A co-branded Applebee’s/IHOP in Seguin, Texas. | Photo courtesy of Dine Brands
Get ready to see a lot more co-branded Applebee’s/IHOPs.
Dine Brands, the owner of the two full-service restaurant franchises, is picking up the pace of dual-branded openings after seeing strong results from existing locations.
It now expects to have 30 Applebee’s/IHOPs open or under construction by the end of the year, and another 50 by the end of 2026.
Moreover, it now believes there is room for 900 of them nationwide over the next 10 years, about half of which will be new builds.
Today, that 900 figure would account for about 28% of Applebee’s and IHOP’s combined total footprint of roughly 3,200 domestic restaurants.
Dine also has 20 hybrid locations overseas and expects to double that number this year.
“To summarize, the dual-branded opportunity is a big one,” Dine CEO John Peyton told analysts during the company’s earnings call Wednesday.
Dine’s thesis is that by combining its breakfast and dinner concepts, it can create restaurants that are busy all day, expanding sales and profits for franchisees.
The performance of the first dozen or so dual-branded restaurants has given the company confidence that the idea has legs. Sales are running 1.5 to 2.5 times higher than pre-conversion levels, and restaurant-level margins have nearly doubled.
The co-branded restaurants display both brands on the exterior and have a single shared entrance. Inside, the dining room is divided between Applebee’s- and IHOP-themed seating areas, though customers can order from either concept regardless of where they sit.
So far, customers seem to be enjoying the ability to have breakfast for dinner and vice-versa: At co-branded units, at least 15% of sales are coming from Applebee’s in the morning, and the same is true for IHOP in the evenings, executives said.
Dine said the dual model is more efficient for franchisees because they can operate two brands with one kitchen, one POS system and one cross-trained staff. The menu has the same number of items as a stand-alone IHOP or Applebee’s would.
Peyton said initial franchisee demand for the concept came from IHOP operators who saw it as a solution to their weak dinner business. But Applebee’s franchisees are now starting to explore the idea as well, he said.
The company believes co-branding could be the key to jump-starting new-store development after years of shrinking unit counts.
“Each market is unique and each solution has to make sense for that market,” Peyton said. “But the dual brand is giving us a catalyst to get back to net unit growth sooner rather than later.”
It comes as momentum continues to build at both Applebee’s and IHOP after a long stretch of sales and traffic declines.
In the third quarter, Applebee’s same-store sales increased 3.5% year over year, marking its second straight quarter of positive same-store sales. That included positive traffic driven by value and new menu items.
The new chicken parm fettuccine—introduced as part of Applebee’s 2 for $25 value platform—became its best-selling stand-alone pasta dish. And a new Ultimate Trio Appetizer Sampler has been “wildly popular,” Peyton said, contributing to 13.5% of transactions.
At IHOP, same-store sales remained negative, down 1.5%, but the pancake chain reported its first quarter of positive traffic in years.
Executives credited the chain’s $6 value combos, previously known as House Faves and rebranded to IHOP Value Meals during the quarter. About 19% of customers are now ordering one of those four meals, which include breakfast staples like pancakes, omelettes and French toast.
The emphasis on value has held back IHOP’s sales, but the brand is now moving into the next phase of its barbell strategy, which entails more premium options such as Pumpkin Spice Pancakes and pricier combos such as super-sized Ultimate BreakFEASTS designed to get customers to spend more.
Since debuting those higher-priced options, orders containing value meals declined to 15% during the week, from 25%, Peyton said. “We’re seeing a good response to the program to upsell once they’re in the restaurant,” he said.
At both brands, executives noted growth among higher-income customers and softness among lower-income customers.
“We’ve had more higher-income guests joining us than lower-income guests leaving us. The net of that is what’s driving our traffic growth,” Peyton said.
In another encouraging sign, executives said that Applebee’s sales trends have held steady so far in the fourth quarter, and IHOP’s have accelerated.
Dine stock was up nearly 5% as of midday Wednesday.
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