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News, dine brands will be taking a closer look at the data. The owner of Applebee's and Ihup restaurants reporting fourth quarter profit that beat estimates, thanks in part to an aggressive promotion strategy. The CEO, John Payton's saying this, during the year, we found the guests limited their discretionary spend in response to economic pressures, and that this value
conscious behavior continued in the fourth quarter. While this certainly creates challenging and dynamic market conditions, it also allows us to leverage our expertise in delivering exceptional value. John paynon month, please to say it's with us around a table, JOHNK and Mornick, Good morning. I want to kick it off with one thing and I mentioned it the commercial break, so reaching to continue this conversation. When Walker Hayes put together their song just a few years ago, did they
talk to you about that ahead of time? How did that work out?
So?
Walker Hayes wrote the Deep Nighted Appleby's song two summers ago and it was a gift from above. We did not know what was coming. He is an actual Applebee's fan. He wrote about date night with his wife at Applebee's and he's been an amazing partner to work with. You know, we jumped on it. Our marketing team was all over it, and so you know that led to the commercial tiktoks. He did over one hundred appearances for us. He was at our national conference fabulous free marketing.
How many people are doing date night at applebase now? How cost conscious are they?
Well? Speaking of date night at Applebee's, we just had our date night event where we had we had a coupon available for two hundred dollars that enabled you to eat at Applebee's every week for fifty two weeks with a thirty dollars discount, so it was a fifteen hundred dollars value for two hundred dollars. We made that available at midnight a few weeks ago. It sold out in a minute, some some less than a minute. Some commentaries
said that we broke the internet. Not quite. That we added server capacity, we added customer support, and our sites might have slowed a little bit, but it was so popular. Did it again in Valentine's Day? One thousand date night passes.
So what are you seeing with respect to where people are coming from? Is it the same crowd that's always gone to Applebee's that just have more discretionary spending, Or do you see people sort of that might have gone elsewhere maybe that was more expensive coming to Applebee's or going to I Hop for an omelet that's very fluffy.
A couple of insights at LISA about the consumer We get asked that question a lot. Are people trading in or out of the category, And from quarter to quarter we'll see a few more people come in at a higher income level, few more people at a lower income level, But over time it's actually fairly consistent. Our core guests from a demographic perspective, earns about fifty to seventy five thousand dollars a year, and that is literally looks like America.
Right.
We've got thirty six hundred restaurants across the country, and so our guests are families with children, older couples who've retired, who come to ie Hop every day for breakfast. And so what we do see from a consumer behavior standpoint couple of things. The first is throughout twenty twenty three and into twenty twenty four, you know, our guest at all three of our brands has been remarkably resilient to
the extent that it really surprised us a bit. We do see from our data that they're eating out one or two times fewer per quarter than they did before. And when they make their choices, they are still looking for full service dining because prices are up almost twenty percent in restaurants versus twenty nineteen. And so if you're going out to eat and QSR has become more expensive as well, they want that experience, they want the service, They want everything that we have to offer at Applebee's
and I Hopit and Fuzzies. Once they find us their very value focused and so you know, the percentage of our tickets that are taking advantage of our ltos, our limited time offers, and our value portion of our menus are up a few ticks from where it was before.
So, then how do you maintain margins at a time where we keep talking about the fact that people are demanding higher pay. There's a whole question about worker retention, there's a whole question about to see input prices of a lot of foods and how they have remained sticky. How do you manage that?
Yeah, so margins are the biggest challenge in the industry right now, particularly for our owners. We're one hundred percent franchise right so the impact of labor costs, the impact of cost of goods into the restaurants affects our franchisees directly, and so we focus on two things. We're doing everything we can to drive the top line right through really creative promotions and value offerings, and we work with them on re engineering as best we can the bottom line.
So last year, for example, working with our franchise Ease, we took out fifty million dollars in cost across the system. And we focus on things that are sustainable and repeatable, so technology, process improvement.
You know.
One example is we're putting in automated beer dispensers, which saves you know, hundreds of thousands of gallons of beer a year by having more accurate coores, less and less waste. And so that's the way we're trying to automate things like that and help them manage their costs.
Yesterday, Wendy's had received a ton of blowback when they came out and they're going to do dynamic price seeing they said, no, no, no, we're not going to raise prices on busy hours, but maybe we'll offer some discounts online. Could you ever see yourself doing that sort of mixed prices thing depending on peak and off peak hours.
Yeah.
So I come from the hotel industry, right, and I led revenue management when I was at Starward Hotels for a long time. And as you know with airlines, with hotels, no two people pay the same price for the same hotel room or the same ticket, depending on what channel they purchased it on, when they purchased it, if their loyalty status. You know, we've looked at it for restaurants, but we don't think it applies to us or our customers.
At this time.
We're hearing the words price scouching a lot down in Washington, d C. Can you talk to us about what you think about that. How difficult is it to bring prices back down to where they were a few years ago.
It's difficult to bring prices back down when labor costs are escalated, and labor is pretty sticky, right, it tends not to come back down. The cost of goods and primarily food into the restaurants has stabilized, and we're even predicting some deflation in the cost of goods into the restaurants. Be's in twenty twenty four about flat to maybe plus one for IHOP When you translate that to pricing, and it's our franchisees who make the pricing decisions because they
own the restaurants typically, you know, pre twenty nineteen. Everything is pre twenty nineteen, right these days, our franchisees raise prices about two to three percent a year. The last couple of years, it's been more in the five to eight, nine or nine percent. What we're seeing now with the stabilizing of both labor and cost of goods, we think they're back on a path to that two to three percent over the next couple of years.
I want to talk about the automatic bear dispenser, not because I'm actually interested in the automatic beer dispenser, but it sort of highlights the amount and we talk about, you know, just you get a little bit less, and that's one way to manage a little bit less.
It's an accurate pool.
Okay, understandablabor, then you could just make it an accurate pore of a little bit less. I mean, how much is that something that's going on around the margins?
So never ever, so our definition of value is is great eat food at a really accessible price, an abundant portion, right and the experience you have in the restaurant. And Applebe's and I Hop and now Fuzzies. But Applebe's and i Have in particular have been around for fifty and sixty five years, and you know, they've cemented their reputation in consumers' minds as the value oriented brand in both
their categories. And you know, I'm a former chief marketing officer, and you know what I've been taught about brands is that you people go to brands they know and they trust, and you can trust that Apple Be's and ihop are always going to have an abundant portion. And that's that's sacred for us.
A pint should be a pint. I'm talking English mashes, of course, but a pint should be a pint. B noice string flash.
I just want to say, but warm, the pint is always warm, which I haven't understood.
It's a different kind of pint against that another time.
To say, in Europe they actually have lines and all the wine glasses to have accurate pores, so it's.
Something that they should have an accurate pull. I've saved this to the end of the conversation, because I don't know to upset you too much, but this is going to sound terribly right, So I forgive me for the frame of this question. I'm just blunt British. Call me whatever you want. How dependent are you want for twenty percent of this country? Rumenicabase? What happens if a zempic actually does something abouts it? What happens to you? What happens to this organization?
So the most the response to that is that our menu has something for everyone, right And if you went to ihop years ago, it didn't have protein based, plant based proteins, you know, it didn't have a series of egg white omelets, it didn't have gluten free pancakes, you know, And the same is true. The same is true at applebe So you know, what's important for us is that no matter what the dietary orientation is of someone in that family, that we have something for everybody.
So right now, are you factoring in any kind of shift from that type of change given the fact that there is a pretty rapid adoption for these weight loss.
Medications, we haven't seen yet any material impact on our business, and we're not factoring it in terms of our predictions about traffic and comp sales, which really our focus is on the menu and ensuring that whether you're at any one of the three brands, there really isn't something for anyone depending on how they eat and how they choose to eat.
Because of this craze, almost do you feel like you're pushed more into being well healthier on your menu?
That push preceded ozebic, right, So the way Americans eat, you know, has been journeying slowly right toward more healthy eating over time. So portions changed, Our portions have always been the same. It's more about what we're offering and having broader menu.
Can I just ask one more question about the technology investments. I'm just wondering, do you think that we will always have service in the form of a human I do.
I use the phrase that we are not a technology company that happens to serve food. We're a food company that embraces technology. And so, for example, at IHOP, we've just rolled out a new POS across the whole system. We've got fifteen fifty restaurants to go, and with it came handhelds for all of our servers, and so our servers love it because they're turning tables faster. They're making
more tips. Our franchisees love it because we're turning tables faster, and we're also raising the average check because servers are attaching beverages more often. Sometimes you forget to put that soda on the tip when you're on the check, when you're really busy. So it's it's technology like that that we're using to enable the experience. We're also allowing guests via our app if they want to order in advance and then seat themselves at the table, then they can
do that. But it's more about how they want to interact with us and giving them all those options.
John, this was great. I promise never ever to share the secret ingredient in the omelet.
Okay, I have no idea what you're talking about.
John, Thank you. Jump paid on the time friends, John, thank you very much. This is great. Appreciate it.