IHOP-Applebees CEO Stewart Prepares to Counter TGI Friday's, Darden's

Correction: This story has been updated to correct that DineEquity is publicly-traded.

NEW YORK ( TheStreet) -- Trying to overcome the dreadfully low traffic to their restaurants, the casual dining industry has cooked up a series of promotional gimmicks this year led by TGI Friday's "endless appetizers" and  Darden's (DRI)  "never-ending" seven-week pasta passes for $100 at its Italian food chain Olive Garden.

In the face of energized competition from its casual dining rivals, DineEquity (DIN) , parent of Applebee's and IHOP, has countered with a few offerings of its own. Using fresh research into its brands, and an industry-leading marketing budget north of $250 million a year, DineEquity CEO Julia Stewart said the Glendale, Calif-based restauranteur is ready with some special offers of its own.

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"In 2015, you will see some things differently at both brands, they won't be dramatic, but they'll be different," said Stewart in an interview with TheStreet. "You'll see some different menu items, you'll see some different testing of things, you'll see different ways we talk about the brands from an advertising perspective."

The plan that Stewart references is a byproduct of an extensive research initiative undertaken this year designed to better understand customers at both of its franchised restaurant chains. The goal -- light a fire under the economically sensitive customers that tend to visit Applebee's and IHOP to come more often. "It's a maniacal focus on traffic, and when you do that you get more people to coming in, more often," remarked Stewart. "It's sort of going to the next level with both brands."

It appears that a greater number of visitors is the missing ingredient to higher same-store sales in 2015.

IHOP has posted six consecutive quarters of same-store sales increases, notching a 2.4% gain in the third quarter. But, that stretch at IHOP has mostly been the result of increases in average check size due to "menu engineering."  For the nine-months ended Sept. 30, customer traffic has fallen, with a slight increase in the third quarter.  According to Securities and Exchange Commission filings, IHOP's same-store sales growth peaked at 4.5% in the fourth-quarter of 2013, slowing in the three quarters since. 

As for Applebee's, its third-quarter same-store sales improved by 1.7% on the back of a higher average check -- like IHOP, customer traffic has declined year to date.  Same-store sales for Applebee's bottomed in the fourth-quarter of 2013 with a 0.7% decline, and have improved steadily from that point.  

In an  August interview with TheStreet, Stewart shed light on the company's menu engineering work, which played a part in the company having confidence hiking its full-year same-store sales estimates when it announced third-quarter results on Oct. 28. "We have streamlined the menu, eliminated items, added new items, and used photography for each of our entrees," said Stewart at the time.  "We probably had appetizers on the menu for 20 years but it wasn't a highlighted category; it was hard to find."

Applebee's is expected to deliver a full-year same-store sales improvement of 0% to 1%, revised from a 2% decline to a 1% increase three months earlier. IHOP's same-store sales are now seen increasing in a range of 2.5% to 3.5% compared to 1% to 2.5%, previously.

An area that is set to receive special attention by the company in 2015 is the bar at Applebee's, which is often illuminated in signage on the outside of the restaurant. Alcohol sales as a percentage of the total business clocks in at 14%, virtually unchanged from when the Applebee's division was acquired by then IHOP in 2007. Pointed out Stewart, "The bar is low-hanging fruit" and its sales as a percentage of the business are "much lower" than competing restaurant chains. "In my opinion, we have not been aggressive enough", summed up Stewart. Already, the Applebee's Web site it showcasing nine new handcrafted bar-based beverages, including multiple margarita and sangria options, as well as something called a whiskey smash.

Fans of Applebee's new Fireball whiskey lemonade should rest easy as it's unlikely to be pulled from the company's bar for now. Why? Only Norway, Sweden and Finland have recalled the popular cinnamon-flavored liquor reported to have a chemical ingredient that's used in some forms of antifreeze.

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