Does America Love Applebee's Again?
Has America rediscovered its love for Applebee’s?
That’s the belief of John Cywinski, president of the nation’s largest casual-dining chain, following the highest quarterly domestic sales increase in more than a decade. But Cywinski didn’t begin an August 1 conference call by selling prospects and optimism. He started reeling off figures and facts that suggest a significant turnaround for a chain that, not so long ago, was living in the high single-digit sales declines.
Applebee’s same-store sales gained 5.7 percent in the second quarter, year-over-year, driven virtually all from traffic, Cywinski said. It has now achieved 26 consecutive weeks of positive comp sales in 2018. Compared to a year ago: Applebee’s 4.5 percent year-to-date comps growth is a ridiculous 1,160 basis-point improvement.
As that swing shows, you could, in theory, discredit Applebee’s comps somewhat if you measure it against 2017’s red results. In Q2 2017 specifically, the chain’s same-store sales fell 7.9 percent. In Q2 2016, they declined 4.2 percent.
So here’s where that argument loses steam, Cywinski said. Exclude Applebee’s from the equation and Black Box intelligence shows the brand’s comps sales beating the casual-dining category by 465 basis points. It topped comp traffic by 685 points. Dine Brands was also encouraged enough by the momentum to raise its outlook for the year to positive comps of 3.5–4.5 percent. It originally planned for flat to 3 percent growth.
“Collectively, these past three quarters represent the best sustained performance Applebee's has delivered in more than a decade, and we're clearly stealing share from competitors as we've consistently outperformed casual dining, fast casual, family dining, and [quick-service] on both traffic and sales,” Cywinski said.
“While still early, we plan to build upon this momentum one guest, one step, one quarter at a time,” he added. “As I've stated on prior calls, our momentum is the result of a multidimensional growth strategy that we put in place this past year.”
There was a lot to chew on for Applebee’s in the quarter. Some of it proves this “multi-dimensional growth strategy,” is still in full effect. For one, Applebee’s lifted its expected closure guidance to 80–90 restaurants in fiscal 2018, plus an additional 10 international restaurants, up from the 60–80 previous call. CEO Stephen Joyce said the company is working on solutions for the remaining franchisees in its base that need assistance, and expect to have this resolved within the next couple of months. As part of the process, Dine Brands has the ability to selectively take back and manage restaurants on an interim basis until these units are refranchised. “By doing so, we often see opportunities to deliver attractive returns and improve unit-level performance,” Joyce said.
As a company, total revenues were about $184 million in Q2 compared to $189 million in the year-ago period, a decrease primarily due to the refranchising of nine IHOP company-run stores in June 2017.
How does Applebee’s keep the sales momentum churning? Removing those underperforming units is unquestionably one way, as far as comps go. Another is something less tangible leading to a tangible fact. The collective momentum and confidence, as Cywinski referred to it, has inspired franchisees to agree to increase their national advertising rate “with virtually all agreeing” to a lift from 3.5 percent to 4.25 percent, effective July 1 through the end of 2019.
“Now this is meaningful news as it allows us to implement our strategic plan with proper marketing and media support moving forward,” he said.
In Q2, Applebee’s continued to push its “Eatin’ Good In the Neighborhood” brand positioning. For back story, Cywinski, who joined Applebee’s in March, leaving his post as executive vice president of Brinker International, was responsible for Applebee’s Carside To-Go and “Eatin’ Good In The Neighborhood” initiatives when he served as Applebee’s CMO from 2001 through 2006. Part of his return to the brand has been reigniting the nostalgic undertones that seemed to abandon Applebee’s business in recent years.
“While pride and belief are back at Applebee's, it's still early,” he said. “Our competitors remain formidable, and we have much work ahead. We also continue to refine and optimize our franchisee portfolio with proven restaurant operators committed to Applebee's long-term success and restaurant excellence.”
Applebee’s has shifted its strategy to showcase abundant value. The monthly drink deals are a prime example. The Dollarita and $1 Long Island Iced Teas gained most of the press. This past month also saw a “3 DOLLAR Goose and Cranberry” skew the promotion premium. Additionally, Applebee’s announced the return of steak to its 2 for $20 menu (for a limited time) in May and brought all-you-can-eat riblets and chicken tenders for $12.99 to market in July.
Structurally, Applebee’s also continues to refine and optimize its franchisee portfolio. Again, that includes franchisee-to-franchisee acquisitions, closures, and the introduction of new franchises. In September, the company added Apple Mountain, which runs 10 units in Utah. Last month, Louisiana Apple, currently running 18 Applebee’s in Oklahoma, Arkansas, and Kentucky were acquired by Dine Brands from Apple Gold Group for an undisclosed amount. As of March 31, there were 1,923 Applebee's franchises in all 50 states, Puerto Rico, Guam, and 13 other countries.
Off-premises remains a major contributor to Applebee’s sales growth. In Q2, to-go sales lifted 31 percent, which accounted for about half of the total comp sales gains. Delivery is now life in more than 500 Applebee’s nationwide with at least one of its national brand partners and some regional partners as well. “And we expect this number to increase meaningfully by year-end,” Cywinski said.
Both Applebee’s and IHOP are being run by revamped leadership teams. Check out more on that here, which measured to 10 major executive changes at the time. That didn’t include the appointment of Thomas Song as chief financial officer in May. Song arrived, like CEO Joyce, from Choice Hotels International, Inc., where he served as senior vice president of corporate development and innovation since 2013. He said in the call that Dine Brands was, “pleased with our performance for the first half of the year, and we'll continue to execute on our plan to drive sustainable, positive sales in the back half of the year while managing our expenses.” Earlier in the day, the company announced it was pursuing refinancing of our securitized debt.