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Sunday, Sep 25, 2022

Dine Brands to Expand With Experimentation

 Glendale-based restaurant operator Dine Brands Global Inc. continues to make progress in its sales recovery from the COVID-19 pandemic by launching several new formats and business models.

Dine Brands Global franchises restaurants under the IHOP and Applebee’s Neighborhood Grill + Bar brands.  On March 15, 2020, a few days after COVID-19 was declared a pandemic, the company’s stock closed at $17.41 a share. Since then, shares have more than rebounded and on July 14, the price closed at $85.77 a share.  The company reported revenue of $204 million in first-quarter results announced May 5. The figure represented a 1 percent decrease year-over-year, weighed down by negative domestic same-restaurant sales from IHOP. The breakfast establishment’s comparable same-restaurant sales decreased 0.9 percent in 2021, marking the fifth consecutive quarter of same-restaurant sales declines.

The compensator for IHOP’s performance was Applebee’s, which experienced an11.9 percent growth. Off-premise dining revenue increased nearly 123 percent and accounted for 36.7 percent of sales mix during the quarter, despite fewer restrictions and increased vaccinations that served as a boon for on-premise sales.

By the end of March, 99 percent of Dine Brands’ 3,256 domestic restaurants were open for either dine-in service or off-premise service, with 32 of those restaurants temporarily closed.

“Dine Brands started the year in a position of strength,” Allison Hall, interim chief financial officer, said in a statement. “Our cash position remained strong, enabling us to repay the $220 million drawn against our revolving credit facility. Maintaining our financial flexibility will be a top priority as our business continues to improve.” New formatsDine Brands is aiming for growth, not just recovery, through the implementation of ghost kitchens, streamlined dining and a delivery-only spinoff brand.

Applebee’s ghost kitchens are designed without a dine-in option and are purely dedicated to fulfilling delivery orders. The kitchens are currently in a pilot phase, with locations in Los Angeles, Philadelphia and one more slated for Miami.

The streamlined dining concept Flip’d is an offshoot of IHOP. The smaller-sized format is geared to working or on-the-go consumers and offers egg sandwiches, pancake bowls, burritos, chicken sandwiches and steak burgers.  Dine Brands is also experimenting with virtual kitchens in the form of Cosmic Wings, a concept restaurant offered exclusively on UberEats that is run out of nearly 1,300 Applebee’s locations in the U.S.

Cosmic Wings’ menu features traditional and boneless wings, waffle fries, chicken tenders and onion rings. Two exclusive Cheetos wing sauces are also available.

“From a labor perspective, there is some cross training to support, but otherwise, this integrates well into our existing footprint,” Scott Gladstone, vice president of strategy and development, said in a Forbes interview. “Operationally, we’re not introducing too much complexity into the back of the house which, combined with our large scale, is something we think helps us stand out.” ‘Near unmatched scale’Analysts at Truist Securities expect a more efficient operating model for Dine Brands post-COVID, as well as a sharp uptick in new restaurant development.  In a report dated June 7, Truist analysts predicted that accelerated development at IHOP will be fueled by flexible store formats that include small formats for small markets, as well as the Flip’d concept. Conversion opportunities may also act as a boon for development.

For Applebee’s, Truist expects restaurant closures to slow after years of nixing low-performing stores and improved unit economics to drive openings.

“We believe that Applebee’s near unmatched scale and appeal to a young demographic will enable it to drive positive same store sales and modest net new store development, and we believe IHOP will continue its same store sales outperformance versus family dining,” the analysts wrote in the report.

Brokerage Raymond James wrote in company report on May 12 that Dine Brands’ first-quarter results supported increased confidence that the company’s earning before interest, taxes, depreciation and amortization can recover to pre-COVID levels. Also, Applebee’s improved financial health may allow for “enterprise-level unit growth to turn slightly positive exiting COVID as IHOP unit growth reaccelerates.” Truist foresees a number of risks for Dine Brands moving forward, including a repeat of Applebee’s same-store sales declines from 2015 to 2017, greater competition for IHOP at breakfast from fast food, a COVID-induced prolonged sales slump and operating inflation that overwhelms Dine Brands’ purchasing scale advantage.

Antonio Pequeño IV
Antonio Pequeño IV
Antonio “Tony” Pequeño IV is a reporter covering health care, finance and law for the San Fernando Valley Business Journal. He specializes in reporting on some of the biggest names in the Valley’s biotechnology sector. In addition to his work with the Business Journal, Tony has reported with BuzzFeed News on the unsupervised use of Clearview AI, a controversial facial recognition technology. Tony, who also conducts freelance reporting, graduated from the USC’s Master of Science in Journalism program in 2021. He is in his fifth year as a journalist as of 2021.

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