- The CEO of Applebee's owner, Dine Brands, told CNBC that the chain offers a better value proposition than its fast-food rivals.
- Diners have been complaining that fast food is too expensive after years of price hikes.
- But they're also cutting back at casual-dining chains. Applebee's diners are buying cheaper items and visiting less often.
The CEO of Applebee's owner, Dine Brands, said that diners are being lured in by value deals and argued that the casual-dining chain offers better bang for your buck than fast-food rivals.
"If you can have our burger for $10, which is great quality, abundant and eat in our restaurant, in our experience, why would you eat a $10 burger out of a paper bag in your car?" Dine Brands CEO John Peyton told CNBC, referring to Applebee's Whole Lotta Bacon Burger promotion.
Applebee's is among the fast-casual chains looking to scoop up fast-food customers who say they're tired of rising prices. Some diners say they're switching to casual-dining chains to have what they describe as a better sit-down experience with higher quality food for, in some cases, just a few extra dollars.
But even if it is winning over some fast-food customers, Applebee's sales are still falling.
Applebee's reported a 4.6% drop in US same-restaurant sales for the first quarter of 2024, which it attributed to a decrease in traffic. Its US restaurants brought in an average of $54,700 in sales each a week, down from $56,800 for the same quarter last year.
Fast food chains McDonald's, Wendy's, and Burger King have also said that their comparable sales are growing at a much slower rate than this time last year.
Diners are hungry for deals
Dine Brands CEO Peyton told investors at the company's earnings call on Wednesday that about 28% of Applebee's orders in the quarter were tied to a limited-time offer or promotion, up from about 19% in the same period in 2023, he said.
"The consumer has become more price sensitive, as indicated by the response to our limited-time promotions," he added.
Applebee's Whole Lotta Bacon Burger promotion was a time-limited deal that launched in April and provided diners with bacon-loaded cheeseburgers and a side — fries as the default — for $9.99 for both dine-in and to-go.
At the time of writing, the burger cost between $13.99 and $19.99 at the locations Business Insider looked at.
Other promotions Applebee's has launched so far this year include its All You Can Eat promotion in January, which Peyton said "exceeded our expectations," its Date Night Pass, which sold out within minutes, a $0.50 boneless wing promotion, and the return of the Dollarita.
Peyton said it was important that Applebee's promotions were both profitable as a stand-alone and led to customers buying other things from its menu, too. He noted that Applebee's even makes a profit when it sells margaritas for $1 under its Dollarita promotion.
It's not just Applebee's trying to grab some cash-strapped fast-food customers by promoting value deals. Chili's, for example, has a "3 For Me" combo that includes an appetizer, an entrée with a side, and a bottomless drink for $10.99.
Applebee's diners are cutting back, too
But casual dining chains have been raising their prices, too, because of wage and food inflation. At Dine Brands' restaurants, prices "spiked" in the last roughly two years, rising by between about 5% and 9% on an annualized basis, Peyton said. Historically, its franchisees had put up prices by roughly 2% to 3% a year, he said.
Peyton warned that diners at Applebee's and sister company IHOP were switching to cheaper menu items and dining out less often. "We also continue to see guests trade down from higher-priced items at both IHOP and Applebee's, another indicator that guests are managing their wallet," Peyton told investors.
Diners earning $50,000 and less were cutting back the most at both brands, Peyton said, echoing comments made by other restaurant chains.
"They're more aggressively managing their check, finding our value-oriented items," Peyton said. "That's been consistent the last couple of quarters but more pronounced in Q1."
Have you switched from fast food to casual dining chains like Applebee's, Chili's, and Olive Garden? Email this reporter at [email protected].