Applebee’s customers are increasingly choosing to eat at home rather than dine out, prompting the casual-dining chain to dim its outlook for the year, the company said Wednesday.
In the second quarter, same-store sales at the 1,636-unit chain fell 1.8% year over year as customers visited less frequently. And unlike the previous quarter, when demand improved month over month, it got worse in May through June, executives said during an earnings call.
In an interview, John Peyton, CEO of Applebee’s owner Dine Brands, said it seemed as if years of heavy inflation were finally catching up with people. “It looks to me like there’s a lag from when inflation actually occurs and when it begins to affect the behavior of the consumer,” he said.
With that in mind, Applebee’s lowered its expectations for the rest of the year. It’s now expecting same-store sales to decline 2% to 4%, down from flat to up 2% previously.
When customers did visit Applebee’s, they gravitated toward lower-priced items. About 33% of tickets in the quarter featured a value offer such as 50-cent boneless wings or meals from the chain’s 2 for $25 menu. That was up from the low- to mid-20% range last year.
Looking ahead, Applebee’s plans to hone in even further on value to help it weather the tough environment. It’s currently running all-you-can-eat boneless wings, Riblets, and Double Crunch Shrimp with endless fries for $15.99. Its sister concept under Dine Brands, 1,809-unit IHOP, is doing the same with pancakes. It’s the first time both chains have offered all-you-can-eat meals at the same time, Peyton said.
“That’s absolutely a reflection of where we think both brands are and what’s needed to drive traffic right now,” he said.
Still, bargains like 50-cent wings and $1 margaritas have so far not been enough to reverse Applebee’s traffic declines. It raised the question of whether the chain is losing share to value-minded rivals such as Chili’s. But Peyton said its issues have more to do with customers choosing not to eat out at all.
According to Applebee’s President Tony Moralejo, the chain recently did a deep dive to determine if it was losing share to other brands and found that there isn’t any single chain that is siphoning off Applebee’s guests.
“In fact, the most meaningful factors that have impacted our performance, they're external factors … like household income and pricing,” he said during a call with analysts Wednesday morning.
Notably, Applebee’s dine-in traffic has remained steady, Peyton said. The weakness has been in the off-premise side of the business. In the second quarter, takeout and delivery made up 21.4% of sales at Applebee’s, down about 5% year over year.
Peyton said Applebee’s will do more to promote the off-premise channel in part by featuring the deals customers are looking for. For instance, the 50-cent wing offer was available for both dine-in and to-go guests, a first for an Applebee’s promotion.
“When you put together a media plan, you have to nurture the audience, and you need to nurture all the channels in which the audience finds us,” he said.
A national partnership with the NFL could provide an opportunity for the chain to do that. Applebee's is the league's official bar and grill partner for the upcoming football season, an agreement that will entail TV and online ads as well as a presence at NFL events.
Other highlights from the quarter included:
- Dual-branded stores: Dine Brands opened two dual-branded Applebee's/IHOP locations in Saudi Arabia and Kuwait. On average, these stores generate twice as much revenue as a stand-alone Applebee's or IHOP of the same size. Dine has 15 sites approved for potential dual-branded locations in the U.S.
- Prices: Menu price increases are falling back to historical norms. Applebee's prices were 2.6% higher in the quarter than last year, which was within the chain's typical range of 2% to 3%.
- Menu innovation: Applebee's new Whole Lotta Bacon Burger and hand-breaded chicken sandwiches performed well. The burger is joining the permanent menu.
- IHOP: Same-store sales fell 1.4%. For the full year, they are now expected to be negative 2% to 0%.
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