Applebee’s Franchisee Swallows More Locations

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When a franchisee took a bite of Applebee’s restaurants last week, analysts saw it as a good sign for DineEquity Inc., the Glendale parent company of Applebee’s and IHOP.

Neighborhood Restaurant Partners Florida LLC acquired 50 franchised Applebee’s Neighborhood Grill & Bar restaurants in the Sunshine State and the rights to develop additional locations.

It was a significant development because Neighborhood Restaurant Partners is the sister company of Summit Restaurant Group LLC in Kansas City, Mo., the largest IHOP franchisee in the nation. The purchase is a validation of DineEquity’s formula, said Will Slabaugh, an analyst at Stephens Inc. in Little Rock, Ark.

“It shows they’re pleased with their relationship with DineEquity, that they’re willing and wanting to buy into more franchise businesses by the same company,” he said. “And it shows that they have confidence that over time they can make a good return, which would imply that sales could continue to grow at Applebee’s.”

Neighborhood Restaurant Partners and Summit Restaurant Group are both affiliates of Argonne Capital Group LLC in Atlanta. The Neighborhood Restaurant Partners purchase brings Argonne’s total holdings of IHOP and Applebee’s restaurants to 352 locations.

The acquisition was announced May 31. Two days earlier, DineEquity announced that it has arranged the sale of 33 company-owned Applebee’s restaurants, primarily in Indiana and Missouri, to another franchisee. In early May, the company announced the sale of 39 company-owned Applebee’s restaurants in Virginia. Both sales are expected to be completed by the end of the third quarter this fiscal year.

When DineEquity acquired Applebee’s five years ago, it took on a lot of debt, but vowed to pare its 500-some company-owned casual-dining restaurants to just 23. The company will soon be down to only 88 restaurants. It plans to keep 23 restaurants in the Kansas City area to test new products and marketing initiatives.

Slabaugh said the transition will continue at a slow pace. Ken Diptee, director of investor relations at DineEquity, said the company has been deliberate in choosing the franchisees it sells to.

“DineEquity has very strict parameters to evaluate potential buyers,” he said. “It’s not a fire sale. We would not run out to sell the restaurants without making sure we’re putting them in the right hands.”

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