IHOP 2008 Annual Report Download - page 4

Applebee’s Gaining Momentum
In November 2007, when we acquired Applebee’s
International, our intention was simple: to successfully
apply our core competencies of franchising and brand
revitalization to transform and energize what we believed
was a strong, but under-managed brand. By acquiring
Applebee’s, we would create a greater and more powerful
Company than either business could have achieved alone,
with the potential to generate signicant shareholder value
over the long term.
For Applebee’s, our goal is to be the industry leader in the grill
& bar category. The plan to achieve this goal is straightfor-
ward: energize the brand, improve operations, and refranchise
Applebee’s remaining company-operated restaurants.
Our work to energize the Applebee’s brand is well underway.
Throughout 2009, we will be launching a robust pipeline of
new and enhanced menu offerings designed to differentiate
the brand and drive trafc. These offerings will be balanced
with clear value messages that are critical in today’s challeng-
ing consumer environment. We expect the promise of
value not only to be reected in our menu, but also to be
encompassed by an improved guest experience that delivers
the best of what the Applebee’s neighborhood has to offer.
From an operations perspective, we are making progress
with operational improvement initiatives system-wide at
Applebee’s. We have seen a signicant improvement across
all key consumer measurements, including guests’ likelihood
to return, an increase in overall guest satisfaction, faster meal
delivery times, and improved food quality scores and server
attentiveness. We still have considerable work to do in these
areas, and we will continue to drive improved results, striving
to ensure every guest leaves happy.
In 2008, we successfully launched our refranchising
program with the sale of more than 100 Applebee’s
restaurants to franchisees, which exceeded our expectations
in terms of restaurants sold, albeit at lower proceed levels.
We move forward in 2009 with the intention of selling
additional company-operated Applebee’s restaurants and
are encouraged by the level of interest we have in our
remaining markets. However, we do recognize that closing
deals is very difcult in the current environment, and
we are working with several interested parties to overcome
obstacles posed by the credit markets and weakness in the
broader economy. It is also important for you as a shareholder
to know that we have maximized our nancial exibility
to continue to operate and invest in the business while
remaining in compliance with our debt covenants — even
if we do not sell additional Applebee’s company-operated
restaurants this year.
Creating an Insurmountable Lead for IHOP
IHOP remains the number one brand in family dining,
and we are now focused on accelerating IHOP’s momentum
in order to create an insurmountable lead in this category.
In 2009, we will employ our proven strategies to navigate
what remains a challenging consumer environment. These
strategies include value-oriented, limited-time offers supported
by enhanced advertising to drive brand awareness, a single-
minded focus on delivering “Service as Good as Our Pancakes,”
and continued franchise restaurant development. Additionally,
non-traditional development presents incremental growth
opportunities for IHOP and we are exploring these possibilities.
We also plan to leverage our licensing capabilities to extend
the reach of the IHOP brand.
Disciplined Financial Management
We are making material progress toward achieving the $50
million in cost savings targeted at the time of the Applebee’s
acquisition. By the end of 2009, we expect to have realized
approximately $35 million in total general & administrative
savings garnered since 2007 as a result of our successful
refranchising and integration efforts. Additionally, we have
taken proactive steps to further maximize our nancial
exibility, including cost reduction actions that have already
resulted in approximately $20 million worth of prot
enhancements. We also have made terric strides in bringing
capital expenditures in line with the needs of our combined
franchise oriented business model. We now have reached
“ We are an experienced franchisor of
restaurants with a proven expertise in
revitalizing and optimizing brands.”