FDD Talk 2017: What You Need to Know About the IHOP Franchise Opportunity (Financial Performance Analysis, Costs and Fees)

In this FDD Talk 2017 post, you’ll learn the following:

• Section I – Background information on the IHOP franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for an IHOP franchise, based on Item 7 of the company’s 2017 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for an IHOP franchise, based on Items 5 and 6 of the company’s 2017 FDD

• Section IV – Presentation and analysis of IHOP’s financial performance representations, based on Item 19 of the company’s 2017 FDD, including information on the:

• 2016 average sales for the 25th percentile, 50th percentile, 75th percentile, and all franchised IHOP Restaurants in the “A,” “B,” and “C” building types, which are variations of the “A” Frame, an older prototype, and is further broken down by the geographic region in which the IHOP restaurants are located (in the Midwest, Northeast, South, or West)

• 2016 average sales for the 25th percentile, 50th percentile, 75th percentile, and all franchised IHOP Restaurants in the “D” building type, one of two former prototype buildings, and is further broken down by the geographic region in which the IHOP restaurants are located (in the Midwest, Northeast, South, or West)

• 2016 average sales for the 25th percentile, 50th percentile, 75th percentile, and all franchised IHOP Restaurants in the “G” building type, one of two former prototype buildings, and is further broken down by the geographic region in which the IHOP restaurants are located (in the Midwest, Northeast, South, or West)

• 2016 average sales for the 25th percentile, 50th percentile, 75th percentile, and all franchised IHOP Restaurants that are not configured in accordance with one of the former standard building types, including “Conversion” units, “End Cap” units, and “In-Line” units and would include the new “ICON” units, and is further broken down by the geographic region in which the IHOP restaurants are located (in the Midwest, Northeast, South, or West)

• 2016 average sales for the 25th percentile, 50th percentile, 75th percentile, and all IHOP Restaurants owned and operated by IHOP, LLC or an affiliate on January 1, 2017, including those which were acquired from franchisees during 2016, and is further broken down by the geographic region in which the IHOP restaurants are located (in the Midwest, Northeast, South, or West)

Section I – Background Information

13 Things You Need to Know About the IHOP Franchise

Closing Underperforming Restaurants

1.  In early August, IHOP’s parent company, DineEquity, announced that it will be closing an estimated 20 to 25 IHOP restaurants, which is up from the 18 that DineEquity had said it would close earlier in the year. IHOP’s domestic system-wide comparable same-restaurant sales declined by 2.6% in the second quarter of 2017.

2.  DineEquity’s interim CEO Richard Dahl said, “IHOP remains on solid ground, despite soft sales this quarter. I am optimistic about the growth in both effective franchise restaurants and system-wide sales.” Despite the closures, DineEquity plans to open 80 to 90 IHOP locations, mostly in the U.S.

Experiments with Delivery

3.  Since the summer of 2017, IHOP has been experimenting with delivery services in a few of its locations and is in discussions with third-party companies to conduct a full test later this year.

4.  Darren Rebelez, IHOP’s President, said that the brand’s decision to explore delivery options was driven by guests’ insights which indicated a demand for the service. Rebelez said, “Clearly, off-premise dining has become a much bigger trend for all guests, particularly Millennials.” IHOP believes that mixing delivery into its offerings is a good way to continue attracting both older and younger customers.

5.  Currently, the delivery tests have been informal and IHOP is only tinkering with the service at select locations under the radar. The company has been in discussions with partners such as Amazon regarding a full-scale delivery test some time before the end of 2017.

Unveils Unique Limited-Time Menu Item

6.  At the end of July, IHOP revealed its latest creation and newest limited-time offering, French Toasted Donuts. The new item features classic donuts dipped in sweet vanilla batter and French toasted.

7.  The French Toasted Donuts come in three flavors: Bacon & Maple French Toasted Donut – a Bavarian cream-filled donut topped with rich maple glaze and hickory-smoked bacon crumbles; Strawberries & Cream French Toasted Donut – a Bavarian cream-filled donut topped with glazed strawberries and powdered sugar; and Apple Fritter French Toasted Donut – a warm apple fritter topped with sweet cinnamon apples, powdered sugar, and whipped topping.

8.  To introduce the new menu item, IHOP launched a fully integrated cross-channel campaign that spanned television, public relations, social media, digital, and an immersive event to bring French Toasted Donuts to life. IHOP gave out free samples of the French Toasted Donuts in New York City on August 4 through its first-ever IHOP Food Truck.

Company History

9.  International House of Pancakes (commonly referred to as IHOP) was founded in 1958 in Burbank, California by Al and Jerry Lapin with help from early investors Albert and Trudy Kallis, Sherwood Rosenberg, and William Kaye. In 1960, IHOP began franchising and a year later it became a publicly-traded company.

10.  Throughout the 60s, the company operated under the International Industries name after acquiring several franchised brands including Orange Julius, The Original House of Pies, Golden Cup Coffee Shops, and many others. The chain first used the name “IHOP” in 1973 for a marketing program that featured a cartoon kangaroo in commercials. Since the late 70s, the company has preferred to use the name IHOP, although International House of Pancakes remains the brand’s official name.

11.  By the end of the 90s, IHOP reached system-wide sales of $1 billion for the first time. In 2007, IHOP Corporation acquired Applebee’s International, Inc. and after the buyout successfully closed, the corporate entity IHOP changed its name to DineEquity and remains the parent company of both IHOP and Applebee’s today.

12.  Over the years, IHOP has continued to open locations across the U.S. and around the world. Today there are over 1,600 IHOP restaurants worldwide.

Entrepreneur’s Franchise 500

13.  IHOP has not ranked on Entrepreneur’s annual Franchise 500 list in the past decade.

Section II – Estimated Costs

• Please click here for detailed estimates of IHOP franchise costs, based on Item 7 of the company’s 2017 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on IHOP’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2017 FDD.

Section IV – Financial Performance Representations (Item 19, 2017 FDD) and Analysis

• Each table below contains a schedule of the average annual Gross Sales during IHOP’s most recent fiscal year, consisting of the 52-week period ended January 1, 2017 for the designated type of IHOP Restaurant, the square footage, seating capacity, and configuration of which varies significantly from type to type.

• Each table shows the average Gross Sales of all IHOP Restaurants, as well as the averages within each percentile grouping, and is further broken down by the geographic region in which the IHOP Restaurants are located (in the Midwest, Northeast, South, or West).

• The tables exclude:  (a) IHOP Restaurants which have been in operation less than 18 months as of January 1, 2017; (b) IHOP Restaurants which were closed for remodeling or for other reasons during part of the years 2015 and/or 2016; and (c) IHOP Restaurants located in the state of Florida, and one IHOP Restaurant in the State of Georgia, which are either operated by the company’s area franchisee or subfranchised units licensed by the company’s area franchisee for that state and which do not report weekly Gross Sales to IHOP (or its affiliate).

Part 1 – Franchisees – Building Types:  A-B-C Building

• This building type is an older prototype, known as an “A” Frame, and includes the “A,” “B,” and “C” building types which are variations of the “A” Frame. These buildings are typically less than 3,000 square feet in size and have less than 100 seats.

• Some “A” Frames have been remodeled to increase both the square footage and seating capacity, beyond 100 seats and 3,000 square feet.

Total National Sales