When it released its most recent earnings report, Dine Brands (DIN) showed numbers that reflect the wider ups-and-downs of eating out in the current economic environmen.t
While $1.34-per-share earnings significantly beat analyst expectations, the parent company behind well-known casual dining brands like Applebee's and International House of Pancakes (IHOP) are down 9.4% to $207.97 million compared from a year ago.
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Business Wire/TheStreet
"[Our customers] want to come out to eat and they want to be with friends and family and they also want to make sure they were managing their average check," chief executive John Peyton told TheStreet in an exclusive interview.
Reporter Veronika Bondarenko had a chance to ask Peyton about everything from changed habits amid food inflation to the company's recent acquisition of Fuzzy's Taco Shop. This talk has been edited for length and clarity.
TheStreet: Dine Brands' earnings are strong but there has been a drop in total sales. Are people eating out less due to inflation?
John Peyton: Applebee's and IHOP were both pretty resilient in 2022 because they both spent years cementing the reputation with their guests around value -- good food, generous portions and a great environment at a great price. Both brands finished the year with 5%-plus comp sales and 1% to 2% comp sales in December.
We saw generally flat traffic throughout the year. A few new guests joined us and some of our guests dined a little bit less with us. But the big thing we saw was that our guests were navigating the menu and finding the value-oriented options on our menus. They want to come out to eat and they want to be with friends and family and they also want to make sure they were managing their average check.
Food inflation has hit the industry pretty hard but now appears to be off its peak and leveling out. Have you received any customer pushback from raising prices?
In the first half of the year, Applebee's experienced almost 23% inflation of the cost of goods at the restaurants. Food, cleaning products, to-go products, etc. IHOP was at 21% for the first half of the year. This was driven by egg and wheat prices; the two big topics that have been in the news for a while. Our franchisees only raised prices about seven to 10% at Applebee's and 10% at IHOP. I think our franchisees did a good job of balancing the needs to protect their margins with making sure they remained relevant from a price perspective and approachable for their guests. We like the way in which they made those decisions and now as the cost of goods peaked over the summer and is falling, that takes pressure off our franchisees to raise prices and eventually get back to their historical run rate of 2% to 3% price increases a year.
Both Applebee's and IHOP are brands that rely heavily on family memories -- my mother used to work at IHOP as a waitress in the 1990s. How do you balance that nostalgia with the need to evolve?
At IHOP, we're celebrating our 65th birthday this year so you'll hear us talk a lot about that. Brands that have been around for a while have a strength and an advantage that new brands don't -- the affection that guests have for them and that emotional connection. Your mom worked there. I'll mention I work at IHOP and will hear all the time 'oh, my grandfather took me there every Sunday after church.' We don't want to run away from that connection and at the same time, we know we have to remain relevant which is why we are really focused on menu innovation.
We just passed the milestone of having refreshed or renovated 75% of our restaurants. When you go in, and I have today, it looks fresh and new and current. The menu includes items like avocado toast and crepes as well as delicious dinner items.
Aside from looking for value, how else have dining habits changed in the last few years?
The biggest change now compared to 2019 is that you used you would ask yourself, 'what do I want tonight?' 'A burger? Pizza? A lasagna?' The first question has now became 'how do I want to eat tonight?' 'Do I want to eat in?' 'Do I want to cook?' 'Do I want to take out?' 'Do I want it delivered?' Pre-covid, IHOP and Applebee's each had less than 10% of their business off-premise. And now they're both 22% to 25% and have become part of off- premise decision making in a way that wasn't there before. We're doing a lot of work around process and technology and guest experience to make sure that we make that takeout business and the to-go business as seamless and profitable for our franchisees as possible but also enjoyable and easy for our guests as well.
Dine Brands
Dine Brands acquired Fuzzy's Taco Shop in December 2022. How's that been going and is further expansion in the cards?
The short answer is that it's going great and yes, we would like to expand. We've been looking at adding a third brand for quite some time. We looked at a lot of concepts and really fell in love with Fuzzy's because we love the Mexican category. It's fast growing. We love fast casual, which is also a fast-growing category, and we love the Fuzzy's brand. If you go on their website, they call themselves "sassy and badass." When you go there, the buildings are super colorful and bright and a little bit sassy in the language used. Really cool Instagrammable drinks like margaritas with a beer bottle stuck at the top of them and, most importantly, the food is terrific. We love that concept and we love as a business model that it is 100% franchisee. Our goal is to grow it from the 140 restaurants that is today and make it a national brand.
I'll end with a fun question. What are some new dining trends and things people want to eat in 2023?
On the IHOP side, it's really about beverages in terms of all the different kinds of coffees and latttes and teas. We're really looking at the beverage menu in a in a new and aggressive way and we're also looking at building up more of the healthier items on the menu. On the Applebee's side, it's more about the ethnic flavors -- margarita flavors, Mediterranean flavors, Southeast Asian flavors.
