IHOP Expansion Demonstrates Breakfast Strength
With the opening of a
new franchised store in South Burlington, VT, quick service restaurant chain IHOP now has at least one location in all 50 U.S. states. Franchisee Star Generations, Inc. plans further expansion in Vermont in the future.
While IHOP serves a full breakfast, lunch and dinner menu, the chain is best known for pancakes and serves breakfast all day. IHOP, a subsidiary of DineEquity, saw systemwide
store sales increase 1.5% in fiscal 2008. IHOP’s franchise segment opened 71 new restaurants in the U.S., Mexico and Canada during 2008, contributing to revenue growth of 5.6% and profit growth of 7% in Q4 2008. DineEquity forecasts same-store sales ranging between -1 and 1% during fiscal 2009, with 55 to 65 new U.S. franchise locations opening.
IHOP’s positive financial results and aggressive growth plans during a serious recession demonstrate the continuing strength of the breakfast market for restaurant retailers. Quick service chain Denny’s, which serves breakfast all day and is one of IHOP’s main competitors, saw adjusted income before taxes
increase 120% during fiscal 2008, although same-store sales and net income decreased. Denny’s opened 31 new franchised restaurants and three new corporate restaurants during the year. During 2009, Denny’s expects to open 30 new franchised and three new corporate restaurants, with same-store sales increasing.
Coffee chain Starbucks
recently expanded its menu of breakfast items, and fast food retailer McDonald’s credits its Egg McMuffins, coffee, and hash browns with lifting sales last year and started opening some stores an hour earlier last year to attract more customers. Breakfast constitutes about 25% of the company’s sales and 40% of its profit. Fast food retailer Burger King, which gets about 15% of its sales from breakfast items, recently added miniature breakfast sandwiches to its menu, and other fast food and quick service retailers including Wendy’s and Panera have also recently revamped their breakfast menus.
In the area of franchise growth, coffee chain Dunkin’ Donuts has publicly announced plans for
aggressive franchise expansion in new markets. So far this year Dunkin’ Donuts has entered franchise agreements in new markets including St. Louis, MO, Savannah, GA, Ownesboro, KY and Chattanooga, TN.
Breakfast foods are about 25% more profitable than lunch and dinner items, based on the cost of ingredients, according to
Technomic Inc., a restaurant consulting firm.
Research from
NPD Group indicates lunch and dinner traffic in the restaurant industry stayed approximately the same in 2008, but breakfast traffic went up 2% from 2007. Restaurants accounted for 8.2% of all breakfast options in 2008, up from 6.2% in 1996, although 75% of all breakfast meals are eaten at home.
As of December 31, 2008, IHOP operated 1,396 restaurants in the U.S., Canada and Mexico, of which more than 99% were operated by franchisees.
