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In casual dining, Applebee’s, Denny’s franchisees create own upside


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SSCP Management operates 76 Applebee’s, including this one in Taylor, Texas.

In 2015 Applebee’s raked in more than $5 billion in systemwide sales, but as fresh competition sought to lure away customers and changing consumer tastes and new technologies emerged, the legacy brand floundered. By 2017, sales were in a free-fall, dropping more than $600 million to $4.4 billion. Julia Stewart, longtime CEO of parent company Dine Brands Global, resigned and Applebee’s had been without a brand president since Steven Layt’s own resignation in late 2015.

But the doom and gloom might just be over for Glendale, California-based Applebee’s. Though the turnaround isn’t complete, a comeback is in the works and franchisee Chris Dharod is optimistic.

“We still love the brand. It had a rough 18 months but it’s still the largest casual dining brand in the world,” said Dharod, president of SSCP Management, which operates 76 Applebee’s in Texas and California. “And we’ve got an absolutely phenomenal leadership team right now with Steve Joyce and John Cywinski.”

That’s Dine Brands’ CEO and Applebee’s brand president, respectively, both of whom came on board in 2017. Cywinski spent five years as Applebee’s chief marketing officer from 2001 through 2006, and “John understands what makes Applebee’s Applebee’s,” said Dharod.

“We may have lost some of who we are but we’re back to ‘eating good in the neighborhood,’” he continued, which has meant a return to inexpensive and familiar food, recurring offers such as the popular 2 for $20 and an embracement of cheap drink deals. Systemwide sales began climbing back in 2018, to $4.5 billion, a $100 million increase.

SSCP acquired 13 Applebee’s units in Northern California late last year and “We’d love to buy more,” said Dharod. “It’s a growth vehicle.”

Based in Dallas, SSCP (also a Sonic Drive-In franchisee with 47 units and owner of Roy’s Restaurant chain) grew sales $30 million in 2018 to hit $230 million and jump 12 spots on the Franchise Times Restaurant 200 to No. 46. It was one of only a handful of franchisee groups on the list to add units in casual and family dining as operators of quick-service brands continue to dominate the ranking of the largest U.S. restaurant franchisees.

SSCP is intensely focused on being an employer of choice, which is how the group ultimately drives sales in its restaurants. “We stay focused on our team members, management team and hourly,” said Dharod. “That leads to better guest service and more repeat guest visits. Certainly with pay you’ve gotta be competitive, and we are, but that’s not the first thing. It’s a culture of having fun and it’s not just about coming to work.”

Advancement opportunities are available to hourly employees and of the group’s 15 Applebee’s team leaders, nine got their start as hourly workers, noted Dharod. “They’re running a quarter of a billion dollar piece of our business,” he said. He stressed the creation of that fun yet career-oriented culture is “not done overnight, it takes a lot of time and investment.”

Chris Dharod

 Chris Dharod of SSCP

 

Clyde Rucker

 Clyde Rucker

“At SSCP, we draw a lot from what we were looking for when we were younger and starting our careers,” said Dharod. “And we’re always innovating and thinking outside the box.”

Indeed Dharod came up with what’s become Applebee’s most popular beverage deal. He launched the “Dollaritas” promotion at his Texas restaurants back in July 2016, selling 10-ounce margaritas for $1 during the summer. It was so successful—more margaritas were sold that July than during any other month in SSCP’s history—Dharod brought it back in October and by 2017 the rest of the Applebee’s system launched the offer.

“Applebee’s has done a phenomenal job of taking that Dollarita idea and really running with it and now we have those drink promos monthly,” said Dharod.

As Dine Brands pursues more off-premises channels, including catering, delivery and carryout, Dharod said his restaurants are on board with about 60 locations offering delivery but “paper costs are a key pressure.” The paper bags, food packaging and napkins are all added costs and “that makes the economics of delivery very difficult in casual dining,” said Dharod. Still, he said, “I think it’ll be a key part of the business going forward.”

Capital structure enables growth

Clyde Rucker waited 10 years for the right opportunity to buy into the Denny’s brand and in 2017 he acquired seven restaurants in Houston and has since grown that number to 19, including the addition of eight units last year as part of Denny’s refranchising program.

“I started looking into Denny’s in 2007, it was always a brand we hoped to be a part of. It’s a global brand and it’s iconic,” said Rucker, CEO of Rucker Restaurant Holdings, which he formed in 2010 and also operates 58 Jack in the Box locations. While breakfast is the foundation for Denny’s, Rucker said it appeals to a cross-section of diners and in Houston particularly there’s plenty of white space.

“We also have great snack, dinner and late-night offers as well that resonate beyond its core consumers,” he said. “And it’s not a crowded category. Franchisees like us, we want to get into areas where there’s still a fair amount of growth opportunity.”

In addition to acquisitions, Rucker, who previously held corporate roles with KFC, Burger King and Quiznos, plans to open more Denny’s and has two locations on track to open this year. Group sales hit the $100 million mark in 2018 to move Rucker Restaurant Holdings up to No. 115 on the Restaurant 200, and while Rucker wouldn’t say he’s doing any one thing better than other operators, “we tend to do things differently.”

“First, Jake has done a terrific job of making sure we have the right capital structure,” he said, in reference to CFO Jake Wesner. That enables the group to “stay capable and move where the brand’s needs are.”

Denny’s, which ended 2018 with systemwide sales of $2.8 billion—a drop of $100 million—continues to sell company-owned restaurants and Rucker said his group is positioned “to be rewarded with refranchising opportunities.”

“We’re able to play in that space because we’re well prepared from a capital structure and our infrastructure, just with our people,” he said as he noted a focus on promoting from within and providing employees with a clear pathway for growth. “We want to make sure we develop bench strength from a people perspective and provide our folks with the ability to have long-term careers.”

Wesner pointed out Denny’s has undertaken several technology-related initiatives in recent years, including delivery and a new point-of-sale platform, to go along with a remodel program, all of which require capital.

“We do our remodels on time or before,” said Wesner, and while there’s a higher cost that comes with third-party delivery, “it’s something you have to do to be in the game.”   

Those facility enhancements matter to customers and employees alike, noted Rucker. “It’s very, very necessary to have excited employees, so we’ll continue to make these investments in technology and in our facilities. It gives us a leg up in the marketplace over our competitors and it makes employees feel good.”

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