IHOP-Applebee's combo restaurants could be coming, but history shows making them work could be tough

Multi-branded restaurants, like this combination Taco Bell-Pizza Hut, have been around for decades.

Kevork Djansezian/Getty Images

• Dine Brands is thinking about rolling out combination IHOP-Applebee's restaurants.
• But other chains have tried that before, with not a great deal of success.
• Running restaurants together relies on details like integrating kitchens.

In 2008, Hip Hop trio Das Racist caught the attention of the internet with their song "Combination Pizza Hut and Taco Bell." It also catapulted the novel fast-food concept — restaurants that serve food from two brands — into pop culture.

Now, fifteen years later, Dine Brands (the owner of IHOP and Applebee's) is the latest company to consider opening more dual-brand restaurants. It's opened several locations that serve both menu items from IHOP and Applebee's under a single roof, executives said on an earnings call in February. Its most recent dual-branded restaurant opening was in Leon, Mexico, and the company is contemplating opening more in the US, CEO John Peyton said.

That doesn't mean it's automatically a sound business plan, however.

The idea itself is simple. Opening a restaurant like Applebee's is expensive, and it can take franchisees years to earn back those costs. By opening a site that serves, say, lunch and dinner options from Applebee's as well as pancakes, waffles, and other breakfast food from IHOP, franchisees can increase sales without increasing their costs — all the food is prepared in the same kitchen, after all.

Indeed, at the IHOP-Applebee's locations abroad that Dine has opened so far, revenue has at least doubled so far, Payton said in February.

"That's a big innovation that we're nurturing overseas and that our intent is to eventually bring to the US when we find the right opportunity to introduce it," Peyton said.

But as Das Racist's ballad suggests, other companies have tried dual-branded restaurants before — and they haven't exactly taken over America's dining scene.

The 2002 annual report for Yum Brands, the parent company of Pizza Hut, Taco Bell, and KFC, among other restaurant chains, lays out why the much-memed combination Taco Bell-Pizza Hut existed in the first place.

That reason, in short, was McDonald's.

At the time, the average McDonald's restaurant generated about $1.6 million in annual sales — twice that of the average Yum-owned restaurant, then-CEO David Novak wrote in an open letter that was part of the report.

While Yum's restaurant chains each focused on a specific kind of food — tacos or pizza — diners could find anything from burgers to shakes to scrambled eggs underneath the Golden Arches. "McDonald's has something for everybody, and this drives sales," Novak wrote.

So Yum turned to Frankenrestaurants — like the combination Pizza Hut-Taco Bell — to offer a wider variety of options under one roof. At the time, Novak said Yum had big hopes for multi-branding, calling it "potentially the biggest sales and profit driver for the restaurant industry since the advent of the drive-thru window."

It hasn't turned out to be quite such a big success. A spokesperson for Yum Brands told Business Insider that the company today "does not pursue co-branding as a strategy in the US or internationally."

Dine Brands and Darden, which has also operated co-branded restaurants, did not respond to a request for comment from Business Insider.

Running one restaurant with two brands is more complicated than just putting up a second sign and teaching employees how to make another menu's worth of items. Each brand is often operated by different franchises, so it also involves running the combo restaurant in a way that pleases both — and other parties that might have a say.

In a 2010 lawsuit, for instance, a Kentucky-based franchisee of Long John Silver restaurants sued Yum, which owned the chain then. The franchisee had invested millions in opening multiple combination Long John Silver-A&W restaurants.

But only after agreeing to open the restaurants did the franchisee learn that a franchisee association for A&W would have the final say over specials and other aspects of the joint stores, trade publication Nation's Restaurant News reported at the time.

The joint restaurants were also less profitable than stand-alone locations, according to the lawsuit.

Major restaurant brands also frequently change ownership, making it hard to decouple multi-branded locations if a company decides to sell one. That's what happened in 2014 when Darden Restaurants closed six combination Olive Garden-Red Lobster locations after it decided to sell the latter. Yum sold both Long John Silver's and A&W in 2011.

In the past, some restaurant brands have put together brands that don't complement each other, said Rob Seely, associate vice president of operations, strategy, and design at WD Partners, which advises restaurant brands.

Others have focused too much on co-branding as a tool for increasing sales — only to have the experiment fail because they never figured out how employees should run one kitchen for two separate restaurants, he added.

Those details, which are usually invisible to customers, can make or break a co-branded restaurant, Seely said.

A lot of companies "just smashed 'em together," he said. And that just doesn't work.

Do you work at a major restaurant like McDonald's, Pizza Hut, or Taco Bell and have a story idea to share? Reach out to this reporter at abitter@businessinsider.com

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Contributer : Business Insider https://ift.tt/j0pOF6G

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