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Scientific Method
October 27, 2006

The quest of the restaurant executive is to improve the guest experience while opening new units and making piles of money. Surprisingly often, only small improvements are ever needed to keep customers coming. Chains typically replace smallwares, bust out a new menu item or slap paint on the walls. When it comes to expansion, they snap up real estate wherever their units or rivals are ringing the register. Figuring this stuff out, as the saying goes, isn’t rocket science.

Once in awhile it’s much tougher to make a buck. It is rocket science during these periods. Full-service chains are in one now as the economy sputters. Gross domestic product, for example, inched up a seasonally adjusted 1.6 percent from July through September.

If anyone needs convincing the economic climate is putting a big hurt on chains, they should point their browsers to the third-quarter webcasts (by now archived) for IHOP and Applebee’s, high-flying chains that have put the brakes on expansion, overhauled units and juiced up menus.

Applebee’s, which posted a systemwide 2.3 percent same-store-sales decline, recently teamed up with longtime Food Network chef Tyler Florence. A Johnson & Wales graduate, Florence has introduced four upscale dishes, the Bruschetta Burger among them. “Tyler accelerates the notion that something new is going on here,” promised CEO Dave Goebel.

The giant casual-dining chain is also re-inventing its look. Goebel noted that remodeled stores will separate them from the pack. “I would classify this as an offensive strategy as the space gets crowded,” he declared without providing specifics.

Most telling of all, the fastest-growing casual-dining chain in American history plans to open only 10 to 15 new company restaurants in the next year, half the pace of a few years ago.

IHOP CEO Julia Stewart also delivered startling news: Cincinnati, the company’s test market, won’t grow to the 20 units she had earlier envisioned. Instead the Glendale, Calif.-based company will make do with the existing nine. Stewart blamed the expense of test equipment and R&D for the slowdown. She also conceded the new units weren’t performing as planned. “The better case may be to slow down,” she said, describing Cincinnati as a “work in progress.”

Not that IHOP doesn’t want to grow. Stewart reiterated her intentions to acquire another chain, though it won’t be anytime soon. “It’s an alternative” at this point, she said.

For the time being, Stewart is remodeling units while coping with weakening sales trends. Same-store sales grew 1.3 percent in the third quarter, entirely driven by guest traffic gains, which helped to offset a “slight decrease in guest check average,” according to a press release. Added Stewart: “Consumers are gravitating to less expensive items.&rdquo

Posted by David Farkas on October 27, 2006 | Comments (0)