“Over the past few years, the brand’s set out to reinvent Applebee’s as a modern bar and grill in overt pursuit of a more youthful and affluent demographic,” John Cywinski, president of Applebee’s said in a call with analysts this week. Those efforts, he said, included “a clear pendulum swing toward millennials.”
But that turned out to be a bad idea. Longtime regulars balked at new menu items and modern decor, said Patrick Lenow, a spokesman for DineEquity.
“I think, in retrospect, we may have tried too hard to attract new guests,” he said. “That left some of our fans shaking their heads, asking ‘What happened to Applebee’s?'”
Now the company is taking items off the menu, including a turkey sandwich with sriracha chile lime sauce and a pork-ham-bacon sandwich. And it is bringing back old favorites, Lenow said, though he declined to say what those were. (“We wouldn’t want to tip off our competitors,” he said.)
Applebee’s is also assessing “whether the brand truly gets credit for hand-cutting steaks in the restaurant and whether we should continue with this approach,” Cywinski said.
Analysts said these changes are part of a broader turnaround effort at Dine Equity’s 3,700 locations, all of which are franchised. Even IHOP, which has traditionally been a source of stability for the company, has seen sales slip in recent quarters.
“They’re going back to the roots of their business, which is Middle America,” said Brian Vaccaro, an analyst for Raymond James. “They want this to be a go-to place for Americans on a Friday or Saturday night — maybe not in urban markets where you’ve got a lot of restaurants and higher incomes, but certainly in many parts of the country.”
In all, Glendale, Calif.-based Dine Equity plans to close up to 135 Applebee’s restaurants and about 25 IHOP locations. (It will offset some of those closures with the addition of up to 30 Applebee’s and 95 IHOP franchises.) Executives said they had yet to determine which locations would be closed, but added that they plan to focus on older ones and “underperforming — and perhaps even brand-damaging — restaurants.”
“We will be aggressive on restaurant closures this year,” Cywinski said on the call. “These restaurants need to close and perhaps should have closed long ago.”
Stephen P. Joyce, most recently the chief executive of Choice Hotels, will take over DineEquity beginning Sept. 12. At Choice, which is based in Rockville, Md., Joyce oversaw 11 hotel brands including Comfort Inn, EconoLodge and Cambria Hotels & Suites.
The announcements came as DineEquity reported a 21 percent drop in profit. Second-quarter earnings fell to $21.3 million, or $1.18 per share, from $26.8 million, or $1.46 per share, a year ago. Revenue, meanwhile, slipped 3 percent to $155.2 million from $160.3 million a year ago.
In addition, the company plans to remodel IHOP stores and beef up the company’s online ordering capabilities. It has also begun experimenting with smaller IHOP locations that seat up to 140 people aimed at rural areas and pricey urban markets.
But its not all bad news, the company said. Last month, IHOP celebrated its 59th anniversary by aggressively advertising a 59-cent pancake special at some locations.
The event was a success, executives said. Sales rose 59 percent that day.