IHOP to buy Applebee's
It's a strange marriage. International House of Pancakes (IHOP), the breakfast-oriented restaurant chain (1,300 locations, mostly franchise) announced it will buy Applebee's International, a chain of 1,950 bar & grill style restaurants (mostly franchises). The deal is for $2.1 billion. The deal will create the nation's largest sit-down restaurant company.
IHOP is the #3 in its category (after Denny's and Waffle House). Applebee's is #1 in the causal dining segment, leading such competitors as Darden (Red Lobster, Olive Garden) Brinker (Chili's,), Carlson (TGIF), and Ruby Tuesday.
While IHOP's stock valuation has grown considerably over the last few years, neither chain has done so well over the last fiscal year. IHOP sales were up 0.4% and its net was up 1.4% in 2006. At Applebee's, gross income was up 10%, but the net was down by 20%.
IHOP CEO Julia Stewart was once a senior exec at Applebee's. Her plan is too sell off the 500+ company-owned Applebee's restaurants and have the company become just a franchisor. She also plans to reinvigorate the somewhat Stale Applebee's brand, with new food choices and remodeling.
To Stewart's credit, she did manage to reinvigorate IHOP, and maybe can work the same magic on Applebee's. But its sector is a brutal one, and there will be very few synergies in the acquisition - we are unlikely to see beer served at an IHOP or silver dollar pancakes at an Applebee's. The deal is a horizontal move that unites two mature companies/brands with limited growth potential. Management may be able to squeeze out more profits, but with wholesale food prices up, increases in minimum wage, and a seemingly endless supply of new competitors, it sure won't be easy.
9:17:48 PM 
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