30% of loyalty rewards program members 'are new to us': Dine Brands CEO
Dine Brands CEO John Peyton joins Yahoo Finance Live to talk about inflationary impacts on restaurant sales and the 2022 guidance on the company's various chains.
Video transcript
DAVE BRIGGS: Meanwhile, shares of Applebee's and IHOP owner Dine Brands largely flat after topping earnings expectations. Dine Brands CEO John Peyton here with us, as is we brought in the big guns for this interview, Brian Sozzi in studio with us as well. Sozz.
BRIAN SOZZI: All right, John, good to see you here this morning. Fascinating earnings call this morning by Dine Brands. You noted and you talked a lot about income disparities. So you are seeing more folks with household income over 75,000 go into Applebee's. A little bit of pullback for those folks under 50,000. What do you think is driving that?
JOHN PEYTON: I think it's all about consumers looking for value, Brian, right? And IHOP and Applebee's have always been value driven brands. And now, at a tough time like this, we are a safe haven where people know what to expect. And you're right. For people with household incomes over $75,000 a year, we saw an increase in business from them of 6% to 8% during the last quarter, which suggests to us that they're looking to us when they're looking for something a little bit more affordable than what they may have been doing just a few months ago.
BRIAN SOZZI: A few months ago, gas prices were much higher than they are now, John. We've seen gas prices really tick down considerably. Have you seen it pick back up in sales from those lower income households?
JOHN PEYTON: Not yet. Gas prices have fallen in the last 50 days. And so that's encouraging for us for the back half of the year and why we say that we're cautiously optimistic. We know that gas prices do correlate to traffic into and out of our restaurants. So we're encouraged by 50 days of decline in gas prices. And we do believe in the back half of the year. That's going to encourage some of those lower income guests to return to IHOP more frequently and Applebee's more frequently than they had.
SEANA SMITH: John, we know your competitors have been forced to raise food prices in the face of higher inflation. Talk about it just in terms of how you see that landscape playing out over the next couple of months because we still don't really see any relief, at least when it comes to inflation pertaining to food prices and how significantly, if you don't raise prices, that could, in turn, weigh on your margins here, at least in the short-term.
JOHN PEYTON: Yeah, well, the good news is, is that based upon the information that we see, it looked like our mass-- our market basket of goods into the restaurants-- food, paper products, oils, cleaning supplies-- seems to have peaked in June.
And while we had a 22% increase in our cost in Q2, we see that moderating to the low to mid teens in the back half of the year. And so that's encouraging because it puts less pressure on our franchisees to raise prices in the back half of the year if their costs are moderating somewhat. And we saw declines in corn, in wheat, and things like that. Proteins are still so high, as you mentioned.
DAVE BRIGGS: Have there been trends, John, that have maintained on now the back side of the pandemic, i.e. takeout. Has that remained consistent for you?
JOHN PEYTON: Yeah, that's one of the-- if there can be a silver lining, you know, Brian, from COVID, one of them is that we are now a major competitor in the off-premise business in a way that we weren't before. So for example, both IHOP and Applebee's before COVID, through 2019, did about 10% or less of their business off-prem. Now they're 22%, 23%, 24%. And that number has been holding for several quarters.
So we've become part of the takeout and delivery consideration set post-COVID in a way that we weren't before. And the best thing about that is 70% of that business is incremental. So that's really a lot of upside for our franchisees and for us.
BRIAN SOZZI: John, full disclosure, I love me some protein pancakes at IHOP. I've been eating these things for years. In terms of menu innovation, what else is on tap this year at IHOP and Applebee's? I know you also, what, launched lip gloss over at Applebee's, right?
JOHN PEYTON: I'm sorry, Brian. Just ask me that one more time.
BRIAN SOZZI: You launched lip gloss at Applebee's, too. I'm not the consumer for that. But still, what else is down the pipeline for you guys? Because I can imagine that helps drive the average ticket, drive margin, and drive profits.
JOHN PEYTON: Yeah, well, just for your viewers that don't know what the lip gloss was, July 29 happened to be National Chicken Wing Day and National Lipstick Day on the same day. So what better way to celebrate the flavors of our chicken wings than by launching chicken wing flavored lip gloss for Applebee's, which is a great way to just generate excitement and buzz, you know, on social channels.
The future for us is, we've been making big investments and playing offense during the crisis. You know, and a great example of that is we designed and launched IHOP's loyalty program, the International Bank of Pancakes, during COVID. It launched in April. We've already signed up 2.4 million members. Our goal was 2.5 million for the year. So we're well ahead of pace. And of those members, 30% or more are new to us.
So when you ask about what's next, we're really investing in this digital relationship, a one-on-one connection with our guests via this loyalty program so that we can grow share of wallet during times like this, but certainly, afterward, as things improve.
SEANA SMITH: And Brian, you have the loyalty program there for IHOP, what does that look like-- excuse me, Brian. I have Sozzi right next to me on set. John, you know, the loyalty program for IHOP, what about using that type of approach when it comes to Applebee's? Is that something that you're considering and something that you think could potentially pay off, especially at a time when consumers are facing higher gas prices and higher food costs?
JOHN PEYTON: Yeah, so the way we work, we're a multi-brand company. We have both IHOP and Applebee's, and so we lean into one brand to explore a new innovative area. And then the other brand learns from it. So as an example, Applebee's last year was the first of our brands to launch Cosmic Wings, a virtual brand that exists only on the third party delivery sites.
And now this year, IHOP, having learned from that, has launched its own virtual brands that are now in 1,000 restaurants. And so the reverse is true. IHOP took the lead on the loyalty program. And Applebee's will study it and consider that as it thinks about its programming going forward.
DAVE BRIGGS: John, Dave Briggs here. Also, last year, you were the beneficiary of the most viral restaurant country music song, maybe the only we've ever seen in our country's history with "Fancy Like." Can you quantify the importance of social media, of TikTok? And do you try to recreate that magic? Is it possible?
JOHN PEYTON: That was a-- it was a gift from the heavens. And it was so authentic, right? Because we didn't write the song. Our advertising agency didn't write the song. You know, Walker Hayes wrote the song about his life and his family and his wife and he enjoying date night at Applebee's. And because it was so sincere and so authentic and so real, it also helped that he and his daughter did an amazing dance on TikTok.
You know, it's hard to quantify what that did. It's won all sorts of advertising awards because we leaned into it in a big way. So I would say that that's magic we would love to recreate. But it comes across your bow every now and then. It was truly magic.
BRIAN SOZZI: A couple of years ago, John, during a high period of inflation, one of your competitors, one of the CEOs of one of your competitors told me they are giving us less meat. So they have cut their steak in a way to cut back on costs. I was blown away. If I order a 12 ounce steak, I want a 12 ounce steak. Are you having to reengineer your menu and giving consumers just a little bit less to protect your margins?
JOHN PEYTON: Absolutely not. So one of our core values is that both of our brands have always been and always will be value oriented brands. And we define that as fabulous food in generous portions, great service, and a warm, welcoming environment. And so for us, adding value added offerings or protecting our margins will never be about reducing portion sizes. That's sacrosanct for us.
DAVE BRIGGS: All right, John Peyton, Dine Brands CEO. Brian Sozzi gets his 12-ounce steak.
BRIAN SOZZI: I'm getting my steak.
DAVE BRIGGS: No shrinkflation.
SEANA SMITH: Don't want to mess with that.
DAVE BRIGGS: Don't mess with the Sozzi steak, John. Good to see you, sir. Thanks for coming on.
JOHN PEYTON: All right. Thanks, guys.
