Consumers need good deals to go out to eat.
“This is a battle for value,” Dine Brands Global CEO John Payton told Yahoo Finance. “This is a battle for share of wallet. As our target customers cut back on dining out, we need to ensure that when they do choose to dine out, IHOP, Applebee’s and Fuzzy’s are their first choice.”
With consumers becoming more conscious about how they spend their money and prices remaining high after years of inflation, offering value and experience is crucial to drawing customers in, Mr. Payton said. At Applebee’s, 33% of transactions last quarter included a limited-time or special offer.
But Dine Brands faces competition from all sides, from fast food and fast casual to full-service peers. In the most recent quarter, Dine Brands’ domestic same-store sales growth slowed, with IHOP and Applebee’s dropping 1.4% and 1.8%, respectively. Both fell short of Wall Street’s expectations of a 1% increase, according to Bloomberg consensus estimates.
Same-store sales at the company’s other chain, Fuzzy’s Taco Shop, fell 7.5%.
The fast-food industry is also under pressure: McDonald’s (MCD) U.S. same-store sales fell 0.7% in the second quarter after the company recently tried to double down on its value with the expansion of its $5 value menu.
“What’s happened over the last quarter or two is there’s been a bit of a convergence between fast food, select service and full service like ours,” he said, with prices per meal settling around $10.
Restaurant signs for Applebee’s, McDonald’s, Pizza Hut, Burger King and more line U.S. Route 11 in Bloomsburg, Pennsylvania. (Paul Weaver/SOPA Images/LightRocket via Getty Images) (SOPA Images via Getty Images)
Meanwhile, full-service rivals are focusing on higher-value services and marketing campaigns, according to Wedbush analyst Nick Setian.
Chili’s has launched a “3 For Me” menu that comes with a drink, appetizer and entree for $10.99, while Applebee’s is selling its Whole Lotta Bacon Burger for $9.99, while Buffalo Wild Wings is running a promotion offering all-you-can-eat boneless wings and fries for $19.99.
Brinker International (EAT), the parent company of Chiliz, reports earnings next Wednesday. It expects same-store sales to grow 7.65%, while Chiliz’s is expected to post an 8.26% increase thanks to strong value promotions.
“After all, they [Chili’s] “It’s not just impacting casual dining, it’s impacting QSR, it’s taking share from everybody,” Setian said, adding that the company’s value proposition is “not a sustainable long-term strategy” because of the impact on margins, but it is hurting competitors in the short term.
Under these circumstances, it’s not surprising that Dine Brands reported numbers that fell short of analysts’ expectations, Setian said.
The story continues
Darden Restaurants (DRI), which owns Olive Garden and LongHorn Steakhouse, reported quarterly earnings in June. LongHorn Steakhouse same-store sales increased 4% year over year, while Olive Garden sales were down 1.5% year over year.
The pasta chain, known for its endless breadsticks, tried to avoid a race to the bottom when it came to pricing. “They were the price leader and the price setter within those categories,” Setian said. “This time around, everyone was trying to be more disciplined with their margins, so they [blinked] We hoped that if we weren’t disciplined first, others would be disciplined, but that didn’t happen.”
When asked by Yahoo Finance if Dine Brands plans to lower its key prices to gain an edge, Payton replied: “That’s possible. I’m not going to reveal where we’re going in the next few quarters, but I can say that customers today are very value-conscious.”
However, it is important to ensure that promotions are “always beneficial” for the company and its individual locations.
“We partner with our franchisees to build advertising. Each brand has an advertising committee, which is designed to attract customers, attract customers profitably,” he said.
—
Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter.Brooke DePalma Or email me at bdipalma@yahoofinance.com
Find all the latest retail stock news and events here to better tailor your investment strategy.