Dine Brands CEO: Restaurants are in a 'value war' as consumers tighten their belts
A sweet deal is what consumers need to get out of the house for a meal.
"It's a value war," Dine Brands Global (DIN) CEO John Peyton told Yahoo Finance. "It's a fight for share of wallet ... at a time when our target guest is dining out less, we have to make sure that when they do choose to dine out — IHOP or Applebee's or Fuzzy's are their first choice."
As eaters become more discerning with their dollars and prices remain high after years of inflation, providing value and experience is crucial for getting customers in the door, Peyton said. At Applebee's, 33% of transactions last quarter included a limited-time or value offering.
But Dine Brands is facing competition from all sides, from fast food and fast casual to its full-service peers. In its latest quarter, Dine Brands' domestic same-store sales growth dropped, with IHOP and Applebee's down 1.4% and 1.8%, respectively. Both missed Wall Street's expectations of a 1% increase, per Bloomberg consensus estimates.
Same-store sales at its other chain, Fuzzy's Taco Shop, are down 7.5%.
Fast food players are also under pressure. McDonald's (MCD) US same-store sales dropped 0.7% in Q2. It recently tried to double down on value with the extension of a $5 value meal.
"What's happened in the last quarter or two is that there's been a bit of a conflation between fast food, select service, full service, like our own," he said, as prices per meal have consolidated to be around $10.
Meanwhile, full-service rivals have leaned into even heftier value offerings and marketing campaigns, per Wedbush analyst Nick Setyan.
Chili's has launched a $10.99 "3 For Me" meal that comes with a drink, appetizer, and entree, compared to Applebee's $9.99 Whole Lotta Bacon Burger. Meanwhile, Buffalo Wild Wings is running a $19.99 all-you-can-eat boneless wings and fries promotion.
Chili's parent company Brinker International (EAT) will report earnings next Wednesday. Its same-store sales are expected to grow 7.65%, with Chili's up 8.26%, led by a boost from value promotions.
"Ultimately, they're [Chili's] taking share from everybody, both casual dining and even impacting QSR," Setyan said. He added the company's value offering is "not a sustainable long-term strategy" due to its impact on margins, but it's hurting its competition in the near term.
Under these circumstances, it's not surprising that Dine Brands reported numbers under analysts' estimates, said Setyan.
Darden Restaurants (DRI), which owns Olive Garden and Longhorn Steakhouse, reported its quarterly results in June. Same-store sales at Longhorn Steakhouse grew 4%, but sales dropped 1.5% at Olive Garden year over year.
Though the pasta chain is known for its endless breadsticks, it tried to avoid a race to the bottom when it came to pricing. "They've been sort of the price leaders and the price setters within those categories," Setyan said. "This time around, everybody was trying to be a lot more disciplined around margins, and so they weren't the ones that [blinked] first, and they were hoping that if they don't do it, others will also stay disciplined, but that's not what happened."
When Yahoo Finance asked if Dine Brands plans to lower its key price point to gain an edge, Peyton said: "It's possible. I'm not going to sort of reveal where we're heading in the next couple of quarters, but what I can tell you is that the guest today is very value-driven."
But it's key to ensure promotions are "always profitable" for the company and its individual locations.
"We construct them in partnership with our franchisees. Each brand has an ad committee ... they're designed to drive traffic, profitable traffic," he said.
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
