IHOP and Applebee’s merged in 2007, but the ever-evolving restaurant industry isn’t nearly as profitable as it used to be. This has led to numerous closings of individual locations and entire chains during the past two decades, including Chi-Chi’s and Beefsteak Charlie’s. Therefore, it’s not surprising that chains that generally do well, such as IHOP and Applebee’s, are also feeling the financial pinch.
If statements from IHOP and Applebee’s parent company, DineEquity, are accurate, though, these closures are part of a planned restructuring that should breathe new life into both restaurant chains. Interestingly, the original plan was to close no more than 60 Applebee’s locations, with 18 IHOP restaurants on the chopping block. Now, these numbers keep increasing, which casts some doubt on each chain’s financial stability.
The Latest Closure Numbers
The currently announced DineEquity closures include 20 to 25 IHOP locations, plus 105 to 135 from Applebee’s. In total, this will remove somewhere from 125 to 160 sites from DineEquity’s roster. The parent company hasn’t publicly announced which restaurants are going to close, but they have made it clear that this is intended to bolster their business by removing outdated and underperforming stores.
Analysts Say Applebee’s is in Trouble
Despite the positive spin that DineEquity is placing on the shuttering of up to 160 Applebee’s locations, industry analysts don’t seem optimistic about the chain’s odds of long-term survival. Instead, experts such as Mark Kalinowski have predicted that Applebee’s is poised to faceplant into last place among the leading 25 U.S. restaurant chains.
For the past five quarters, Applebee’s has suffered from sinking profits. Analysts believe this trend will continue, with the company’s profits expected to drop another 5.5 percent before the end of the year.
Applebee’s Financial Woes Are Traced to One Major Issue
In May 2016, Applebee’s debuted a new menu item with wood-fired steaks. Doing this required a large investment in equipment and food, but consumers shied away from ordering the new option. This was likely due to price concerns, combined with Applebee’s making a change that didn’t fit well with their existing menu and customer expectations.
Selling these items and installing a wood-fired grill was mandatory for all locations. An aggressive advertising campaign attempted to draw people in, but the resulting numbers suggest it actually scared off current customers and caused the company’s profits to plummet.
What came after was even worse because Applebee’s locations had to make an attempt to get something in return for their big investment. This led to massive discounts, including buy one, get one free promotions. Profits haven’t rebounded since the middle of last year, which suggests that some consumers have permanently taken their business elsewhere.
IHOP’s Dwindling Performance
IHOP isn’t in nearly as much financial trouble as Applebee’s, but the chain also isn’t putting up stellar numbers. The recent revenue drop for the previously popular breakfast restaurant is being blamed on the rise of 24-hour breakfast menus at competitors like McDonald’s.
The Future of Applebee’s and IHOP
Closing up to 160 sites may ultimately allow these companies to stop hemorrhaging money. Of course, DineEquity has also stated that approximately 125 new locations will open as planned during the next couple of years.
One of these spots will be the world’s first IHOP/Applebee’s combo. Set to open later this year in Detroit, Michigan, this 300-seat restaurant will need to learn from the mistakes made by the two individual companies in order to have a chance at success. Of course, it remains to be seen if the combo site and the other planned locations actually open on time, or at all.
[Featured Image by Tom Gannam/AP images]