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Dine Brands Global Inc. acquired Fuzzy's Taco Shop in December.

Dine Brands’ search for fully franchised Mexican concept led to Fuzzy’s

Applebee’s parent is about to debut virtual Tender Fix concept at IHOP and tests virtual cheesesteak offering

Dine Brands Global Inc., parent to the Applebee’s Neighborhood Grill + Bar casual-dining chain and the IHOP family-dining brand, found the December acquisition of the 137-unit fast-casual Fuzzy’s Taco Shop attractive because it is wholly franchised and in the “vibrant and growing” Mexican segment, the company CEO said Wednesday.

The Glendale, Calif.-based Dine Brands acquired Fort Worth, Texas-based Fuzzy’s, which had an estimated $280 million in sales, from NRD Capital subsidiary Experiential Brands LLC for $80 million.

The company said its IHOP division was testing a new virtual brand, called Tender Fix, that would emphasize chicken tenders, and another that would feature cheesesteak sandwiches. It currently has virtual Super Mega Dilla and Thrilled Cheese brands, and Applebee’s has the virtual Cosmic Wings brand, some items of which it has migrated to its main menu.

John Peyton, Dine Brands CEO, said on a fourth-quarter earnings call that the Fuzzy’s acquisition “fulfills our long-stated goal of adding a brand to our portfolio” and fit such criteria as being fully franchised.

“I was enamored with Fuzzy’s from the moment I walked into the vibrant and colorful dining room and convinced after I sampled the fresh Baja-inspired tacos and delicious Instagram-able beverages,” Peyton said, adding that Fuzzy’s had a pipeline of 125 additional units planned.

“We're attracted to the strong business model that includes a compelling lunch and dinner business, 40% off-premises sales and 20% alcohol sales,” Peyton said. Paul Damico, CEO of Fuzzy’s for the past two years, will continue to lead the brand, he added.

Peyton added that Dine Brands expects to accelerate Fuzzy’s growth through its technology, shared services and supplier platforms.

The Fuzzy’s acquisition was a high note for the company last year, Peyton said, but “it didn't distract us from the continued impacts 2022 caused across the industry: inflation, hiring and retention challenges, supply-chain delays and, of course, uncertainty regarding the strength of the consumer.”

Peyton said Dine Brands’ 2023 innovation and growth agenda included continued investments in the IHOP and Fuzzy's loyalty programs, technology that included new point-of-sale systems for IHOP and Applebee's, artificial intelligence to the recommendation engine on the brands’ digital channels and customer-facing items like server handhelds and pay-in-advance and wait list functionality on smartphone apps.

“We're focused on building our portfolio of virtual brands that currently includes Thrilled Cheese and Super Mega Dilla, and we're now testing a chicken and a cheesesteak concept,” Peyton said. “We're also leveraging IHOPS brand equity into national CPG partnerships, launching IHOP branded coffee with Kraft Heinz and cereal with General Mills.”

Jay Johns, president of the IHOP division, said existing virtual brands, excluding Tender Fix, are in 1,200 IHOP locations.

Peyton said the company is also testing new brick-and-mortar concepts like dual-branded restaurants kitchens and pickup windows, which have been introduced into a handful of Applebee’s locations.

Tony Moralejo, who succeeded John Cywinski as Applebee’s president in January, said the casual-dining brand’s “franchisees remain on solid financial footing thanks to an all-time high AUV.”

With construction pressures hampering returns on investment, Moralejo said his “top priority is to ensure our franchisees are successful. So I'm going to leverage my development background and work closely with franchisees to create new financially attractive development opportunities for the entire Applebee's system.”

For the fourth quarter ended Dec. 31, Dine Brands Global’s net income was $11.4 million, or 72 cents a share, down from $19.8 million, or $1.14 a share, in the prior-year period. Revenues were down to $208 million from $229.6 million in the same quarter last year.

Same-store sales increased 1.7% at Applebee’s year-over-year comparable Off-premises sales accounted for 23.8% of the sales mix, representing per restaurant average weekly sales of about $11,500. Domestic same-store sales increased 2% at IHOP. Off-premises sales accounted for 21.7% of sales mix, representing per restaurant average weekly sales of about $7,700.

Dine Brands Global has more than 3,500 restaurants in 17 international markets. As of Dec. 31, Dine Brands had 1,678 Applebee’s and 1,781 IHOP unit in additions to the Fuzzy’s Taco Shop brand.

Contact Ron Ruggless at [email protected]

Follow him on Twitter: @RonRuggless

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