What do you expect to see when you walk into an Applebee's restaurant? In most cases, you will find a restaurant with comfortable booths and tables surrounding a television-filled bar area. The bar area is separate and quiet enough that you can enjoy your meal in peace.
But what if you could enhance that dining experience even more? Thanks to DineEquity's (DIN 0.86%) partnership with E la Carte, this is now a possibility. However, will this partnership lead to DineEquity outperforming its chief competitor, Brinker International (EAT 1.43%), owner of Chili's? How does Darden Restaurants (DRI -0.04%) fit in?
The partnership
It's not likely that you have heard of Rajat Suri, but he's an interesting character as well as a highly intelligent one. He's the founder and CEO of E la Carte, the company that produces and sells the Presto tablets that are expected to show up in every domestic Applebee's restaurant by the end of 2014. Furthermore, DineEquity hasn't ruled out the possibility of using the Presto tablets at its IHOP locations in the future.
Suri began the concept and development for the Presto tablets at MIT. After five years of research and consumer insights, he realized that he had found a way to modernize the guest experience at casual-dining establishments. Silicon Valley and restaurant experts agreed, and these positive reviews led to DineEquity agreeing to a long-term relationship with E la Carte. It also helps that the Presto tablets are powered by Intel (INTC 1.77%), one of the most reliable technology names on the planet.
The Presto tablet offers several features that include menu ordering, check payment, and game playing. Over the next 18 months, more features could be added, including streaming video games, music, and social media interaction.
Traditionalists will not be in favor of such a device, wanting to spend quality time with their family members. However, there's no stopping the technological and convenience trends, and using the Presto tablets is optional, not mandatory. If anything, traditionalists should appreciate the device because it might keep kids, and adults, at neighboring tables quiet.
The Presto effect
If the Presto tablet is a success, then it will likely lead to other casual-dining establishments jumping on the bandwagon. Brinker International's Chili's immediately comes to mind. If it gets to the point where kids are telling their parents that they want to go to Applebee's instead of Chili's because Applebee's has the Presto tablet (games included), then Chili's shouldn't be far behind. If that takes place, then Darden Restaurants, owner of Olive Garden, Red Lobster, and LongHorn Steakhouse, might also join the party. Who knows where it could go from there.
Which one of these companies needs an assist for its top line the most?
Recent performances
First take a look at the top-line performance comparison for DineEquity, Brinker International, and Darden over the past five years:
DIN Revenue (TTM) data by YCharts
Darden is outperforming its peers, which indicates that it's seeing more demand and stronger pricing. However, Darden's SG&A expenses have been outpacing its revenue:
DIN SG&A Expense (TTM) data by YCharts
Despite DineEquity and Brinker International being more effective at cutting costs, they need to do something to help drive their top lines. This is especially the case for DineEquity. Perhaps Presto tablets will prove to be a growth driver. We'll have to wait and see.
For now, despite steadily increasing expenses Darden appears to offer the most investment potential. Not only is it growing its top line in a weak consumer environment, but it offers a more generous yield than its peers: 4.10% vs. 3.60% and 2% for DineEquity and Brinker International, respectively. On top of that, Darden's debt-to-equity ratio of 1.33 is slightly more comforting than the respective debt-to-equity ratios of 4.48 and 7.01 for DineEquity and Brinker International, relatively speaking.
Check, please
The good news is that DineEquity is taking the initiative on the technological front, which could help increase traffic and lead to improved top-line performance. However, we won't know the answer to this for a while. In the meantime, Darden offers the most brand diversification and the safest dividend yield. That said, casual dining is out to lunch due to the decline of the middle-income consumer. Invest with caution.
