Applebee’s Accelerates a New Era of Dining

“I’m a first-generation American, and because of that, I know the value of value,” says Tony Moralejo, who was named president of Applebee’s U.S. in January after serving at its parent company, Dine Brands, as president of international and global development for three years. 

“I came to this country as an immigrant with my parents and my brothers, and I went through the same struggles that our guests are going through today with high cost and adjustments,” he continues. “And so whenever there's a period of uncertainty, guests lean to the brands that they trust, right? And Applebee's is a brand that they trust. And one of the reasons they trust us is because we are affordable, and we have a strong value proposition.”

Moralejo succeeded John Cywinski, who served as Applebee’s chief marketing officer in the early 2000s before returning in 2017 as president. Cywinski left his position in January to become CEO of Los Angeles-based Modern Restaurant Concepts, parent company of Qdoba, Lemonade, and Modern Market Eatery.

During his tenure at Applebee’s, Cywinski shuttered roughly 300 underperforming U.S. stores across five years. The time spent optimizing the system and closing low-volume restaurants paid off, and led to average unit volumes increasing by more than $500,000 in the same time period. In November 2022, Cywinski argued the chain was in its “glory years” and in a better position than ever before in the concept’s history. (When he joined in 2017, AUV was at $2.2 million.)

Value, value, value

During Dine Brands’ fourth quarter and 2022 full-year earnings call, Moralejo noted the importance of retaining Applebee’s value proposition. Though he predicts the chain will open more stores in 2023 than it did last year, it will still see a net loss of 10-20 outlets. 

"It's not where we want to be in the future," Moralejo told investors. "Based on my experience across multiple global restaurant brands, the rate or the pace of development, it comes down to franchisees believing there’s an attractive value proposition."

Applebee’s same-store sales increased 1.7 percent in Q4, making it eight straight quarters of positive growth. It lapped the previous year's 9.1 percent increase versus the same period in 2019. Average weekly sales per restaurant in Q4 were $52,500, which is $2.73 million in annualized AUV. For the year, comps rose 5.1 percent. 

For context: Applebee’s began trading publicly in 1989, and quickly became one of the largest casual-dining restaurant chains in the U.S. with an impressive ramp-up period. Applebee’s jumped from 250 stores in 1992 to more than 500 in 1994. By 1998, Applebee’s opened its 1,000th restaurant, and the following year hit a record of $2.35 billion in systemwide sales. 

In 2007, IHOP (International House of Pancakes) Corporation announced it was acquiring Applebee’s for approximately $2.1 billion. After closing the deal, IHOP Corp., under DineEquity at the time, began franchising most of Applebee’s 500 company-owned locations with a plan to revitalize the chain, and was renamed to Dine Brands Global in 2018. 

Prior to joining Dine Brands in 2020, Moralejo oversaw global development at Church’s Chicken in a variety of executive-level roles for nearly eight years. But he cut his teeth in the restaurant world at Burger King, where he began as a senior attorney in 1995 and eventually worked his way up to vice president and general manager of Latin America by 2016. 

“I’m spent, wow, almost 30 years in franchising, and during those 30 years, I’ve learned a lot,” Moralejo says. “One of the things I’ve learned—and I call it one of the franchising truths, if you will—is that franchisors win when franchisees succeed. And when that shared enterprise works, the guest wins.”

Prioritizing franchisee and guest relationships

Since Applebee’s restaurants are 100-percent franchisee owned, pricing menu items comes down to the decision of the operators in each market. Yet, Moralejo highlights that since the brand’s multi-unit franchisees are highly experienced, the company has been “very fortunate.”

“They're smart, they're measured, they're strategic, and they walk this tightrope, this inflationary type of tightrope, if you will, where they're balancing affordability, and they're trying to protect their margins,” he tells FSR. “And they do a really, really great job of that.”

Applebee’s franchisees took pricing just over 7 percent in 2022, Moralejo notes, but that's against a backdrop of an 18 percent increase in operators’ commodity basket. “And the pricing that our franchisees took was on par or less than any of our peers, and it was less than grocery store pricing,” Moralejo says. “I think that speaks really to our willingness in our brand or category-leading position on affordability. That’s really important to us, and that’s something that we don’t want to lose.”

Since the start, operators have been the backbone of the casual-dining chain, and have always been encouraged to integrate themselves and their restaurants into their local communities. Applebee’s has just under 1,700 restaurants, yet only has 31 franchise owners. 

“It’s an optimized, more of a consolidated franchise system, and they tend to be more sophisticated than other brands domestically here. They’re actually very similar to many of the franchisees that I’ve worked with internationally,” says Moralejo. “As soon as I took over this position in January of this year, one of the first things that struck me was just how special that relationship [with franchisees] is. I call it a strategic asset, domestically,” he adds. 

Moralejo visited three markets in four days during his initial 60 days as new president, spending time with key stakeholders and getting to know both the leadership team and franchise owners. His immediate goal is to continue building up the franchisor-franchisee relationship, which involves daily chats with operators, checking in with them periodically to gauge how their business is going, and making their needs priority number one.

“Lots of brands have good brand leaders, and teams and executives, and lots of brands have really good franchisees, but when they collaborate, when they align and when they're engaged, that's where the magic happens,” Moralejo says. “You see improved products, you see improved operations, [and] you see improved restaurant facilities.”

His second priority is to keep sales momentum trending upwards by attracting new and returning consumers amid inflation, rising consumer credit card debt, lower savings, and other macroeconomic factors. 

But offering great value to customers doesn’t just mean offering low prices, he notes; it also means increasing the entire value experience for guests including affordable, great-tasting food in a fun environment with best-in-class service. 

“It's a combination of that total; it's all the elements of the total guest experience,” Moralejo says. “And that's where we differentiate ourselves from other brands. … And while you will notice other brands start to put their toe in the cold waters of value, we've been doing it for five years, and we're going to stick to that playbook.”

Triggering a “feel-good” element in guests is an important part of winning on value, he adds, which can come from indulgence or sharing a meal with family and close friends, so Applebee's franchisees will continue to focus on elevating the total guest experience in addition to offering compelling value offerings.

Development and addressing deficiencies

When asked what impact he hopes to impart on the brand, Moralejo quickly notes he plans to stay at Applebee’s “for as long as they’ll have me, so 20-plus years if that’s OK,” and he would love the next chapter of Applebee’s to talk about growth.

“And when that chapter talks about growth, it's not just sales, but it's also unit count,” he says. “So, bringing the Applebee's promise, eating good in the neighborhood, to more neighborhoods in the U.S.—that would probably be the crowning achievement of my career at Applebee's, and that's what I'm striving for.”

On the development side of things, Moralejo sees no need to look beyond the brand’s current portfolio of franchisees to grow its domestic footprint. But in the meantime, working hand-in-hand with operators to address any deficiencies in the model will precede looking at expanding to new markets. 

“We're going to work on fixing that value proposition. We need to make sure that our franchisees are comfortable with the returns on investment that a new restaurant build will provide for them,” he says. “Once we've tackled that, then we can talk about who's the right party to develop and where we're going to go.”

Moralejo lists inflation and the rising costs of real estate, development, construction materials, and difficulty in accessing capital as factors outside of the brand’s control. However, he tells his team to focus on what they can control, such as top-line sales, assisting franchisees with their EBITDA (earnings before interest, taxes, depreciation and amortization) and profitability, and look for ways to optimize operations for owners.

“And you know, we may need to consider different types of prototypes going forward to improve that value equation for our franchisees,” he notes.

Looking ahead: Tech and off-premises channels

An Applebee’s franchisee first tested out integrating a drive-thru pick-up window in 2021 in Texas. Now, there are 10 pick-up windows across the system in the U.S. as of press time, and those restaurants have experienced an increase in sales since being implemented. 

“We’re excited and happy with the results that we’ve seen,” Moralejo says, adding that guests “really like what they’re seeing; it’s a lot more convenient.”

Sales mix in the fourth quarter was 76 percent dine-in and 24 percent off-premises (13 percent to-go and 11 percent delivery). Moving forward, nearly all new builds will include pick-up windows, as well as in restaurants that undergo significant remodels.

Like many restaurant leaders during the pandemic, Applebee’s launched a virtual brand. Called Cosmic Wings, the digital-only menu featured Cheetos Boneless Wings, Cheetos Double Crunch Bone-In Wings, Cheetos Cheese Bites, and more. Partnerships with DoorDash, Uber Eats, and Grubhub helped accelerate the Cheetos-themed brand to new markets. But as guests began returning to dining rooms, Applebee’s began winding down the delivery-only channel. “It doesn't mean that we're down on virtual brands,” Moralejo says. 

“What we found, though, is that the virtual brands that we have experimented with in our restaurants, there were some operational issues with executing; it added an extra layer of operational complexity,” he continues. “And we just felt that we were better off focusing on our core menu items, focusing on our average unit volumes in our restaurants, and focusing on the experience inside our dining rooms versus entering this new channel.”

Cosmic Wings is available in more than 600 markets nationwide, and remains an optional program for Applebee’s franchisees. That means guests can still enjoy Cosmic Wings traditional and boneless wings, fries, and shareables delivered to their doors.

“Ironically enough, the proliferation of the off-premises business in the restaurant industry I think has created an incremental pressure to increase your game when you're dining in, because the off-premises dining experience has been elevated over the last few years,” Moralejo adds. “And as we sort of elevated that part of the business, the expectations from the guests when they do go to your restaurant and dine in have been elevated as well.”

Now that COVID is increasingly dwindling in the rearview mirror, Moralejo wants to focus on remodeling restaurants, which got deferred during the pandemic. For example, Applebee’s is in the process of rolling out a new POS system, and also has handhelds in 500 restaurants so far. 

Looking ahead, a “Kitchen of the Future” project is in the works at eight Applebee’s restaurants, and though Moralejo couldn’t talk specifics, he mentions looking into new back-of-the-house equipment to improve product quality and consistency, plus potentially save on labor costs. Applebee’s is making “big plays” in terms of technology investments, from updating its app and website to testing lockers and dedicated off-premises delivery areas, plus a recommendation engine program.

“We're working with our franchisees to define the critical elements of a remodel program,” Moralejo says.

“And if we do those two things, if we continue to build on the relationships with our franchisees, which is a strategic asset, and we continue to deliver on our value promise to our franchisees, then the guests are going to win, and you're going to see us grow our number of Applebee's restaurants domestically and bring more restaurants to more neighborhoods in the U.S.”