Holiday Inn., replaced long-time Dine chief executive Julia Stewart in November. In the earnings call, Joyce told investors the company would be slashing its quarterly dividend by 35 percent to help subsidize new investment into its brands. To oversee the planned turnaround, the company hired nine additional members to its leadership team, including John Cywinski, a former executive at Chili’s parent company Brinker International Inc. who now serves as president of Applebee’s. So-called “casual dining” restaurants such as Applebee’s, Chili’s and TGI Fridays have struggled to attract customers in recent years. Sales at the most popular casual dining chains increased only 0.1 percent in 2017, according to a report by foodservice consulting firm Technomic. Compare that to the 8.9 percent growth at top “fast-casual” chains including counter-service restaurants such as Panera Bread or Chipotle. “The competitive landscape has changed quite a bit in the past 10 or 15 years,” said David Henkes, senior principal at Technomic. “You also have a changing consumer and an environment where big brands of all types are out.” Increased competition from newer fast-casual restaurants that offer quick service and comparable quality at lower prices has hurt chains like IHOP and Applebee’s, Henkes said. He added that many consumers, especially millennials and those even younger, have come to prefer smaller independent restaurants, which they view as providing healthier or higher quality menu options. To re-establish its place in an evolving restaurant landscape, Dine Brands aims to modernize the overall dining experience at its restaurants while also returning to what consumers know them for best. Core values In 2016, Applebee’s launched a $75 million campaign to entice millennial customers who had turned their backs on the chain to return. The restaurant installed artisanal wood-fired grills and replaced some of its popular menu items with higher-end options in conjunction with new advertising messages. The moves ultimately backfired, and the company reported that total sales at Applebee’s dipped 7 percent to $4.1 billion last year. IHOP’s sales stayed roughly flat at $3.2 billion. Restaurant sales are not directly attributable to Dine Brands and only affect the company’s total revenue through royalty payments from franchisees. Amy Mason, senior vice president of consumer insights at Dine Brands, said the company is investing in ways to better respond to what its primary customers expect from its restaurant chains. This includes bringing back popular menu items such as Applebee’s barbecued riblets and IHOP’s all-you-can-eat pancake deals. “We’re really getting to the core of what makes our brands great and makes the experience great for our guests,” said Mason. “That will continue to differentiate us over the coming months and years.” That’s not to say the company has given up on customers under the age of 34, who still make up 45 percent and 49 percent of the clientele at Applebee’s and IHOP respectively. But in a likely attempt to appeal to younger consumers who may be turned-off by family-style restaurants, Dine Brands plans to spend around $100 million to acquire smaller ethnic or health food chains by the end of the year or early next year. Mason said the company is looking to acquire brands that it can bring to scale quickly through its massive infrastructure and franchise network. “We have a rich cross section of franchisees who are looking to grow and invest their capital in new concepts,” she said. Take-out strategy To root out underperforming stores, Dine Brands will close 90 to 120 Applebee’s and IHOP locations in 2018. This comes after closing more than 100 stores last year. While the company’s 100 percent franchise model has helped reduce upfront costs and encouraged swift growth, the strategy has also made it difficult to ensure store locations are up to par. Henkes at Technomic said it’s essential for chain brands to negotiate strong franchise agreements with restaurant owners to grow sustainably. “The quality and level of control over your franchisees become extremely important because you have less control over a specific operation,” he explained. Mason said Dine Brands is putting a renewed focus on its franchise partnerships. “We’re working closely with our franchisees to make sure our guests’ experiences are fantastic and that they are delivering on the brand standard,” she said. Despite the closures, Dine Brands will open 10 to 15 Applebee’s and 85 to 100 IHOP locations in the U.S. and internationally. Many will be smaller “express” restaurants that mirror the fast-casual counter-service model. The plan is to open them in busy areas such as airports, shopping malls and universities that can’t accommodate traditional restaurants. Also, the company is looking to tap into the growing food delivery market. In November, it launched a mobile ordering app for IHOP deliveries and introduced a similar program for Applebee’s this month. “You’re seeing a change in behavior,” said Mason. “People are looking for greater convenience and they don’t have a lot of time or money. [With the apps] we’re trying to create a frictionless access to the brand for consumers wherever and whenever they want.” After the launch of the IHOP delivery app, the brand reported a nearly 25-percent increase in comparable to-go and delivery sales for the fourth quarter. But even with this early success, Dine Brands likely earns comparatively low margins on to-go orders while facing stiff competition from apps such as GrubHub, Henkes said. Still, investing smartly in all aspects of delivery – from quality packaging to the ordering process – could prove a successful growth strategy. “To be effective with delivery, you have to make sure you’re re-creating a great at-home experience for the consumer,” Henkes said. Utilizing customer data As with many large consumer brands, restaurant chains are increasingly turning to big data to give them an edge. Dine Brands plans to use the massive amounts of information it gathers about customers at its restaurants, through its digital rewards programs and on its mobile apps to better understand their dining habits and preferences. “As our guests opt in to various platforms, we are focused on using the information they give us to reinforce or enhance their experience,” said Chief Information Officer Adrian Butler. Butler’s team is using the data to build out a robust consumer insights platform as well as predictive analysis tools to help with decisions about menu options, restaurant locations and marketing campaigns. Whether through television ads or online, the company is using data to establish more targeted ways to reach consumers “A user might not watch TV, but he or she may engage through social channels,” he said. “The magic sauce for our marketing teams is taking the information and tailoring it to the place where our guests are going.” To win over consumers, Mason said Dine Brands needs to offer the best all-around value for their dollar. That means not only offering competitive prices, but re-establishing the family-friendly, neighborhood atmosphere that many customers associate with IHOP and Applebee’s.   “When you think about value, it’s not just about cost,” said Mason. “You want that experience of going to an Applebee’s and having everybody know your name.” There’s already evidence that consumers may be responding. Comparable same-store sales at Applebee’s were up 1.3 percent for the fourth quarter of last year after two years of steep declines, while sales at IHOP declined 0.4 percent over the same period. It also seems Wall Street has taken notice, as shares of Dine Brands gained 37.2 percent during last month alone. Still, casual-dining restaurants face an uphill battle to stay relevant amid evolving customer preferences. Applebee’s competitor Chili’s recently slashed almost half of its menu in attempt to increase food quality, while Outback Steakhouse is in the middle of an extensive remodeling effort to update the ambiance at many of its restaurants. While change is necessary, Dine Brands may also need to stick to its strengths if it hopes to outlast is it competitors. “You can’t be all things to all people, said Henkes. “You really have to focus on what you do best and differentiate yourself via that.”

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