IHOP Corp. (Glendale, Calif.) has announced plans to buy Applebee’s International Inc. (Overland Park, Kansas) for about $1.9 billion.
IHOP, the third-largest diner chain in the nation, said it planned to sell, and then lease back, the real estate of Applebee’s 508 company-owned restaurants, at a rate of about 40 stores each quarter, to raise cash to help reduce the debt.
IHOP ceo Julia Stewart, a former Applebee’s president, said the company intended to “fundamentally change” Applebee’s business model, “moving it nearly completely out of the role of owner-operator to one that is predominantly a franchiser.” The change, which is expected to cut costs by $50 million a year by 2011, reduces the company's risks in owning real estate. Virtually all of IHOP's 1319 restaurants are now owned by franchisees.
Applebee’s, hurt by recently weaker consumer spending and stiff competition – including from grocery stores selling more prepared meals – saw same-store sales fall 4 percent in its latest quarter. IHOP said it believed those sales could increase 2 – 3 percent a year once its plan was in place.
Stewart will lead the management team of the combined company, which will have 3250 restaurants and $6.8 billion in annual sales.