Can They Do Lunch?
Pancakes are still the star at IHOP Corp. Sticking close to its breakfast griddle, the Glendale-based chain has pushed systemwide sales above $1 billion and its nationwide restaurant total to 800 locations.
Consumers, though, don’t live by pancakes alone, so IHOP is going after lunch and dinner patrons, who drive 89% of the nation’s overall restaurant business. Restaurant industry economics, observers say, no longer allow the 41-year-old pancake chain and its breakfast-oriented competitors to rely so heavily on one meal.
The “Any Time’s a Good Time for Breakfast at IHOP” tag line now reads “Any Time’s a Good Time for IHOP.”
The chain is renovating restaurant interiors and rolling out a fatter post-breakfast menu that includes such dishes as pork chops and meatloaf. And, after 16 years with Costa Mesa-based Bozell Worldwide, IHOP has transferred its $20-million advertising account to San Francisco-based Kirshenbaum Bond & Partners West.
IHOP Chief Operating Officer Dennis Leifheit acknowledges that transforming the Glendale-based chain’s carefully crafted image won’t be as easy as tweaking a slogan and striking a new advertising chord. For one thing, there is IHOP’s name, which makes it synonymous with breakfast. “It will be evolutionary, not revolutionary,” Leifheit said. “It will take time to redefine with consumers who we are.”
IHOP is a perennial leader in the lucrative breakfast niche. Sales at restaurants open at least a year grew 2.7% in 1998, a pace that, while unspectacular, is considered good for the intensely competitive restaurant industry. But observers say the firm is reacting to market economics that are forcing chains, including longtime breakfast competitor Denny’s Inc., to better utilize their kitchens by evolving into full-service restaurants.
Reshaping how consumers view a restaurant is a difficult and potentially risky business, observers say. McDonald’s Corp. used plenty of cash and a bit of luck during the 1980s to elbow its way into the breakfast club. Irvine-based Taco Bell Corp. in February walked away from an ill-fated attempt to build a breakfast business. IHOP’s previous forays into lunch and dinner were largely unsuccessful because the chain relied on discounts to lure customers rather than a solid menu.
IHOP executives maintain that in this go-round, they’ll gradually expand their lunch and dinner revenue because the chain has taken the time to build a better menu. New additions, ranging from low-calorie salads and chicken sandwiches to meatloaf, are designed to compete with fare at rival chains that specialize in lunch and dinner.
Longtime breakfast competitor Denny’s is relying on a similar strategy.
“We always want to be known as the place for breakfast, but in order to be successful long-term, we need to fill in our other parts of the day,” said Jonathan R. Jameson, Denny’s senior vice president of marketing. “The first step in that strategy is to have great products to offer people at lunch and dinner.”
On first blush, moving into a new part of the restaurant day seems relatively easy. Unless the menu demands costly new kitchen equipment, the only apparent expense appears to be additional employees. Many attempts fall flat, however, when operators try to convince customers that their burger joint now is the hottest place in town for breakfast.
Past advertising can paint a restaurant chain into a corner of the kitchen.
“Once consumers get hooked on to what a company does, it’s really hard to change that image,” said Irvine-based restaurant industry consultant Randall Hiatt. “Look at KFC and the pizza places, which are known for their dinner items. They’ve spent a lot of money on menu development aimed at the lunch business, but it’s really hard to change.”
IHOP is entering a culinary arena crowded with competitors that include not only Denny’s but such fast food operators as McDonald’s, and casual dining leaders including Chili’s. Each chain is attacking the restaurant business from a different angle.
At present, more than half of IHOP’s revenue comes from such breakfast items as pancakes and omelets, which remain on the menu during lunch and dinner. That mix is at odds with the rest of the industry. The National Restaurant Assn. reports that breakfast drives just 11% of all restaurant visits, with lunch accounting for 37% and dinner dominating with a 52% share.
Executives acknowledge that the chain’s past forays into lunch and dinner didn’t focus strongly enough on the food. Instead, the chain tried to lure customers with lower prices.
“All of our research, internal and external, tells us that our breakfast foods are fabulous,” Leifheit said. “What we haven’t done as good a job with is lunch . . . and dinner has been, frankly, pretty miserable. We didn’t have good food at dinner.”
Lunch and dinner business has risen by about 5% in a handful of Southern California restaurants where the new menu has been in place for about a year. The menu will be in all locations by the end of April, but advertising won’t begin until early in the summer so operators can make a smooth transition.
When the campaign begins, advertising will emphasize IHOP’s menu. “Our food will play a very, very prominent role in the new advertising,” said Susan Hernandez, IHOP’s vice president of marketing. “We really believe that if we sell the best food in the right environment, customers will want to eat here.”
Hernandez won’t say whether “Cliff”--the one-time Ohio farm boy who serves as the chain’s affable spokesman--fits into the new advertising campaign. “We’re not walking away from breakfast, which is our heritage. I think you’ll see Cliff in some way in the future.”
Kirshenbaum Bond & Partners has promised advertising “that’s more intrusive,” Leifheit said. “We need to take more risks with our advertising. The criticism in the past few years is that we were pretty safe, down the middle of the road. We want to be a bit more bold, to break through the clutter out there.”
Advertising alone, experts say, won’t be the factor that determines how IHOP fares in the increasingly crowded lunch and dinner segments. Such mundane matters as where a restaurant is located also play a role. Many breakfast parlors are located on the side of the street motorists use on the way to work, while many dinner houses are on the opposite side.
Lighting and music are different at night, and customers who enjoy a quiet atmosphere at breakfast might cringe if the dinner crowd makes too much noise, said Ron Paul, president of Technomic, a Chicago-based consulting firm. IHOP might also lose dinner guests who unwind before dinner with a Chablis or a cocktail.
Leifheit also knows that IHOP must be careful not to smudge its carefully polished reputation. “We still identify ourselves as International House of Pancakes, and 10 years from now, we’ll still be known mainly as a breakfast place. I’d be disappointed if we weren’t. And I’d probably be fired.”
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Pancake Power
IHOP’s overall sales have grown at double-digit rates in recent years, but that’s because of new store openings. Sales growth at stores open at least a year was 2.7% in 1998, which is considered good for the restaurant business. Annual sales in millions:
1998: $1 billion
Source: Bloomberg News
