DineEquity Inc. Shaking Things Up Across the Board

DineEquity Inc., the parent company of IHOP and Applebee’s, reported a 5.5% increase in profits during the first quarter of 2012.  They also announced a purchase agreement for the sale of 39 Applebee’s locations that are currently company operated.  The units are being sold to the Potomac Family Dining Group LLC of Virginia.

 

Set to close in the third quarter, this deal is expected to net DineEquity about $25 million, reducing the firm’s sale-leaseback obligations to the tune of $40 million.  This is the second time that Potomac Family Dining has purchased restaurants.  Earlier purchases were made in the Washington, DC area.

 

DineEquity is moving towards refranchising and this sale will place about 96% of Applebee’s restaurants in franchise agreements.  This last transaction is part of an overall strategy and has helped boost numbers, but is only a portion of the total picture.

 

Julia Stewart, Chief Executive of DineEquity, states that the company is focused on innovative efforts that will help to differentiate each brand.  Applebee’s has replaced and upgraded almost everything on the menu in the last few years.  Particularly successful have been New Orleans-style dishes and the 2-for-$20 menu.  Additionally, 36% of the units have been renovated and more are due to be completed by the end of the year.

 

IHOP restaurants have not received as much attention, but DineEquity plans to continue work on the menu, focusing upon promoting the value message that’s so attractive to customers.  One such innovation was the recently revealed “7 for $7” menu selections.  These offer 7 meal options for only $7 each day.

 

IHOP will be launching a new marketing campaign in the second quarter.  The brand is moving towards healthier selections as well as low-calorie items so as to draw in a different demographic.  While DineEquity is still searching for the perfect value message for IHOP, franchise support remains strong.

Menu Options to Reach Customers

The cost of restaurant operations is going up.  The increasing price of commodities may require restaurants to increase menu prices.  And all the while, consumers have become pickier about how they spend money.  They want value as well as a good price.

 

The challenge for a restaurant is to figure out how to make a profit while still offering value.  That is not to say that menu prices can’t be increased to generate profit.  But the underlying issue is respecting customers and realizing that they are savvier buyers than they were a few years ago.

 

If increasing the menu price is on a restaurant’s to-do list, value should be included along with it.  Customers don’t want to feel like they are being ripped off, so adding in some options that allow them more bang for their buck may be a good idea.

 

Prix fixe menus, smaller portion sizes for a lesser cost, and different pricing tiers are three ways a restaurant can offer value while still getting their share of profits.

 

It would also be wise for a restaurant to develop a pricing strategy that takes the customers’ needs into consideration rather than just increasing prices.

 

Upselling may also be a thing of the past as far as customers are concerned.  Instead of asking if a customer would like an extra option, train servers to analyze and cater to the customer’s needs.  Offering a personalized customer experience may be the name of the game.

 

Keeping up profit in today’s world of thrifty consumers looking for bargains doesn’t have to be an impossible feat.  But it is important for restaurants to think about the customers and not just the bottom line.

 

That is not to say they need to sacrifice the brand for the price.  Rather, make the brand and the experience an invaluable part of the consumers’ lives.  Offer value as well as a great dining experience.  Give them a reason to come back for more.