Why Applebee's Believes it Can Win Again
“We once again have clarity on who we are and what we stand for.”
Those were the words of John Cywinski, Applebee’s president, during a recent conference call. Trying to dissect what’s wrong with America’s largest casual dining chain can feel like a town hall full of dissenters sometimes. Was it DineEquity’s refranchising initiative, a plan Buffalo Wild Wings executives put up as a cautionary tale to investors back in the spring? Is it simply industry headwinds? A lack of attention to its franchise model? Too much growth, too quickly? Overcomplicated operations? An identity crisis? The decision to ignore core guests at the expense of millennials, a segment it couldn’t reach no matter how hard it tried?
Regardless of which camp you connect with, the numbers have told a concise story. Applebee’s is slogging through a fiscal year in which it plans to shutter up to 135 restaurants. In the third quarter, domestic systemwide same-store sales fell 7.7 percent, year-over-year, which, unfortunately, was par for the course lately, not an eye-opening decline.
But following this same quarter, shares of DineEquity popped as investors took in some positive overtones. Among them, the company’s revised same-stores sales guidance of negative 5.5–6 percent from 6–8 percent. There was also a sense of optimism from Applebee’s revamped leadership team, which outlined a future it believes can turn the 1,761-unit ship around.
“Over the last few months, we have thoughtfully restructured the organization to ensure that Applebee's has the dedicated resources to support our franchisees and the brand's growth strategy,” Stephen Joyce, DineEquity’s CEO, said in the call.
Joyce, the former chief executive officer of Choice Hotels, stepped into the role two months ago. He was a member of DineEquity’s board of directors for the past five years and arrived with almost 40 years of experience in the hospitality and food and beverage industries. A key note: more than 30 of those were spent working with franchisees.
Cywinski joined Applebee’s in March, leaving his post as executive vice president of Brinker International, the parent company of Chili’s and Maggiano’s Little Italy. He also clocked time as president of KFC’s nearly 4,500-unit U.S business from 2010–2014, and was also once the chief marketing officer at Applebee’s. An important fact: he was responsible for Applebee’s Carside To-Go and “Eatin’ Good In The Neighborhood” initiatives.
With that in mind, it’s clear where Applebee’s wants to go first: back to what made it Applebee’s in the first place.
“Now realizing our full potential will not happen overnight, it is certainly achievable with a change in our philosophy of what DineEquity is,” Joyce said.
What DineEquity is becoming, Joyce added, is a company that measures its success by total shareholder return.
“We are no longer a brand company that oversees two great brands, but a holding company whose attention and committed team members will be focused on supporting the success of the brands as well, and in particular, our franchisees,” he said.
That starts with culture. Many pundits have asked, who is Applebee’s right now? Like Cywinski noted, what does it stand for? The same is true of DineEquity, Joyce explained.
“One, we will establish a performance-driven culture here at [DineEquity]. Two, we will drive sustainable, positive sales at Applebee's and IHOP. And three, we will return to a growth company,” he said.
So how does a chain that has lagged for years morph into a performance-based culture? Joyce said DineEquity will place an emphasis on agility and innovation, and creating opportunities for franchisees.
“A shift in culture is very important to fostering greater collaboration, both internally and externally, being bolder, taking risks, and moving forward. I'm bringing this focus to [DineEquity] and making certain that our iconic brands remain strong and that our franchise system benefits from relevant brands that lead their respective categories. Our success is driven by the success of our franchisees,” he said.
Cywinski touched on this “culture of accountability” as well. Applebee’s recently promoted Kevin Carroll to senior vice president, chief operations officer, of Applebee’s. He joined the brand in June as vice president of operations. He also came from Chili’s, having spent 27 years with the brand, 14 of which he served as senior vice president and led more than 400 company-owned restaurants.
“Kevin will hold our franchisees accountable for an elevated guest experience through partnership, sharing of best practices, and adherence to brand standards,” Cywinski said.
Some of this can directly be linked to the closures. Underperforming locations have seemed like an acceptable blip in Applebee’s performance in past years.
That’s something Cywinski bluntly addressed in August, saying Applebee’s was shutting the door on locations that “need to close and perhaps should have closed long ago.”
Cywinski said Applebee’s is partnering with its financial adviser, Trinity Capital, and offering franchisees the ability to avail themselves to various financial assistance programs, including restaurant closures and direct financial support. He said only a few franchisees have asked for direct financial assistance, although all but a few have participated in the improved closure process for underperforming units.
“At Applebee's, our dedicated and savvy franchisees are moving forward with simplifying restaurant operations while elevating the guest experience,” Joyce said. “This focus has result in marked improvement in the brand's overall guest satisfaction score over the last 12 months and, recently, in revenue performance. The entire Applebee's team is currently focusing on what needs to be done to make the brand more relevant and to jump-start its growth.”
In this action plan, Applebee’s has leveraged “breakthrough advertising,” implemented a refined national media strategy, developed promotions, and expanded its culinary pipeline. That food focus is also a transitional one led by a former Brinker employee. In August, Applebee’s tapped Stephen Bulgarelli as its new chief culinary officer. He spent the last five years as vice president of food and beverage at Chili’s.
This has been an ongoing conversation for Applebee’s. “On the culinary front, we'll shy away from niche and trendy menu items while embracing broadly appealing mainstream flavor profiles as well as abundant value,” Cywinski said. “Our new disciplined testing and validation process is now in place as we build our innovation pipeline with a relentless guest orientation. Importantly, all culinary innovations will have a clear operations complexity filter prior to consideration. This is an essential part of our new process.”
The moves can be seen already. Applebee’s supplemented its ad fund with a $4 million contribution, Cywinski said. It reintroduced the “Eatin’ Good In The Neighborhood’ campaign, and focused on its core 2 for $20 value proposition with a beverage underlay.
“And for the first months since about middle of 2015, we saw positive traffic and sales growth in October,” Cywinski said.
That slogan touches additional fronts. Cywinski said the company is embracing “Applebee’s brand essence.”
“We're fundamentally well positioned as an all-American value-oriented and family-friendly brand with deep connections throughout the communities in which we operate,” he said. “… We'll target routine traditionalists as well as those very important value seekers, who prefer casual dining restaurants and Applebee's, in particular. Our approach to content development has been refined. Media and advertising strategies have been substantially enhanced, and our brand voice and personality will become crystal clear to our guests as we move through 2018.”
Applebee’s is also starting to leverage technology in new ways. Off-premises dining remains a priority, and has required the chain to improve its packaging and operations. Cywinski said the investments are slated for implementation in the middle of 2018, “once we have validated the ideal service model.”
Delivery is currently available in about 150 restaurants, while to-go accounts for just over 8 percent of total sales.
“We know what our guest value and what makes us so unique in this crowded space, and we are most certainly aligned with our franchisees on how we execute this turnaround plan moving forward,” Cywinski said.