Could Digital Technology Make Applebee's a Rising Star?

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Our countrywide communication skills are about to take yet another step backward. DineEquity's (NYSE: DIN  ) Applebee's restaurants will be installing more than 100,000 tablets in all of its U.S. restaurants early next year. No longer will we have to speak to a human being when ordering dessert or paying our checks. Will digital and food work well together? Clues from Domino's Pizza (NYSE: DPZ  ) , Papa John's International  (NASDAQ: PZZA  ) , and Yum! Brands' (NYSE: YUM  ) Pizza Hut say yes.

The digital deal
On Dec. 3, DineEquity announced that "every table and multiple bar positions at more than 1,800 Applebee's" will be getting the spill-proof tablets by this time next year. Guest can play games, add to their orders, and pay their checks. This means happier guests (who are likely to come back), higher checks per guest (as they can order extras at the click of a button), and faster table turnaround (as guests pay at the table instead of waiting for a check ,then waiting for the credit card to come back). In short, it's a self-checkout with no line.

Anybody who's worked in the restaurant industry as a waiter or waitress can attest: The way to make money is to turn over tables fast. This is true for the restaurants themselves as well. The quicker the tables can be flipped, the higher the capacity for dollars; this is especially true during peak wait times. Expect to see a bump in same-store sales as a result of the tablets. DineEquity has spent the last two years testing the impact before making the announcement. As a bonus, the waitstaff is able to provide better service since it doesn't have to worry about fetching, running, and picking up checks and payments as often.

It can't come at a better time for DineEquity. While the company is doing well overall, its growth lately has been carried by its IHOP restaurant concept. Last quarter, IHOP same-store sales jumped 3.6% while same-store sales at Applebee's locations fell by 0.4%.

Get the tablet, it's Domino's
The digital age is certainly helping pizza delivery companies lately, so it may work well with Applebee's too. Last quarter, Domino's Pizza reported that sales popped 6.9% to $404 million along with same-store sales climbing by 5%. It was the 79th quarter in a row of same-store sales growth for its international locations.

What's growing Domino's so fiercely? Two words: digital ordering. Forty percent of its sales are now digitally ordered. People love to order food digitally, and it's driving growth. CEO Patrick Doyle says that people spend more when they order on laptops, tablets, and smartphones, and they order more frequently. As a result, "We're effectively competing against smaller players that either don't have digital ordering or certainly don't have the same kind of robust platform that we're operating on."

Ask Papa
For Papa John's, it's the same story. Last quarter, total sales rose 6.4% while same-store sales rose 1.8% domestically and 8.1% internationally. Just like Domino's, Papa John's is seeing an explosion in sales coming from digital. As a company, it has logged more than $5 billion in digital sales. CEO John Schnatter believes the use of digital ordering to be at a "pretty quick pivot point."

Pizza the hut is gonna send out for you
Domino's mentioned Papa John's and Pizza Hut as the two restaurants (not counting itself) that are receiving the vast majority of digital orders. This is expected to increase market share for the three. Yum! Brands CEO David Novak mentioned Pizza Hut is "opening new channels with digital." The more people associate devices and food, the more they'll embrace Applebee's tablets.

Foolish final thoughts
Keep an eye and an ear on DineEquity's press releases and conference calls for any hint on how the tablets are affecting its sales. If it creates a large turnaround for the Applebee's chain, Fools will have the potential opportunity to learn about its success and have a leg up on the crowd. As a bonus, if the tablets spark new life into Applebee's, then there will be opportunity for DineEquity to use them to increase revenue at IHOP as well.

The battle of the screens
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9/30/2016 4:02 PM
DIN $79.19 Up +1.03 +1.32%
DineEquity CAPS Rating: **
DPZ $151.85 Up +0.10 +0.07%
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PZZA $78.85 Down -0.40 -0.50%
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YUM $90.81 Up +1.00 +1.11%
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