IHOP explores virtual brands and new loyalty program

by uchimeshi
  • IHOP president Jay Johns said Thursday during parent company Dine Brands’ Q2 earnings call that IHOP plans to launch a new loyalty program in Q4 and is considering the addition of virtual brands.
  • On-chain comparable sales rose to a negative 3.4%; Johns said it was 17.8 percentage points compared to the first quarter. The brand also outperformed the family meals category in the second quarter, according to Black Box Intelligence data cited in the call.
  • After halting its growth plans during the pandemic and seeing sales plummet, IHOP continues its efforts to restart growth, including launching its first fast casual in July.

While IHOP is currently in the “preliminary stages” of setting its virtual brand strategy, Johns said at the time of earnings the infrastructure of the breakfast chain strongly supported the model, with 70% of its local restaurants supporting the model with two fully equipped kitchens.

During the call, Johns said, “We are currently reviewing our day division strategy and evaluating how to best utilize our available capacity,” adding that external sales remain strong even as dining room restrictions are lifted. IHOP’s external sales accounted for 26.1% of the sales mix in the second quarter, up from 33.3% in the first quarter – an expected decline as diners return to restaurants, he said.

IHOP has the advantage of sharing a parent company with Applebee’s and can pull a page out of that chain’s playbook to get a virtual brand or more. Applebee’s launched virtual Neighborhood Wings in May 2020, which Applebee’s had left when it launched Cosmic Wings in February 2021. At launch, Cosmic Wings was only available on Uber Eats.

But Applebee’s has hit a bit of a supply chain roadblock. John Cywinksi, President of Applebee, said during the interview that the company plans to expand the Cosmic Wings concept to DoorDash, but these plans have been delayed due to difficulties in supplying chicken wings. Such issues will likely be something IHOP can watch out for if or when it jumps into the virtual restaurant space.

Virtual brands may eventually participate in IHOP’s new unit growth, which includes plans for 40 to 50 new restaurants this year, as well as the fast, casual Flip’d model and smaller footprint prototype it plans to test.

A virtual brand or brands would further enhance IHOP’s digital and external capabilities, as the model is facilitated with delivery orders accounting for approximately 14% of the chain’s sales mix in Q2. The upcoming loyalty program could also provide a digital tailwind for the chain. The current MyHop program offers members free pancakes and special deals, but Johns has yet to reveal details of what a new loyalty program will look like.

“Our goal is to increase trials and significantly increased visits from existing IHOP guests,” Johns said. He added that the pandemic was a major driving force behind this launch. “[It] forced us to reflect and refocus our relationships with our guests in a transforming restaurant industry.”

These guests request loyalty programs from their favorite brands, and nearly 50% of diners now use at least one such program – a 12% increase from January to April. Forty-seven percent of those surveyed by the Rewards Network believe reward incentives are more important than they were before the pandemic.

The rise of loyalty programs has boosted profitability so far. During Yum Brands’ Q2 call last week, it was reported that Taco Bell Rewards members spent 35% more with the company compared to their pre-loyalty behavior. According to CEO Brian Niccol, Chipotle’s rewards program represents approximately 25% of its higher-ticket and higher-frequency customers.

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