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Applebee's biggest mistake: The initiatives just weren't big enough

Nicole Sinclair
Markets Correspondent

With more than 3,700 restaurants, DineEquity (DIN)--the parent company of Applebee’s and IHOP--is one of the largest full-service restaurant companies in the world. And it just kicked off one of the biggest transformations in the casual dining space.

Chairman and CEO Julia Stewart launched Applebee’s new menu and offerings on Monday, the culmination of a $75 million investment across its approximately 2,000 franchised Applebee’s locations.

Stewart joined Yahoo Finance to discuss the significant transformation, which marks a more significant move from other efforts the company has made in the past.

“All of the work we’ve been doing the last couple of years is what I call foundational work,” she said. “It’s just not big enough news. It has to be a big deal. It has to change the story and the perception, and that’s why we’ve launched this. We need bigger stories and bigger initiatives that really the consumer notices in a big way.”

Applebee’s, whose first quarter comparable store sales declined 3.7%, has lost market share over the past few years.

 

Stewart said that the wood-fired grills and menu overhaul marks its most transformative product launch, and it kicks off a real transformation at the company.

“We look at this whole initiative as beginning to really change the story at Applebee’s,” Stewart said. “This one thing doesn’t change everything, but the franchisees and we have spent about $75 million in literally installing a wood fired grill in every single restaurant and literally teaching over 6,000 folks in the back of the house to cut steaks by hand. So that whole initiative--hand cut wood fired steaks which started this past Monday begins to change the story about Applebee’s and the trajectory of sales.”

 

Analysts are banking on a turnaround in the second half of 2016 for Applebee’s sales, which have been weighing down performance. “This should make the stock a more attractive opportunity for investors willing to look through what likely will be a challenged Q2,” according to Nomura’s Mark Kalinowski.

“It starts with the experience you have when you go into the restaurant,” Stewart said. “So if the service is better and the food is better, you begin to think differently about the brand, you tell 5 people, those 5 people tell 20 people. And then our brand new advertising that started this past Monday reinforces that whole notion that things are different at Applebee’s. That’s how it starts. It takes time but I have every confidence in the world.”

Meanwhile, the company is “paying you to wait,” sporting among the highest dividend yields in its group.

As for the consumer? Stewart says it’s all about value.

“I think the consumer wants a $30 experience for $13.75. I do think there’s a tremendous focus on price-value. Maybe more today than five years ago. Nothing we can’t deliver.”