Dine Brands Global Stock

Dine Brands Global, Inc., together with its subsidiaries, owns, franchises, and operates restaurants in the United States and internationally.

The company owns and franchises the Applebee's Neighborhood Grill + Bar (Applebee's) concept in the American full-serve restaurant segment within the casual dining category of the restaurant industry, the International House of Pancakes (IHOP) concept in the midscale full-service restaurant segment within the family dining category of the restaurant industry, and the Fuzzy’s Taco Shop (Fuzzy’s) concept in the Mexican limited-service restaurant segment within the fast-casual dining category of the restaurant industry acquired in December 2022.

The company generated revenue during the year ended December 31, 2023, from four segments, consisted as follows:

Franchise Operations - consist of Applebee’s, IHOP and Fuzzy's. Royalties, advertising fees and other income from Applebee’s franchised restaurants, IHOP franchised and area licensed restaurants, and Fuzzy's franchised restaurants;

Rental Operations - primarily rental income derived from lease or sublease agreements covering IHOP franchised restaurants and Applebee’s franchised restaurants;

Financing Operations - primarily interest income from approximately $20 million of receivables for equipment leases and franchise fee notes generally associated with IHOP franchised restaurants developed before 2003 and approximately $14 million of notes receivable from franchisees; and

Company restaurant operations - primarily retail sales from three Fuzzy's restaurants that were acquired in December 2022, of which two were subsequently refranchised in the second quarter of 2023.

Most of the company’s revenue is derived from domestic sources within these four reporting segments, with approximately 83% of its total revenues for the year ended December 31, 2023 being generated from its two largest franchise operating segments, Applebee's and IHOP. Internationally, the company’s restaurants are in 18 countries and two United States territories at December 31, 2023.

Strategy

The company intends to leverage its significant scale and its franchise business model to drive robust margins and cash flows. The company is actively supporting its brands with focused teams that are accountable at the brand level to drive strong performance. Together with its franchisees, significant investments have been made and will continue to be made in marketing across traditional and digital channels to drive traffic to its restaurants. The company is investing in technology to create more ways for customers to access its brands and in growth platforms, such as online ordering, off-premise business and delivery. The company works alongside its franchisees to develop new restaurants across the globe. The company will continue to evaluate the addition of new brands to its restaurant portfolio through acquisitions and other strategic investments.

Restaurant Concepts

Applebee's

The company franchises Applebee’s restaurants in the American full-service restaurant segment within the casual dining category of the restaurant industry. As one of the world’s largest casual dining brands, Applebee’s Neighborhood Grill + Bar offers guests a dining experience that combines simple American fare with classic drinks and local draft beers. Applebee’s offers a familiar and affordable escape from the everyday, whether family and friends choose to connect with one another in the Applebee’s dining room or in the comfort of their living room. This is why Applebee’s is Eatin’ Good in the Neighborhood.

The company strives to provide genuine and neighborly service, appetizers, drinks and entrees, and limited-time offers. The company’s menu features a selection of grill and bar fare, such as appetizers, bar snacks, burgers, pasta entrees and lighter fare, as well as cocktails, beers, and desserts. Applebee’s provides multiple options for the company’s guests to enjoy its food on the go or at home, including online ordering, a mobile app, Carside To Go, and delivery service providers.

As of December 31, 2023, Applebee's restaurants are 100% franchisee owned and operated with franchise groups (domestic and international) operating Applebee’s franchise restaurants (domestic and international). As of December 31, 2023, Applebee's restaurants were located in 49 states within the United States, two United States territories and 12 countries outside of the United States.

IHOP

The company franchises restaurants in the midscale full-service restaurant segment within the family dining category of the restaurant industry under the names IHOP and International House of Pancakes. IHOP restaurants feature full table service and high quality, moderately priced food and beverage offerings in an attractive and comfortable family atmosphere. IHOP is committed to accelerating growth through menu innovation, day-part expansion, off-premise initiatives and development.

IHOP restaurants are open throughout the day and evening hours. As of December 31, 2023, approximately IHOP restaurants operated 24 hours a day, seven days a week, with approximately additional restaurants operating 24 hours a day for some portion of the week.

As of December 31, 2023, franchise groups (domestic, international) operated IHOP franchise and area license restaurants. These restaurants were in all 50 states within the United States, in the District of Columbia, in two United States territories and in 13 countries outside of the United States.

Fuzzy's Taco Shop

After its acquisition in December 2022, the company began franchising and operating restaurants in the Mexican limited-service restaurant segment within the fast-casual dining category of the restaurant industry under the name Fuzzy’s Taco Shop. Fuzzy's restaurants feature a number of menu items, including Baja-style Mexican food like Baja tacos, chips and queso, guacamole and salsa made in house, and a full bar including margaritas, its Beeritas and a selection of cold draft beer, all served in a laid back and inviting setting. Fuzzy’s offers its guest the flexibility of an online ordering platform and loyalty program. As of December 31, 2023, franchise groups operated restaurants in 18 states within the United States and it had company-owned restaurant in Texas.

Franchising

Franchisee Relationships

The company values good relationships with its franchisees and strive to maintain positive working relationships with them. Applebee’s, IHOP and Fuzzy’s franchisees participate in Company-sponsored advisory groups. These groups provide a forum for franchisees to share demonstrated best practices, offer counsel and review successful strategies, while working side-by-side with management of the Applebee's, IHOP and Fuzzy’s brands. Applebee’s sponsors its Franchise Business Council (FBC), which consists of eight elected franchisee representatives and three Applebee's representatives. IHOP sponsors its Franchise Leadership Council (FLC), an elected and appointed body of up to 12 IHOP franchisees. Fuzzy’s sponsors its Franchise Advisory Council (FAC), an elected body of Fuzzy’s franchisees plus a Fuzzy’s representative.

Franchise Agreements and Fees

Franchise arrangements for Applebee's restaurants typically consist of a development agreement and a separate franchise agreement for each restaurant. The term of a domestic development agreement ranges from one to 20 years. The development agreements typically provide for initial development periods of one to five years as agreed upon by it and the franchisee.

The company’s current standard domestic Applebee's franchise agreement provides for an initial term of 20 years and provides an option for four successive renewal terms, in five-year increments, for up to an additional 20 years, upon payment of an additional franchise fee. The company’s standard domestic Applebee's franchise arrangement calls for a development fee of $10,000 for each Applebee's restaurant that the franchisee contracts to develop and an initial franchisee fee of $35,000 for each restaurant developed (against which the $10,000 development fee will be credited) and a royalty fee equal to 4% of the restaurant's monthly gross sales. The company’s agreements for most Applebee's restaurants opened before January 1, 2000, provide for a royalty rate of 4%, while the terms, royalty rate and advertising fees under a limited number of franchise agreements and other franchise fees under older development agreements vary from the offered arrangements.

The company’s standard domestic IHOP franchise agreement typically provides for an initial term of 20 years and permits one renewal for a term of 10 years, upon payment of a renewal fee of $10,000. The revenues the company receives from a typical domestic franchise development arrangement under the Current IHOP Business Model include a location fee equal to $15,000 for an IHOP restaurant that the franchisee contracts to develop upon execution of a single-restaurant development agreement; a development fee equal to $20,000 for each IHOP restaurant that the franchisee contracts to develop upon execution of a multi-restaurant development agreement; an initial franchise fee equal to $40,000 (against which the $20,000 development fee will be credited) for each restaurant developed under a multi-restaurant development agreement, $50,000 (against which the $15,000 location fee will be credited) for a restaurant developed under a single-restaurant development agreement or $50,000 for a restaurant opened pursuant to a single-restaurant franchise agreement, in each case paid upon execution of the franchise agreement; franchise royalties equal to 4.5% of weekly gross sales; revenue from the sale of its proprietary pancake and waffle dry-mixes; and franchise advertising fees.

The principal commercial terms of the franchise arrangements under the Previous IHOP Business Model and the Current IHOP Business Model, including the franchise royalties and the franchise advertising fees, are substantially the same except with respect to the terms relating to the franchise fee, lease or sublease rents for the restaurant property and building, and interest income from any franchise fee notes and equipment leases.

The company’s current standard franchise offering provides for an initial term of 10 years and provides, subject to certain conditions, the ability to renew for two additional 10-year terms, upon payment of a renewal fee. The company’s current standard franchise fees are an initial franchise fee of $40,000 per restaurant, a royalty fee of 5% of weekly gross sales, and a renewal fee of $5,000 per renewal term. The company also earns revenue from franchisees from sale of its proprietary sauces.

Development of Applebee’s and IHOP restaurants outside of the United States has historically been conducted through a separate development agreement and franchise agreement. More recently, certain franchisees have entered into a multi-unit franchise agreement that governs the rights and obligations to develop a territory, in addition to terms of operating each restaurant opened in the territory. The term of a franchisee’s exclusive right to develop a territory expires when the agreement’s development schedule is completed. The term to operate the restaurant is typically 20 years, subject to applicable renewals.

In limited instances, the company has agreed to accept reduced royalties and/or lease payments from franchisees or have provided other accommodations to franchisees for specified periods of time to assist them in either establishing or reinvigorating their businesses. From time to time, the company may also offer reduced or eliminated initial franchise fees, key money grants, equipment leasing options, and periods of reduced royalties as development incentives to encourage the development of new restaurants.

The company has the contractual right, subject to applicable law, to terminate a development and franchise agreement for a variety of reasons, such as a franchisee’s failure to make required payments when due, failure to timely develop restaurants and failure to adhere to specified brand policies and standards.

Advertising Fees

The Applebee's franchise agreements generally require domestic franchisees of Applebee's restaurants to contribute 3.25% of their gross sales to a national advertising fund, which funds the development of national promotions, television and radio commercials, print advertising materials and digital marketing and spend at least 0.5% of their gross sales on local marketing and promotional activities. Under the current Applebee's franchise agreements, the company has the ability to increase the amount of the required combined contribution to the national advertising fund and the amount required to be spent on local marketing and promotional activities to a maximum of 5% of gross sales. A substantial majority of domestic Applebee’s franchisees have either entered into an amendment to their franchise agreements to increase their contribution to the Applebee's national advertising fund (the Applebee’s NAF) or entered into new franchise agreements in connection with renewals setting forth the current advertising contribution requirements. A substantial majority of franchisees who entered into amendments agreed to an incremental temporary increase in the national advertising contribution rate to 4.25% through December 31, 2024, with no requirement that franchisees spend on local marketing during that time.

IHOP franchisees allocate a percentage of their sales to local advertising cooperatives and a national advertising fund (the IHOP NAF). Older IHOP franchise agreements generally provide for advertising fees consists of a local advertising fee generally equal to 2.0% of weekly gross sales under the franchise agreement, which is typically used to cover the cost of local media purchases and other local advertising expenses incurred by a local advertising cooperative, and a national advertising fee equal to 1.0% of weekly gross sales under the franchise agreement. Area licensees are generally required to pay lesser amounts toward advertising.

The local IHOP advertising cooperatives have historically used advertising fees for various local marketing programs. The IHOP NAF is also used to defray certain expenses associated with its marketing and advertising functions.

In 2014, the company and franchisees whose restaurants account for a large majority of total annual contributions to the IHOP NAF entered into franchise agreement amendments that increased the advertising contribution percentage of those restaurants' gross sales. Pursuant to the amendment, for the period from January 1, 2015 to December 31, 2017, 3.5% of each participating restaurant's gross sales was contributed to the IHOP NAF with no significant contribution to local advertising cooperatives required. The amended advertising contribution percentage also was applicable to all new franchise agreements and to IHOP company-operated restaurants open at the time. In 2016, the company and franchisees whose restaurants account for a large majority of total annual contributions to the IHOP NAF extended this additional contribution through 2022, and in 2022 it was further extended through 2027. Commencing on January 1, 2028, the local advertising fee and the national advertising fee are subject to change.

Fuzzy’s franchise agreements generally require Fuzzy’s franchisees to contribute to a national brand development fund (the Fuzzy’s Development Fund) intended for the common benefit of all Fuzzy’s restaurants. The Fuzzy’s Development Fund may be used for a variety of matters including but not limited to creative development services, marketing services, culinary development, third party services to franchisees, advertising, and website production. The standard form of new franchise agreement calls for contributions to the Fuzzy’s Development Fund at the rate of 2% of weekly gross sales.

IHOP Area License Agreements

The company has entered into four long-term area license agreements for IHOP restaurants covering the state of Florida and certain counties in the state of Georgia, the province of British Columbia, Canada, the country of Pakistan and certain countries or islands in the Caribbean, including Aruba, Bonaire and Curacao, Bahamas, Barbados, Guyana, Jamaica, St. Lucia, St. Maarten and Trinidad & Tobago. The area license agreements provide the licensees with the right to develop and franchise new IHOP restaurants in their respective territories and provide for royalties ranging from 1.0% to 5.5% of gross sales and advertising fees ranging from 0.25% to approximately 2.0% of gross sales.

As of December 31, 2023, the area licensee for the state of Florida and certain counties in Georgia operated or sub-franchised a total of IHOP restaurants. The area licensee for the province of British Columbia, Canada operated or sub-franchised a total of eight IHOP restaurants. The area licensee for the country of Pakistan opened its first franchise IHOP restaurant in 2020 and may begin to sub-license restaurants once a required number of franchise restaurants have been opened. The area licensee for the Caribbean also may begin to sub-license restaurants once a required number of franchise restaurants have been opened. The area license for British Columbia expires in 2026; the area license for Pakistan expires in 2047; the area license for the Caribbean expires after the year 2042, with the date of expiration changing depending on the number of qualified restaurant openings and closures by such licensee; and the area license for Florida and Georgia expires after the year 2100, with the date of expiration changing depending on the number of qualified restaurant openings and closures by such licensee.

Other Franchise-related Revenues and Fees

Approximately 90% of franchise segment revenue for the year ended December 31, 2023, consisted of Applebee's, IHOP and Fuzzy's royalties and advertising revenue. Most of the remaining 10% consisted of sales of proprietary products (primarily IHOP pancake and waffle dry mix), initial franchise and renewal fees, and software maintenance and support fees.

International Franchising

The company continues to pursue international franchising of the Applebee's and the IHOP concepts. The company works closely with its international franchisees to develop and implement the Applebee's and IHOP systems outside the United States, recognizing commercial, cultural and dietary diversity. Differences in tastes and cultural norms and standards require that the company is be flexible and pragmatic regarding many elements of the Applebee's and IHOP systems, including menu, restaurant design, restaurant operations, training, marketing, purchasing and financing.

The success of further international expansion will depend on, among other things, local acceptance of the Applebee's and IHOP concepts and menu offerings and the company’s ability to attract qualified franchisees and operating personnel. The company’s franchisees must comply with the regulatory requirements of the local jurisdictions.

Domestic and International Franchise Restaurant Development

The company may consult with franchisees when they are selecting appropriate sites, and selections made by franchisees are subject to its approval. For domestic restaurants, the company also conducts a physical inspection, review any proposed lease or purchase agreement for compliance with its requirements and may make available to franchisees demographic and other studies for domestic restaurants. The company makes the design specifications for a typical restaurant available to franchisees, and it retains the right to prohibit or modify the use of any set of plans.

As of December 31, 2023, the company had signed commitments from IHOP franchisees to build IHOP restaurants over the next seven years, consisting of 14 restaurants under single restaurant or non-traditional development agreements, 117 restaurants under domestic multi-restaurant development agreements and 155 restaurants under international development agreements. The company also has signed option agreements to build an additional 14 restaurants over the next five years, primarily under domestic multi-restaurant development agreements. As of December 31, 2023, the company had signed commitments from Applebee's franchisees to build domestic restaurants and approximately international restaurants over the next five years. As of December 31, 2023, the company had signed commitments from Fuzzy's franchisees to build Fuzzy's Taco Shop restaurants over the next 12 years.

Franchise Operations

The company monitors franchise restaurant operations. The company monitors the financial health of its franchisees through business and financial reviews.

Composition of Franchise Systems

As of December 31, 2023, 32 Applebee’s franchisees owned a total of 1,536 domestic Applebee's restaurants. The number of domestic restaurants held by a single franchisee ranged from restaurant to restaurants. As of December 31, 2023, 21 franchisees owned a total of international Applebee's restaurants. The number of international restaurants held by a single franchisee ranged from restaurant to restaurants. The company’s largest Applebee’s franchisees owned 55% of the total Applebee's franchise restaurants.

As of December 31, 2023, franchisees owned a total of domestic IHOP restaurants, including franchisees that each owned one restaurant. The largest single IHOP franchisee owned domestic restaurants. As of December 31, 2023, franchisees owned a total of international IHOP franchise restaurants. The number of international restaurants held by a single franchisee ranged from restaurant to restaurants. The company’s five largest IHOP franchisees owned 29% of the IHOP franchise restaurants.

As of December 31, 2023, franchisees owned a total of domestic Fuzzy's Taco Shop restaurants. The largest single Fuzzy's franchisee owned domestic restaurants. The company’s largest Fuzzy's franchisees owned 33% of the total Fuzzy's franchise restaurants.

Company-Operated Restaurants

The company owns Applebee's restaurants in North Carolina and South Carolina from a former Applebee's franchisee. In 2022, the company completed the refranchising and sale of the restaurant assets of these Applebee’s company-operated restaurants to a different franchisee. In 2022, the company acquired company-operated Fuzzy's Taco Shop restaurants in Texas in connection with its acquisition of Fuzzy's, of which two were subsequently refranchised in the second quarter of 2023. The company’s business strategy includes the possible addition of new brands to its restaurant portfolio, which may result in its acquiring additional company-operated restaurants.

Supply Chain

In 2009, Centralized Supply Chain Services, LLC (CSCS or the Co-op), an independent cooperative entity, was formed by the company and franchisees of Applebee's and IHOP domestic restaurants. CSCS has been appointed as the sole authorized purchasing organization and purchasing agent for goods, equipment and distribution services for Applebee's and IHOP restaurants in the United States. As of December 31, 2023, 100% of Applebee's domestic franchise restaurants and 100% of IHOP domestic franchise restaurants were members of CSCS.

CSCS combines the purchasing volume for goods, equipment and distribution services within and across the Applebee's and IHOP concepts. The operations of CSCS are funded by a separately stated administrative fee added to one or more products purchased by operators.

Trademarks and Service Marks

The company and its affiliates have registered or submitted registrations for certain trademarks and service marks with the United States Patent and Trademark Office and various international jurisdictions, including Dine Brands Global. The company owns trademarks and service marks used in the Applebee's system, including various logos and the trademarks Applebee's, Applebee's Neighborhood Grill + Bar and variations of each. In addition, the company owns trademarks and service marks used in the IHOP system, including various logos and the trademarks IHOP, International House of Pancakes and variations of each. Further, the company owns trademarks and service marks used in the Fuzzy’s system, including various logos and the trademark Fuzzy’s Taco Shop and variations of such.

Seasonality

In terms of average sales over the five-year time period covering 2018 to 2023, excluding the year 2020, 25% of the company’s annual system-wide sales (retail sales reported to it by its franchisees plus sales at company-operated restaurants) occurred in the first, third and fourth quarters of the fiscal year, with 26% occurring in the second quarter (year ended December 31, 2023).

Competition

Applebee's competes in the casual dining category against national and multi-state restaurant chains, such as Buffalo Wild Wings, Olive Garden, Chili's Grill & Bar, Texas Roadhouse and Outback Steakhouse, among others, as well as fast-casual and quick service restaurant chains. In addition, there are many independent restaurants across the country in the casual dining segment. Applebee's is in the American full-service restaurant segment in the restaurant industry.

IHOP competes in the family dining category against national and multi-state restaurant chains such as Denny's, Cracker Barrel Old Country Store, Golden Corral, Waffle House and Bob Evans Restaurants.

Fuzzy's competes in the fast-casual dining category against national and multi-state restaurant chains, such as Velvet Taco, Torchy's Tacos, and Rusty Taco, among others, as well as casual and quick service restaurant chains. In addition, there are many independent restaurants across the country in the fast-casual dining segment.

Government Regulation

The company is subject to regulation by the Federal Trade Commission (FTC) and a number of foreign and state laws that regulate the offer and sale of franchises. The company is subject to a number of foreign and state laws that regulate substantive aspects of the franchisor-franchisee relationship. The FTC's Trade Regulation Rule on Franchising, as amended (the FTC Rule), requires the company to furnish to prospective domestic franchisees a Franchise Disclosure Document containing information prescribed by the FTC Rule unless an exemption applies. The company is subject to a number of privacy and data protection laws and regulations globally, including without limitation, the California Consumer Privacy Act, California Privacy Rights Act, and Virginia Consumer Data Protection Act.

History

The company was founded in 1958. It was incorporated under the laws of the state of Delaware in 1976. The company was formerly known as IHOP Corp. and changed its name to DineEquity, Inc. in 2008. It was formerly known as DineEquity, Inc. and changed its name to Dine Brands Global, Inc. in 2018.