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Edit Story
Food & Drink
APPLEBEE’S AND IHOP ARE ADDING NEW TECHNOLOGIES, INCLUDING ROBOTICS, TO OFFSET
LABOR SHORTAGES
Alicia Kelso
Senior Contributor
Opinions expressed by Forbes Contributors are their own.
I cover quick-service, fast casual and pizza restaurants.
May 6, 2022,08:44am EDT|
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GLENDALE, CA - OCTOBER 22: General views of the IHOP, Dine Brands Global
corporate headquarters, ... [+] home of IHOP and Applebee's restaurants on
October 22, 2020 in Glendale, California. (Photo by AaronP/Bauer-Griffin/GC
Images)
GC Images
Dine Brands proved in Q1 that consumers’ pent-up demand for a casual dining
experience outweighs their trepidation about inflation. On Wednesday, the parent
company of Applebee’s and IHOP announced year-over-year same-store sales growth
of 14.3% and 18.1%, respectively.
Further, the company’s gross profits increased by 9% year-over-year despite
significant inflationary headwinds, and it didn’t see a decline in traffic
despite historically high costs hitting consumers everywhere, from rent to
groceries to fuel.
That said, those headwinds are expected to present a lingering challenge. Food
costs, for instance, are expected to inflate up to 16% this year, which will be
offset in part from menu pricing increases. In Q1, those increases averaged
about 5% on the Applebee’s side and 7.9% on the IHOP side.
Labor may be the most pronounced challenge, however, as staffing at the chains
remain about 10% below full capacity across the systems.
During a phone interview this week, Dine Brands CEO John Peyton said he isn’t
sure if the labor number is going to improve–at least not in the near term. New
numbers from the U.S. Bureau of Labor Statistics support this prediction,
showing the hospitality sector had about 1.5 million unfulfilled positions in
February.
The labor shortage becomes an even bigger issue considering both Applebee’s and
IHOP’s plan to grow their footprints and are managing higher volumes in
off-premise channels even as dine-in returns.
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Dine Brands has been managing some of these gaps through various technology
deployments in the front and back of the house, including handheld devices at
500 Applebee’s locations that enable servers to “turn tables faster, make more
money and be more productive,” Peyton said.
Further, IHOP has a new point-of-sale system that streamlines orders across
channels and a franchisee is also testing a robot that can deliver food to
guests and bus tables. Robotic servers are starting to pop up across the casual
dining segment, including at Denny’s and Chili’s, the latter of which just
expanded deployment to 51 more restaurants.
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It’s too early to tell if such an approach is worth a broader rollout. Peyton
did say, however, that the robot makes servers more productive and efficient and
“guests and kids think it’s super cool.”
“Also, borrowing from QSR, we’re testing a robotic arm that can work the fryer
station,” he said. “If we have one less cook in the kitchen, this can help them
be more efficient and productive.”
Chains such as White Castle, Jack in the Box JACK +0.2% and Chipotle have been
testing similar back-of-the-house robotics to free up tactical-level (and
sometimes dangerous) tasks.
“The reason to look at robotics is not just to look at robotics. It’s because of
this phenomenon where we’re only achieving 90% of staffing levels at
restaurants,” Peyton said. “The responsible and strategic thing to say is ‘what
if this is the new normal?’ If that’s the case, we have to figure out how to
make front and back of the house more productive. That is the problem we’re
trying to solve and has led us to investments in technology and robotics.”
Technology investment is a key focus area for the company to enhance customer
experience, Peyton said, including paying at the table, customizing meals via
the brands’ apps or ordering delivery through a third-party aggregator. An
uptick in that delivery piece has influenced both brands to expand into the
ghost and virtual kitchen spaces.
In Q1, Applebee’s and IHOP opened 10 new international ghost kitchens, including
its 29th overall model. Virtual concept Cosmic Wings, meanwhile, continues to
provide incremental sales at participating Applebee’s locations, and IHOP
recently started testing two virtual brands of its own–Thrilled Cheese and Super
Mega Dilla–which are now in 280 restaurants, from about 80 in February. IHOP
locations with a virtual brand are generating about $1,000 in incremental
revenues a week.
“The idea is to drive incremental revenue with low capital,” Peyton said. “The
key insight is that as a result of Covid, consumer behavior has changed. Before,
the first question they asked is ‘what do we want to eat?’ Now, it is ‘do I want
delivery, do I want to go out, do I want to pick it up?’ When they’re looking at
their delivery apps, they’ve made that decision and it’s not competing with
dining in at an Applebee’s. We want to lean into all the ways consumers want to
access our brands.”
Dine Brands is also focused sharply on cost-cutting initiatives to help overcome
inflationary pressures faced by operators. Earlier this year, the company pieced
together a cross-functional team to identify about 140 cost mitigation
opportunities across the system, such as lowering production costs and reducing
food waste. This team is part of a broader three-point effort the company is
making to combat rising prices, along with securing supply that is becoming hard
to get and locking in commodity prices where possible.
“An example of a product that is hard to get right now is coffee creamer. It’s
becoming scarce because of the metal on top you have to peel off. Creamer has a
shelf life, so versus just-in-time-delivery, which is what we typically do,
we’re now storing creamer in facilities across the country to meet demand at our
restaurants,” Peyton said.
The company is also looking at things like reducing to-go packaging, as paper
product costs are up 16%; purchasing sliced lettuce versus whole head lettuce to
free up back-of-the-house labor; and examining its beer distribution systems to
minimize waste and spoilage.
“We’ve looked at alternative suppliers, renegotiated contracts and basically
have gone through items line-by-line to look at opportunities,” Peyton said.
“We’re approaching this challenge of cost mitigation with the same spirited
innovation we have taken through the past couple of years.”
It’s too soon to gauge results of this effort, but Peyton expects cost
reductions of 200 basis points at Applebee’s and 100 basis points at IHOP.
Alicia Kelso
I have covered the restaurant industry since 2010 when I was named editor of
QSRweb. I later added fast casual and pizza beats to my portfolio as editorial
director of
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