(Bloomberg Businessweek) -- There's no doubt sit-down chain restaurants face a tough consumer environment right now. The market is oversaturated, and diners continue to flock to the fast-casual format.
And yet I understand why investors perked up this week about the prospects of Dine Brands Global Inc., the recently renamed corporate parent of Applebee's and IHOP.
The company offered guidance on Tuesday for the fiscal year that included flat to positive comparable sales growth at both chains. That would be a major improvement on this measure compared to 2017. And during a presentation for investors on Wednesday, executives outlined turnaround efforts that have a reasonably good shot at succeeding.
Dine Brands leaders spoke frankly about how, at least in the U.S., their business is a market-share game now, with no illusions about a near-term return to growth for the family and casual-dining categories. And the company's approach to grabbing more share is realistic and well-tailored to each brand.
At Applebee's, executives will keep shuttering some underperforming locations, with 60 to 80 closures planned for 2018. Meanwhile, it aims to add $300,000 of incremental revenue per restaurant over the next five years. That doesn't seem like a stretch for a chain with an average unit volume of $2.3 million last year, particularly as each location ramps up delivery and carry-out offerings.
As for IHOP, it will add more locations. I'd typically be skeptical of such a move, but there's logic for doing it here. For one, much of the focus at IHOP is on new formats for new kinds of locations, including airports, interstate rest stops and casinos.
And breakfast -- IHOP's specialty -- was the only daypart in the restaurant industry to see traffic growth in 2017, according to market research firm NPD Group.
Both chains are also marketing themselves to customers as a value play. At IHOP, for example, executives decided to mention price in the commercials for their recent All You Can Eat pancakes promotion. Applebee's is pushing limited-time offers such as DollarMamas -- a version of a Bahama Mama cocktail that costs $1. Applebee's President John Cywinski said Wednesday these and other recent alcoholic-beverage deals are luring a different kind of customer to the chain.
Turning up the dial on value messaging seems like the right play for Dine Brands, which says more than half of its customers have annual household income of less than $75,000.
After all, NPD Group found that visits to restaurants based on a deal offer rose 2 percent in 2017, while non-deal-based visits fell 1 percent. And we've seen how a return to this kind of marketing and merchandising has helped McDonald's Corp. of late; perhaps it can work well for pancakes and steaks, too.
Applebee's and IHOP clearly know who their customer is, and they're taking sensible steps to lure them to visit more often.
Speaking of their customers, I was surprised to see how favorable the diner demographics are at both brands -- especially IHOP -- compared to those of their competitors:
It's important that these brands already have inroads with younger diners, who will fuel the industry-wide shift toward takeout and delivery dining. Maybe their allegiance to IHOP and Applebee's will carry over into these new formats.
Dine Brands still has a formidable challenge ahead, navigating the upheaval in the restaurant industry. But it did much this week to show its mission is not hopeless.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
To contact the author of this story: Sarah Halzack in Washington at shalzack@bloomberg.net.
To contact the editor responsible for this story: Mark Gongloff at mgongloff1@bloomberg.net.
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