Wealthier Americans have swapped high-end restaurants for chains that offer larger portion sizes and deals, as inflation continues to run rampant across the United .
Sales at Applebee’s and IHOP grew 6 to 8 percent over the three-month period ending June 30 among households earning over $75,000 a year, Dine Brands CEO John Peyton announced in an earnings call on Tuesday. The company owns both chain restaurants.
Peyton said the bump ‘suggests to us that guests that often dine at more expensive restaurants are finding Applebee’s and IHOP because of their well-known position,’ CNN reports.
He claimed that the company’s large portion sizes at affordable prices have made the restaurants a go-to spot as Americans fear a looming recession — a model restaurants across the country are using to lure customers back.
Sales at Applebee’s at IHOP grew 6 to 8 percent over a three-month period ending June 30
At the same time, though, Peyton said, Dine Brands saw their sales drop a few percentage points among households earning less than $50,000 — which made up about 39 percent of American households in 2020, according to data from Statista.
‘We assume they’ve left us for lower-cost options,’ he told investors.
But, he said, he expects those diners to soon return to its restaurants as gas prices start to decline.
‘Gas prices have fallen the last 50 days, and that is encouraging for the back half of the year, and why we say that we are cautiously optimistic,’ he told Yahoo Finance.
‘We know that gas prices do correlate — we do believe that will encourage some of those lower income guests to return to IHOP more frequently and Applebee’s more frequently than they have.’
He noted that the company has historically done well during economic downturns, like the 2008 financial crisis.
Peyton has attributed the company’s success to Applebee’s and IHOP’s goal of being ‘value oriented.’
Americans are flocking to chain restaurants as large portion sizes at affordable prices give more bang for the buck amid a looming recession in the United States
That means ‘delicious food [and] generous portions in a wonderful environment at an affordable and approachable price,’ he claimed, noting: ‘At times like these, when economics are tough for our guests, our brands have particular expertise’ in adding more value.
Applebee’s avoids straight discounts on its food, and instead offers deals on meal add-ons, CNN reports, like adding a dozen shrimp for just $1 when a guest orders a steak.
The company also provides half-off appetizers after 10 p.m., and as part of its Top Gun promotion earlier this year, customers who spent at least $25 got free movie tickets.
At IHOP, meanwhile, customers can find discounted items during IHOPPY Hour, which starts at 3pm at participating locations, when entrees, snacks and sides are sold at reduced prices.
It also has limited-time promotions, like ones that allow children to eat for free.
Dine Brands’ stock gained 4.9 percent over the past three month, while the S&P 500 has added on 3.7 percent. It was trading at $74.25 on Wednesday morning
As a result, Peyton announced in his earnings report on Tuesday, Dine Brands’ revenue during the second quarter of 2022 topped expectations.
The company’s total revenue grew 1.8 percent to $237.8 million, MarketWatch reports, higher than the estimated $236.4 million investors expected.
At Applebee’s locations open for at least a year, the company reported domestic sales rose 1.8 percent, while IHOP restaurants open at least a year saw sales top 3.6 percent.
Dine Brands’ stock, meanwhile, gained 4.9 percent over the past three month, while the S&P 500 has added on 3.7 percent.
As of Wednesday morning, it was trading at $74.25 a share.
The model seems to be working at other restaurants too as cash-strapped Americans after inflation reached a four-decade high of 9.1 percent last month.
Amid ongoing supply-chain issues, the Bureau of Labor Statistics announced last month that the cost of meat and poultry is up 10.4 percent, while the cost of cereals are up 15.1 percent and the cost of fruits and vegetables are up 8.1 percent from last year.
At the same time, food away from home prices increased 7.6 percent over the past year even as President Joe Biden claims there is no more inflation, following a report that the inflation rate declined slightly last month.
Now, restaurants around the country are trying to focus on value.
Websites for restaurants like Applebee’s and Olive Garden try to paint them as ‘value’ for families and family-friendly.
Olive Garden paints its meal options as a ‘value’ for families.
Ruby Tuesday is offering guest a chance to win $1 million and a ‘pick three’ meal deal for $12
Ruby Tuesdays, meanwhile, is offering guests a chance to win $1 million plus a ‘VIP race experience, music festival trips and free food,’ and is offering a ‘pick three’ meal for just $12.
And Red Robin unveiled a $10 Gourmet Meal Deal that includes a burger, bottomless fries and free drink refills, according to Restaurant Business Online.
Their efforts now seem to be paying off.
In fact, after Longhorn Steakhouses increased the sizes of most of their steaks, it saw sales at locations open at least a year pop 10.6 percent in the three month period ending on May 30.
A copy of the leaked email posted on Reddit has Pankratz allegedly telling company officials that they need to take advantage of economic troubles plaguing American workers
For Applebee’s, Tuesday’s earning report spelled good news for the company, which had come under fire earlier this year after an executive wrote in a leaked email that inflation and high gas prices could allow the company to pay employees less.
In a copy of the internal email posted on Reddit in March, Wayne Pankratz, the executive director of operations for American Franchise Capital, which owns 50 Applebee’s franchises in the Midwest, allegedly told managers of the food chain that employees and applicants are economically hurting, which he saw as an ‘advantage.’
Wayne Pankratz, the executive director of operations for American Franchise Capital, which owns 50 Applebee’s franchises in the Midwest, called on the company to lower wages for workers already hit hard by soaring gas prices and inflation
‘Everyone has heard that gas prices continue to rise,’ he wrote in the email. ‘The advantage this has for us is that it will increase application flow and has the potential to lower our average wage.’
He went on to acknowledge that most Applebee’s employees ‘live paycheck to paycheck’ and ‘any increase in gas prices cuts into their disposable income.’
And as government stimulus money wanes, Pankratz allegedly said people relying on unemployment funds will be forced to find work.
‘Stimulus money is no more, supplemental unemployment is no more,’ the email read. ‘This benefits us as prices rise, people who were relying on unemployment money will have less money to spend.
‘It will force people back into the workforce.’
Pankratz allegedly suggested lowering salaries for its employees and told managers to ‘make sure you have a pulse on the morale of your employees.
‘Many will need to work more hours or get a second job,’ he wrote. ‘Do things to make sure you are the employer of choice. Get schedules completed early so they can plan their jobs around yours.’
But falling gas prices last month gave Americans a slight break from the pain of rocketing inflation as the surge in overall prices slowed from the four-decade high it reached in June.
Consumer prices jumped 8.5 percent in July compared with a year earlier, the federal government announced on Wednesday, down from a 9.1 percent year-over-year jump in June.
On Wednesday, the federal government reported the inflation rate fell slightly to 8.5 percent in July from a 40-year high of 9.1 in June
On a monthly basis, prices were unchanged from June to July, the smallest such rise for more than two years. Still, prices are spiking across a wide range of goods and services, leaving most Americans worse off.
And while average paychecks are rising faster than they have in decades – it is not fast enough to keep up with accelerating costs for such items as food, rent, autos and medical services.
Inflation is now expected to remain far above the Federal Reserve’s 2 percent annual target well into next year or even into 2024.
Chair Jerome Powell said the Fed needs to see a series of declining monthly core inflation readings before it would consider pausing its rate hikes.
The Fed raised its benchmark short-term rate at its past four rate-setting meetings, including a three-quarter point hike in both June and July – the first increases that large since 1994.
Published by Associated Newspapers Ltd
Part of the Daily Mail, The Mail on Sunday & Metro Media Group