Speaker 1:
From the library of the New York Stock Exchange, at the corner of Wall and Broad Streets in New York City, you're Inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership and vision and global business, the dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week, we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism. Right here, right now at the NYSE and at ICE's exchanges and clearing houses around the world. And now welcome, Inside the ICE House. Here's your host, Josh King of Intercontinental Exchange.
Josh King:
The release of this episode of Inside the ICE House coincides with the 230th anniversary of the New York Stock Exchange. Peering up at a major milestone like that makes us focus on the change that allowed a group of 24 traders standing on the street corner to grow into a technological and global $38 trillion exchange, and when you consider not how the exchange operates, but why, not much has actually changed since those days when they wore knickers on Wall Street. The NYSE's founding is traced to the signing of the Buttonwood Agreement, that prescribed an exchange meeting every day to allow buyers and sellers to come together, establishing a sense of trust that trades they'd made were fair, and that should sound familiar to anyone studying the markets today. In fact, the only part of the agreement that's no longer followed is a rule charging a set commission and passing that on to the end investor. Sometimes change can be a good thing.
Josh King:
All of this chatter about past and present recalls another thing I saw recently that, at the same time, had a whiff of nostalgia and felt completely new. In late 2021, a new fast casual dining restaurant opened near New York City's uber trendy Flat Iron district. It's called Flipped, and passersby might notice the familiar blue of IHOP, but you had to strain to see the lettering next to the D in Flipped to really confirm the connection.
Josh King:
Our guest today, John Peyton, is CEO of Dine Brands Global, the parent company of the aforementioned IHOP, as well as Applebee's Neighborhood Grill and Bar. He oversaw Dine's emergence from the pandemic as a stronger, technology-driven company built on decades of eating good in the neighborhood, so all of its customers could come in hungry and leave happy. Our conversation with John Peyton on Dine Brands Global restaurants, both brick and digital, the company's evolution and what it takes to steward brands that seem more public than corporate, is coming up right after this.
Speaker 3:
And now a word from Genpact. NYSE ticker G.
Speaker 4:
We are currently encountering delivery delays.
Speaker 5:
Genpact is transforming supply chains using real time data to help manufacturers keep goods flowing from the warehouse... So cupboards are never bare at their house.
Speaker 5:
We are in the relentless pursuit of a world that works better for people.
Josh King:
Our guest today, John Peyton, became CEO of Dine Brands Global, that's NYSE ticker symbol D-I-N, in January 2021. John was previously the CEO of Realogy Franchise Group and spent 17 years with Starwood Hotels and Resorts Worldwide. Began his career with PWC in their accounting and management consulting practice. Welcome, John, Inside the ICE House.
John Peyton:
Thanks, Josh. I'm excited to be here Inside the ICE House.
Josh King:
There you go. So let me first probe on your experience at Realogy and Starwood. Fed chairman, Jay Powell, announced a half point interest rate hike yesterday. What does that mean for home starts, home buying, mortgages? ICE has a vested interest in that topic.
John Peyton:
Well, I'm a year and a half since I've left Realogy, but I can tell you that Realogy had two record years in '20 and '21, and so the conventional wisdom back when the pandemic started was it would be a really difficult home buying environment, and that only lasted for about six months. What happened with the American home buyer is because they were locked up in their homes, they noticed that they didn't have a home office, and they were all working in the dining room. So there was a lot of unplanned home buying and selling, and then there was also the migration out of some of the larger cities earlier in the pandemic facilitated by virtual work. So the number of home sales in the US increased by a couple hundred thousand over the last two years, which was great for all of the residential real estate businesses.
Josh King:
So on my way in this morning, I did the usual dog walk of Daisy the Rhodesian Ridgeback up around 23rd street to check out the first Flipped in New York. Why was New York City chosen as one of the locations to pilot your long awaited foray beyond IHOP?
John Peyton:
So Flipped is what we're calling fast casual. So we've got 1600 IHOP restaurants across the country, which are the IHOP you know and love, where you can sit down and enjoy the service at your own pace with the server, et cetera. Flipped is really a to-go concept of IHOP, and it's really designed for a high traffic urban environment, like 23rd street in New York, or a college campus or a medical complex, and it's our laboratory. It's literally restaurant number one. It's a test and learn environment.
John Peyton:
We had a fun time. About a month ago, we brought 20 of us in from headquarters, and we also brought in two focus groups of Gen Z's and millennials, and just had them go through the technology, order, they critiqued the entire building, and so we're really having a fun time making it better, relevant. The food is fantastic. We've revolutionized to-go packaging, because it's primarily a to-go establishment. It's fantastic. I took my daughter and her 24 year old friends to it a few months ago. The good news is they loved it. The bad news is they told me it's a great hangover restaurant for Sunday mornings. So as a parent, I'm not thrilled about that, but I'm thrilled that they love the food, they love the packaging, and they think it's really relevant to their generation.
Josh King:
Walking by and catching that familiar pancake smell certainly took me back to my college experiences in those blue roofed, A-framed restaurants that my Swarthmore college buddies and I loved on our road trips. Growing up in Villanova, was IHOP or Applebee's part of the Peyton family dining experience?
John Peyton:
IHOP was. I had a great uncle, my mother's uncle, who took us out every Sunday, his grandchildren, and then my brother and me is his great nephews, and every Sunday was an activity. It was bowling or going to the park, and then IHOP on many Sundays. So what I love about IHOP is everybody has that story. Everyone says, "Oh, my grandparents took me there every Sunday. We went after church every Sunday. My little league team went there after games on Saturdays," and the opportunity and the challenge for us is to take this amazing legacy brand that's been around for 60 years and make it relevant in contemporary and have that great balance of people's nostalgic love for the brand with the way people like to dine and drink today.
Josh King:
Relevant and contemporary, I was looking at the Flipped website this morning too, and I noticed not only did the food look great, the packaging looked very sort of environmentally friendly. What are you doing to sort of make the experience of getting in and out of those stores in ways that sort of make people feel that they're on a sustainable journey feel comfortable?
John Peyton:
Well, the journey begins with the ability to order either on the mobile app before you arrive, to order at a kiosk at the front of the store, or at the counter, if you choose to do that. So it offers three different ways for our guests to access the food. We've gotten really creative with the to-go packaging. So for example, if you order pancakes and eggs, it's a two layered to-go package. So there's the pancakes, there's a cup that sits within it, and then the eggs are on top, and they each actually heat and vent differently so that the pancakes stay crisp, but the eggs don't get wet and they maintain the heat of both of those products longer, which is great. We, like all companies, are super focused on ESG. That's really important for investors, our guests expect it as well, and so we've been working with our suppliers to make sure that our products are as environmentally responsible as possible. So for example, we are close to limiting styrofoam from all of our restaurants as we move to more sustainable packaging.
Josh King:
John, you chose to stay local for college, but you chose U Penn near center city over the hometown university on the main line. Why head downtown?
John Peyton:
Because Villanova University was five minutes from my parents' house, and that was much too close. So Penn was 30 minutes away, and in the pre-cellphone era, they couldn't just tell me they were coming. So it felt like I was far enough away that I could manage their visits or my visits home.
Josh King:
So you were on the staff of the Daily Pennsylvanian school newspaper. Did you initially plan on studying journalism or graphic design, and how did that experience help you in your career overall, such as during your stint as CMO of Starwood?
John Peyton:
So it was a super formative time for me. So when I was in high school, I did a lot of fine art, pencil drawing and charcoal and things like that, and I took AP art, which, believe it or not, existed right at the time, and my senior year, I was preparing my portfolio. I thought I was going to apply to RISD or some other design school, and my father, who was a super conservative, traditional Wall Street guy, he actually got one of the first MBAs from NYU, saw what I was doing. He said, "It looks like you're preparing your portfolio for design school," and I said yes, and he said, "Well, you're not going to design school," and so I ended up, obviously, at Penn, but found my way to the Daily Pennsylvanian, which was formative in a couple of ways.
John Peyton:
Because it was a daily paper and it was pre-digital, it was a 40 hour week commitment. So as a student, I was there from seven at night to two in the morning five days a week, and I was the art director and the design director. So I had a crew of illustrators, designers, photographers, and I may not have been the most talented artist, but I learned that I was a good manager, and that year that I was design director, which was my junior and senior year, I won Manager of the Year, which was the first time a non-editorial department head had won that, and that was sort of the beginning of me thinking, "Hmm. The leadership piece is interesting."
John Peyton:
So if you fast forward to looking for jobs, senior year, dad comes back into the story. I had two job offers when I graduated college. One was at PWC, and one was at Gray Advertising for $17,000 a year, and I asked my father if he would help supplement my rent so I could take the advertising job, and the answer was his obligation concluded with college, and that sent me on my consulting career.
Josh King:
I certainly remember both of them on campus at Swarthmore and facing some of those similar questions, but eventually, that PWC career serves you really well. Between your experience as manager of the year one the Pennsylvanian, but then this PWC experience, how did that combination, dad's view notwithstanding about whether you're going to be a graphic designer or a management consultant, prepare you for this leadership role at Starwood?
John Peyton:
What I love about consulting, and I think it was true 30 years ago and I think it's true today, is you develop a core set of skills that serves you for the rest of your career. So what I learned at PWC, I was in a group called change integration, and I was doing what was then called process improvement and reengineering, and that's where I learned Six Sigma, and so you learn analytics in a really rigorous way. You learn how to present complicated data in a way that's simple to understand and impactful. You learn how to facilitate meetings and get to consensus, and you get exposure to pretty senior people and businesses at an early point in your career. So those skills were super important.
John Peyton:
I got to Starwood, and I entered Starwood the way many consultants do. I basically became an internal consultant, and it's interesting. So again, you've got to go back to 1989, and the situation was Barry Sternlicht, who had Starwood capital at the time, he had a couple hundred hotels, and he bought Sheraton and Weston in the same year, and created Starwood, and overnight, there was a third competitor to Hilton and to Marriott, which was a big, bold, brash thing. So I joined only a year after that, and Starwood had just launched Starwood Preferred Guests, which was the loyalty program, which was also bold and earth shattering, because it was no blackouts, and the other hotel companies didn't do that, meaning you could redeem on 365 nights a year, and the hotels couldn't block out the points.
John Peyton:
So I was hired by the marketing department, because back then, when you enrolled in SPG, we sent you a beautiful enrollment kit.
Josh King:
I remember that kit.
John Peyton:
It was a beautiful card and a big box the size of a shoebox, and the shoebox and the card cost $12, and it cost four dollars to mail it, which was wonderful, but we didn't know how to turn it off. So you got a kit every week, week after week. So I was brought in to do process improvement and make sure that the whole thing went smoothly, and I did process improvement for a while. Then I ended up working for the COO, and he asked me to design a Six Sigma program for Starwood, which was, again, sort of very bold in the sense that Six Sigma's designed for manufacturing, to make sure that the spec for the refrigerator door comes out exactly correctly every time.
John Peyton:
We applied it to the service industry for the first time, and it's a long way of saying that after two years of doing that, he called me into his office one day, and he said, "On Monday, you have a new job. You're going to run owner relations in North America and report to the president of North America." I said to him, "I've never met an owner. I've never read a contract. My only skills as a consultant, a former consultant, are writing work plans and PowerPoint decks," and he said, "Exactly. If you're going to stay in this business, you need to learn it," and it was an early lesson I learned about two things. I had skills that were valued, like writing work plans and running projects, but I also learned about just trusting a mentor, who said, "Okay, you're going to go do this now," and I did it and that led to a much more broader career within hospitality than just doing process improvement.
Josh King:
This mentor of yours must have said, "Peyton, young man, you need to sort of get to know these people, get to know their communities, get to know their own investment philosophies. Why this sort of construction of this hotel is putting their kids through college, even if our brand is on the building." How did it expand you sort of as an outgoing person able to see these different types of people at different parts of the country?
John Peyton:
It's really when I began to learn the business of franchising, which I've carried with me now through Realogy and through to Dine Brands. So at Starwood, for example, there's three ways in which a hotel could be owned. It could be at the time owned and operated by Starwood. It could be managed by Starwood, but owned by someone else, so they would pay us to manage it for them, or straight up franchised, where they own it and they run it. So I was responsible for the managed hotels and the franchise hotels, and it ranged from really large companies like a host that had hundreds of hotels to smaller family owned businesses that might have had five or eight or 10 hotels, and if you compare that to Dine, it's very similar.
John Peyton:
We have companies that own 450 of our restaurants, and we have companies that own one or two or three IHOPs, where they're truly owner operators where they're still working in the kitchen, and they own and run their restaurants. So what I learned was that you've got to be really flexible. What is material to a host is very different than what's material to someone who only owns one or two or three hotels or restaurants, and what's really interesting, particularly about Dine, is that that's small business in America. There's small, family owned businesses that are deeply rooted in their community, and I've always worked for large public companies at headquarters, but for almost 30 years, my customers or my clients have been family owned or regional companies that are very local and very embedded in their communities.
Josh King:
When you get to Dine Brands Global, you succeeded Steve Joyce, who was our guest on this show back in episode 106. Coming from Realogy and Starwood, what did you see as the opportunity that brought you to Dine Brands Global? Did they say, "This guy does know how the franchise system works"? What were they looking for from Steve?
John Peyton:
So the board, in hiring me, was looking for somebody with experience in multi-brand franchising, which is what Dine is. We've got two brands, and we're 96% franchised. Realogy, my former employer where I ran the franchise group, had six residential real estate brands you know well. Century 21, Coldwell Banker, Sotheby's. 2300 franchisees in the US, 200 countries around the world, and Starwood had 13 brands and hundreds of franchisees. So I consider myself, my sweet spot, is multi-brand franchising, and whether it's a restaurant or a hotel or a residential real estate business, the business of franchising is pretty similar across all three, in terms of what we have to do to support them and make sure that they're successful.
Josh King:
When you joined Dine Brands, you were in the midst of the COVID-19 pandemic. What was the state of the company at the time, and how did that added degree of difficulty caused by the virus impact how you set to make your mark on it?
John Peyton:
So I started interviewing for the job in the summer and fall of 2020, six months into COVID, and took the job and started in January, and as you can imagine, my friends and family and colleagues said, "You're joining the restaurant industry during COVID?" For me, the biggest opportunity was to return to hospitality. So Realogy was fabulous, I loved it for the four years I was there. I went because Marriott had purchased Starwood in 2016 and had offered me a job in DC. I was CMO of Starwood at the time. I had kids in high school. I was way more afraid of telling them that they were moving to DC than I was of looking for a new job.
John Peyton:
So I spent four years at Realogy, which really led to Dine's board being interested in me, and when I got to Realogy, what occurred to me was it was really important during COVID to play offense and defense at the same time. My concern was if we all went to defense and did everything we could not to spend money and not to innovate, then when this ended, we wouldn't be prepared to own the upswing, and that what we thought would be a huge rush back to restaurants and gyms and movie theaters, which we're seeing now.
John Peyton:
So what I think the company did really well is we protected our franchisees with fee deferrals and things like that. We did like many companies did. We reduced our corporate staff by about a third. However, at the same time, we doubled and tripled down on our investments in technology. We designed the International Bank of Pancakes, the new loyalty program for IHOP that's launched in the last couple of months. We just launched updated apps and dot coms for IHOP. We launched virtual brands. All of that work was done during COVID, and that's why I talk about offense and defense. So we did what we could to ensure the financial health of the company and our franchisees, but also made sure that we had cool new stuff ready to own the upswing when it happened, and here we are now coming off a really strong quarter, and I think it's because of the work we did the last two years.
Josh King:
Can you explain what they are and your process for really standing up a whole new brand?
John Peyton:
So there's two new concepts that are merging in the restaurant space. There's ghost kitchens and virtual brands. So a ghost kitchen is a facility that is not for consumers. It's just a kitchen where you prepare, in our case, Applebee's and IHOP food for delivery only. So in a market like New York or Los Angeles, where it might be prohibitive to build new bricks and mortar restaurants, we can serve via delivery out of a ghost kitchen. It also lets us test a new market.
John Peyton:
Virtual brands are new brands like Cosmic Wings, which Applebee's does in partnership with Cheetos, Thrilled Cheese and Super Mega Dilla that we're serving out of IHOPs, that only exist on the third party delivery apps like Uber Eats, and so when the consumer goes to order a Super Mega Dilla, they don't necessarily know it's being prepared at IHOP, but it's prepared at IHOP and then delivered via the delivery companies.
John Peyton:
So the business model's terrific, in that you can take these virtual brands, you can target them to a demographic, you can target them to a day part, you can leverage the skews you already have in your kitchen, you can test them and dial them up with a low capital investment and tweak them or dial them down if they're not working. So for us, this represents incremental revenue for our franchisees, and it's a big part of the emerging business model, particularly because during COVID, delivery really accelerated, and that off premise business is one that's really incremental to us.
Josh King:
So talking about virtual brands and ghost kitchens, we read last month that you signed a deal with Just Kitchen to sell IHOP from ghost kitchens across Taiwan. Think about international business. How did deals like this play into your growth strategy?
John Peyton:
So interestingly, ghost kitchens are probably more advanced outside the US than inside the US, and one of the advantages of Dine is its scale. We've got 3600 restaurants around the world, and in places like Southeast Asia and the Middle East, the ghost kitchen business concept really did accelerate during the last couple of years, and there's very formal, professional established companies that not only can serve our brands, but are serving 10, 12, 15 brands out of one ghost kitchen. So we're entering markets like Taiwan or expanding in the Middle East, where we can see the market with our brand via delivery and a ghost kitchen, and then make the case to build a bricks and mortar based upon the business that's there. So it's a great way to encourage new franchisees to say, "Look, in Riyadh, this is the business we're doing just virtually. Imagine if you built a bricks and mortar then."
Josh King:
So we were talking about how technology really helped Dine Brands survive and thrive through the pandemic. You mentioned the International Bank of Pancakes earlier. Tell us about how creating this crypto-like reward for customers is part of your strategy.
John Peyton:
To give credit where credit is due, this was in the works before I got to Dine, and I absolutely love it. So I'll go backwards before I go forwards, Josh. So at Starwood in the mid nineties, I ran the loyalty program for Starwood Preferred Guests.
Josh King:
SPG.
John Peyton:
SPG, and so I am a believer. I've seen what people do to accumulate their points and how important that is to them, including people who, at the end of the year, would purposely go travel and stay in hotels when they didn't need to to make sure they got to platinum if they were a few nights away. They do it with the airlines as well.
John Peyton:
Loyalty programs increase share of wallet for the guests you have. They attract new guests, they shift share, and if they're done really well, like ours is, not only can you redeem PanCoins, which is our cryptocurrency, which you store in the International Bank of Pancakes, and you traded your PanCoins for food at IHOP on the Stack Exchange. So not only can you use your PanCoins for food at IHOP, we're also extending it to experiential moments and things outside of the restaurant, and it's a really good value. So for every five dollars they spend, they earn one PanCoin, and three PanCoins is all you need to redeem for a stack of pancakes. So for spending a total of $15, you qualify for your first free meal. So it's a very accessible way to bring our value oriented customers into the program, and I'll tell you, since we've launched, it's only been a month, we've had 500,000 enrollments in the new program, and on a daily basis, we're signing up 20% more people every day than even our rosiest estimates.
Josh King:
I don't know if there are plans for Applebee's crypto, but the brand itself has been pouring into the arts with bar and grill inspired NFTs, and also a shout out in Walker Hayes's Fancy Like.
Speaker 17:
(singing)
Josh King:
When did you realize that the Fancy Like song had gone viral and done such good for your brand?
John Peyton:
Walker Hayes and Fancy Like were a gift from the heavens, and so the story behind that is he's a fabulous guy. It truly is his special favorite restaurant, and he wrote about date night at Applebee's, because that's where he and his wife go for date night, and that song broke, and then when it really went viral was when he and his daughter did the TikTok dance, and that's when it really went crazy.
John Peyton:
To his credit and to our marketing team's credit, our marketing team called him, and he has been amazing. This really was all last year. All last year in appearances for us. We extended the song to our TV spots. One of our TV spots was literally everyone posting their own TikToks of the dance. We do the dance at the Applebee's global conference. It's sort of a requirement of the brand now, that you know the dance, and so it was one of those moments that just really resonated with us, and he is such a fabulous guy that he really worked with us to expand it and leverage it, and it's become a signature moment for the brand, and I love it because this is one of our customers who loved Applebee's so much, he wrote a song about it.
Josh King:
How do you think, given all your experience, brands need to prepare to take advantage of opportunities like that, where something unexpected just blows up, and often predicated on ideas that probably don't happen in the laboratory of marketing ideas?
John Peyton:
The buzzwords today are super real. You need to be nimble, you need to be agile, you need to be able to pivot quickly, and in today's world, where so much is happening online, on Twitter, on TikTok, that you have to be super nimble. So we've got social media teams that are constantly monitoring what's being said and what's being posted about our brands, and looking to leverage that.
John Peyton:
Another great example from last year as well is the Adam Sandler milkshake IHOP story. So last summer, he was filming on Long Island, and he brought his daughter to one of our IHOPs, and he was wearing a mask because it was during COVID, and it was a 45 minute wait, and so he decided not to wait, and then after he left, the hostess somehow realized that I just turned away Adam Sandler, and she posted on Twitter, "Oh my gosh, I just turned away Adam Sandler."
John Peyton:
We jumped on it. We reached out to him. He said he wanted to go in for a milkshake. He loves IHOP milkshakes. So that turned into, we took milkshakes and pancakes to his set where he was filming. The hostess who told him it was a 45 minute wait got to meet him and serve, and then we made a charity event out of it, and we had a milkshake day and we donated the proceeds to Adam's favorite charities. So again, just like Walker Hayes, it's sort of a gift from heaven.
Josh King:
Are you personally rolling up your sleeves and getting involved in this, or does the team just say, "John, we're on this out in Long Island. Sandler has just been turned away and we're going to do this project."
John Peyton:
Both of our brands have phenomenal CMOs and amazing marketing teams, and so they come up with all the ideas, and I just get to smile and say, "Gosh, we've got great marketing teams that are jumping on ideas like this."
Josh King:
That's awesome. After the break, John Peyton, CEO of Dine Brands Global, and I are going to talk about the future of the company and his outlook on employment and inflation in 2022. That's all coming up right after this.
Speaker 6:
Connecting the opportunity is just part of the hustle.
Speaker 7:
Opportunity is using data to create a competitive advantage.
Speaker 8:
It's raising capital to help companies change the world.
Speaker 9:
It's making complicated financial concepts seem simple.
Speaker 10:
Opportunity is making the dream of home ownership a reality.
Speaker 11:
Writing new rules and redefining the game.
Speaker 12:
And driving the world forward to a greener energy future.
Speaker 13:
Opportunity is setting a goal.
Speaker 14:
And charting a course to get there.
Speaker 6:
Sometimes the only thing standing between you and opportunity is someone who can make the connection.
Speaker 15:
At ICE, we connect people to opportunity.
Josh King:
Welcome back. Before the break, John Peyton, CEO of Dine Brands Global, and I were discussing his career and the impact of the pandemic and technology on the restaurant sector. So John, we started this conversation talking about how Dine Brands, Flipped is in business to meet customer needs of really the post-pandemic present and future, but that doesn't mean there's no room for nostalgia. Let's take a listen.
Speaker 18:
(singing)
Speaker 16:
Welcome back, America. It sure is good to see you.
Josh King:
So for guys graduating from college in the late eighties, that'll resonate. It was just two decades ago that two of my old friends from politics, Doug Sosnik and Ron Fournier, wrote Applebee's America: How Successful Political Business and Religious Leaders Connect With the New American Community. How is Applebee's helping communities to reconnect after two years apart?
John Peyton:
Great song, right? For a TV spot. One of the things that Applebee's does so well is it leverages songs like that that people have emotional connections to and resonate with, and I love that song. Applebee's, it's tagline is, "Eating good in the neighborhood," and it's called a neighborhood grill and bar, and that word neighborhood is really core, Josh, to the positioning of the brand, and each of the Applebee's is really locally embedded. When you walk into an Applebee's, local high school sports teams are featured on the walls. They do all of their fundraising, their food donations for local causes, and that's a big part of how Applebee's is grounded in the neighborhood. IHOP is the same way.
Josh King:
This year, also talking about nostalgia, saw the return of National Pancake Day, something that we, prior to the pandemic, often celebrated on our own New York Stock Exchange trading floor. I have a two part question, John. One, what's it going to take to get your team back with pancakes for next year to the floor? And two, how have you leveraged the popularity of the day to launch a month of giving?
John Peyton:
So I got here on site at the exchange about an hour ago, and you're the fourth person to reference pancakes on the exchange day.
Josh King:
Got to have it.
John Peyton:
So clearly we're going to put that back on the list. As a new CEO, I didn't know we did that.
Josh King:
On behalf of everyone on the floor, thank you.
John Peyton:
Coming back for this year. The two brands, I'll be a little bit broader in the question, are really great at making sure that they give back, and one of the examples I love is we talk a lot about how a lot of our best ideas come from our team members at our franchisees, and so I'll talk about Veterans' Day as an example.
John Peyton:
So after 9/11, one of our general managers at an Applebee's said, "I'm going to give free food to veterans and current military for the day," and remember, this was pre-digital. So all he did was put a sign on the window, and it said "Free food for veterans." By mid-afternoon, he had served 4,000 meals, and so that, now 20 years later, both of our brands have free food for veterans on Veterans' Day, and it's examples like that that I think really reflect what the brands do to serve their communities. Same thing for National Pancake Day, which is pancakes on that day for veterans as well.
Josh King:
So we talked a little bit earlier about what you're doing in Taiwan. There was also an announcement this year that the longtime operator of US-based franchises of Applebee's, Mohamed Malawi, would open several IHOP and Applebee's locations in the UAE. What's your outlook for more global expansion, and what do deals like this mean for Dine Brands?
John Peyton:
Global expansion's a huge opportunity for us. So we've got 200 restaurants globally, which is not a lot, given the two brands and their presence in the US, and so our strategy is all about scale and doubling down on the markets where we have scale. So our growth plan internationally is focusing on Canada, Mexico, the Middle East and Puerto Rico, and so it's those four markets that are 80% of our international business, and our plan is to grow there. We think we can get from 200 restaurants to over 500 in the next four years, just focusing on those four markets, and then leveraging, like you mentioned earlier, ghost kitchens in Southeast Asia and other markets to sort of seed those markets ahead of building bricks and mortar.
Josh King:
I want to go back to this topic that we addressed at the very top of the show, and when I quizzed you about how it would affect the real estate industry and mortgages, but here's Jay Powell, our esteemed fed chairman, yesterday on Capitol Hill.
Jay Powell:
Inflation is much too high, and we understand the hardship it is causing, and we're moving expeditiously to bring it back down. We have both the tools we need and the resolve that it will take to restore price stability on behalf of American families and businesses. The economy and the country have been through a lot over the past two years, and have proved resilient. It is essential that we bring inflation down if we are to have a sustained period of strong labor market conditions that benefit all.
Josh King:
So there, John, the chairman mentions really two major headwinds for the entire food service and restaurant sector that you've spoken about in interviews in the past and on your earnings call. Let's start with inflation. What's your macro view of the state of the economy, and what impact is that having on your franchisees and Dine Brands overall?
John Peyton:
This is the biggest challenge we're all facing right now. For us as business leaders and particularly for consumers, and our guests who are struggling with what's happening with gas prices and food prices, and the data really is conflicting. So as a leader, it's tough to sort through this combination right now we have of headwinds and tailwinds. So when it comes to headwinds, it's just like you said, we've got inflation, we have supply chain issues, we have gas prices increasing, but we also have some tailwinds, and Josh, I'll give you an example.
John Peyton:
So we just had a really good quarter, where Applebee's was 15% average weekly sales above the same quarter last year. IHOP was 19%. So the question is, in spite of what looks like really tough economic situations, why are Americans, at least in our case, continuing to go to IHOP and Applebee's in the first quarter?
John Peyton:
So I'm not an economist, but I can sort of triangulate the data, and there's some interesting things out there. One is there was a piece in the Wall Street Journal just this morning, and I think the headline was, "Americans Are Returning To Restaurants, Gyms and Hotels Like It's 2019." So there's this psychology out there of, after two years of being cooped up, we need to go out and do what humans do, which is be with other humans, and so we're benefiting from that, I think, psychologically.
John Peyton:
There's also some statistics that favor us, like the CPI index, the cost of eating at home, is growing faster than the cost of eating at restaurants. So that's helpful. When you think about the IHOP and Applebee's customer, most of our customers earn less than $75,000 a year, and when you look at wage growth, the bottom two quartiles of wage earners are growing faster, particularly the bottom quartile had five to six percent wage growth in the last six months, and so that's helping to offset the cost of inflation, and when it comes to price increases, quick service, fast food, they're raising prices faster than full service. So there's these headwinds and tailwinds that are hard to sort through, but when it comes to IHOP and Applebee's, which are value-oriented brands, great food, generous portions at a good price, at a time when Americans are ready to come out from being at home, we're benefiting from that.
Josh King:
Okay. I will take all of your tailwinds and put them on the table and accept them as given. In some ways as well, how much goods cost isn't as important, though, as if there isn't staff to prepare and serve the food to the customers. So according to the Bureau of Labor Statistics, there were 70% more job openings in the industry in 2021 than before the pandemic, turnover increasing from 4.8 to 6.9%. What impact is the labor crunch having on your industry?
John Peyton:
It's one of our biggest challenges. So in the US for IHOP and Applebee's nationally, we're at about 90% of what we would consider to be full staffing, and we've been sitting at 90% for several quarters. So we're beginning to think about, how do we address that in the short term and in the long term, because I think as a responsible business leader, we have to ask ourselves, "Is this the new normal?", and we've seen all of the speculation about, where have workers gone, whether it's to the gig economy or driving Ubers or Amazon warehouses, we have to assume they may not come back to restaurants, and how do we run our restaurants with 90% staffing?
John Peyton:
Because the impact is we can't operate full hours. So our late night hours are still not what they once were. If we can staff them, that's upside. We can't turn tables as quickly on a Sunday morning at IHOP when we're super busy. So in the short term, it's most recently, it's less, Josh, about candidate pools, we're seeing more applications, but turnover is still super high. So it's really about retention and how you reward and grow the people that you do have, but longer term, we have to make our front of house staff and our back of house staff more efficient. So we're looking at a lot of technology to enable that.
John Peyton:
Applebee's now has handhelds for servers and 500 restaurants and growing, which enables them to cover more tables, turn tables faster, and they earn more money when they do that, and IHOP is about to roll them out as well. We're partnering with a franchisee, an IHOP franchisee in California, that's testing a robot, kind of looks like R2-D2, and it can deliver food from the kitchen to the table, and then it can deliver dirty dishes back to the dishwasher, and that makes the servers, again, more efficient and more productive in a world where we might be having fewer servers than we have.
John Peyton:
Back of house, Josh, we're looking at automated arms that can work the fryers, again, to make our kitchen staff more efficient if, in fact, we don't have a hundred percent staffing.
Josh King:
To get from 90% or above, or to wherever you think you need to be, you're always going to have human beings, notwithstanding how many R2-D2s show up in the restaurants, basically attracting and retaining both frontline service workers, but also middle managers and executives. How is the industry changing from those first Six Sigma days at PWC?
John Peyton:
I think one of the things that's not well understood about career opportunities in the restaurant industry is that there really are some amazing stories that I can share. I do my best to try to get out to one or two markets a month.
John Peyton:
When I was in Kansas, I met a young man named Kyle, who joined Applebee's right out of high school, and he'd only been with that franchisee for two years, and he was a superstar. So they had him actually doing openings, and the hardest job is to open a new restaurant. So he's two years out of high school, he has now opened three restaurants, and he's in their management training program to become a kitchen manager, on his way to becoming a general manager. That's a real substantive career path.
John Peyton:
Wherever I travel, I meet regional or area people that work for franchisees that started in the restaurant as a host, and 15, 20 years later, they're supervising six, eight or 10 restaurants and earning $80,000 or more a year. So there's a real career growth opportunity and path to what used to be the middle class by working in a factory that is, I think, misunderstood about the opportunity of working in restaurants and where the careers can take you.
Josh King:
So, John, as we wrap up our conversation, we went through the transcript from your Q1 22 earnings call, and frankly surprised that the management team didn't get a single question concerning ESG, and you and I talked about it a little bit earlier in the conversation, but I want to actually end on opening up the opportunity to talk now. How is Dine Brands Global addressing all the issues around environment, social and governance issues?
John Peyton:
It's a super important issue, and there's so many stakeholders besides... We think it's important to do the right thing, and our investors think the same thing, and so do our guests. We're on phase one, which is a three year journey, and last year, we issued our first ESG report, and the focus there was on establishing baselines, and our ESG focuses on people, planet, governance and food, and setting baselines on those four categories.
John Peyton:
This year, actually today, we're issuing our second report, which is our 2021 report, available on our website, and we start to establish our goals and our ambitions, and next year, which will be year three of our journey, we'll link progress against those goals to executive management and management compensation and ratings, and we're very much focused on animal welfare, we're focused on talent that we have in our restaurants and our franchisees have in their restaurants, in terms of the careers that they have, the education that they're getting, the potential that they have.
Josh King:
So John, we're so appreciative of you and your team coming to the New York Stock Exchange today. As we wrap up, I guess, final question, because I'm about to head on the road back up to see my parents in Boston, and then down to Florida for the weekend. I'll probably be passing some IHOPs and Applebee's, but looking across the Dine Brands Global digital and brick and mortar brands, what is your favorite, for John Peyton, breakfast, lunch and dinner orders?
John Peyton:
So breakfast at IHOP, I am a purest, Josh. Pancakes only have one add-in. For me, it's bananas. Syrup on the side, because you can't have soggy pancakes. I like to dip my pancakes in the syrup, and for lunch, at Applebee's, it would be definitely our new Irresistibowls. Anything, for me, with chicken in it is awesome, and dinner, tie. I love IHOP burgers. They are really one of the best burgers out there, and at Applebee's, I could eat their spicy Buffalo chicken wings all day long, and from the bar, it would be our five dollar springtime sips. Great value in a really big glass.
Josh King:
Thanks so much for joining us Inside the ICE House.
John Peyton:
Thanks Josh. This was super fun.
Josh King:
And that's our conversation for this week. Our guest was John Peyton, CEO of Dine Brands Global, that's NYSE ticker symbol D-I-N. If you like what you heard, please rate us on iTunes so other folks know where to find us, and if you've got a comment or question you'd like one of our experts to tackle on a future show, email us at [email protected], or tweet at us at @icehousepodcast. Our show is produced by Pete Ash with production assistance and engineering from Steve Romanchuk and Ken Abel and Ian Wolf. I'm Josh King, your host, signing off from the library of the New York Stock Exchange. Thanks for listening. Talk to you next week.
Speaker 1:
Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties, express or implied, as to the accuracy or completeness of the information, and do not sponsor, approve or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security, or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of length or clarity.
