IHOP Sees Explosive Growth in To-Go Sales

Photo Credit: Shutterstock
May 22, 2019

By Rebecca Heilweil

To succeed in a market dominated by services like GrubHub, UberEats, and DoorDash, staple American dining chains are increasingly turning to their take-out and delivery order businesses.

"What we're really seeing is that millennials in particular — but consumers in general — are wanting to consume restaurant food at home, or wherever else that they want to consume it," IHOP president Darren Rebelez told Cheddar. "We still have a great dine-in business, but that off-premise occasion — that meals-to-go business — has really been exploding for us."

The restaurant brand saw its off-premise sales, a category that generally includes take-out, delivery, and drive-through orders, jumped by 54 percent in the past quarter. Now to-go orders constitute 10 percent of the company's sales, more than double what they were last year.

Two years ago, IHOP began to expand its off-premise business by building up its mobile order technology and forming partnerships with delivery platforms. Still, Rebelez notes that "the primary way, believe it or not, is still people picking up the phone and calling the restaurant."

Before leaning into a third-party delivery model, IHOP also focused on updating its packaging. "We focused on how we can control the quality of the product throughout this experience. We re-engineered our packaging. It's specifically designed to protect our breakfast food. Our mantra was, 'protect the pancakes at all costs,'" said Rebelez. For instance, now packaging includes ventilation traps that maintain heat, but not moisture, to keep IHOP's iconic pancakes fluffy.

Meanwhile, burgers are IHOP's most popular item for lunch and evening orders, which are also a growing share of sales.

Rebelez said that IHOP is still determining how best to negotiate cost-sharing between the restaurant, the delivery service, and the consumer. "Particularly with the delivery component, there is another charge for the guest because it is an expensive proposition. You got to get the food to them. It does cost the restaurant a little bit more as well," Rebelez said.

Meanwhile, IHOP competitor Denny's is investing in luring customers back to the dine-in experience. The brand has launched a new campaign to advertise that it's remodeled 80 percent of its restaurants. "It used to feel more like a cafeteria," Denny's chief brand officer John Dillon told Cheddar last week. "Now it feels more like somewhere you can relax, be yourself, and unwind."

The company has opened about 350 new U.S. locations — and about 60 international locations — since 2011. About 5 percent of Denny's total sales come from delivery orders, and 7 percent of total sales come from pick-up orders, according to a recent presentation to investors(the company reports about similar numbers for its franchises).

At IHOP, current low unemployment has had a two-fold effect on its dine-in business. "Everybody's working. There's more discretionary income. So that's good for business; we have more people are coming in," Rebelez said. "The flip side is it's harder to find more people to work because they do have other jobs."

IHOP has incorporated new technology that should hedge against a labor shortage at its restaurants. Outfitting servers with tablets that automatically send orders to the kitchen speeds up operations. Allowing guests to register for the waitlist before arriving at the restaurant, and providing an algorithmically-predicted wait-time estimate, reduces congestion at IHOP locations.

Rebelez added that trade tensions between China and the U.S. have yet to have much influence on IHOP. "We haven't seen that impact yet. Fortunately for us, on the Chinese front, we don't have a lot of exposure to Chinese commodities," he said. "Obviously, if that becomes a more protracted trade battle that impacts the macroeconomy overall, then that would impact us like it would everyone else."

For full interview click here.