John Peyton: And Eric, it’s John just wanted to give a specific example of the way it’s something like that flows out, Jay mentioned the loyalty program for IHOP, so its ’21 was about designing it and beginning to build it. 2022, we spent on the technology to enable the app, et cetera. By the end of ’22 where we had about 5 million members enrolled. And those members accounted for 5% of IHOP sales. And so as we head into ’23, it’s about now using our marketing capability and the investment we made in the tech to start to market directly to those people with promotions, we’re adding artificial intelligence and predictive analytics to help recommend to them, what their next purchase should be? And so you know, that’s a way to think about the cycle of how one initiative will impact ’23.
Eric Gonzalez: That makes sense. And if I can ask about development here, Tony, your comments sort of suggested that the ROIs are maybe not quite, where you’d like them to be due to borrowing costs, the construction inflation delays, and maybe the store level margin. So I think this begs the question where we are in terms of store level EBITDA, and how much that declined at ’22. And, I think, if I go back to, again, that discussion we had a year ago, the idea was that unit growth would go to that would sort of be a five or so this year, I guess I’m wondering, is this a function of closing more stores? Or are you just opening fewer to offset the closures on a net basis? And then Jay on the IHOP side, you missed the bottom end of the guidance, even that you’ve updated a quarter ago, I think you’ve finished — did 30 for the year.
And so that presumably means that some of those units would filter into ’23. But yet the guidance that you gave today is maybe below with what you would thought initially from a normal year development perspective. So just wondering what that means about the ability to accelerate unit growth, I think and reach that 2100 unit, target by 2026 that you laid out not too long ago?
John Peyton: Yes, it’s up for Tony.
Tony Moralejo: I’ll tackle that question first. So, look, we’re going to open more new restaurants this year than we did last year, which is a significant improvement. But it’s not where we want to be in the future. Based on my experience across multiple global restaurant brands, the rate or the pace of development, it comes down to franchisees believing there’s an attractive value proposition. The brand leadership team, I think, is delivered all time high AUVs. How are those gains had been offset by inflationary pressures on operating margins, but really rising real estate costs, higher construction costs, higher cost of capital? So I’m going to use my experience, as I said in my opening remarks in my expertise, and we’re going to make sure that the brand leadership team focuses on those factors that are within our control.
We’ll continue to drive AUVs, we’re going to continue to improve franchisee profitability, and we’re going to reassess our prototype to help with the — to help Applebee’s return to positive net unit growth.
Jay D. Johns: Yes, this is Jay. From the IHOP side. Look, we did not hit the target we wanted to hit last year, we had, as we talked about on the last call, we had macroeconomic factors of supply chain, and the supply chain kept moving to different items, we actually took positions to try to help ourselves get these restaurants open later in the year. But new pieces of equipment, new things started coming into play, that you couldn’t open a restaurant without it. So they started pushing into the next year. And I think as we developed our guidance this year, while it sounds like we’re not on target, long term, we still feel confident over the five years of where we can get the openings to. But we’re trying to be responsible here also, the macroeconomic factors have not completely gone away.
Supply chain has not proven to move at the same rate that it was before timelines are getting extended, compared to pre pandemic. And one of the big things that keeps happening is that local municipalities are just taking longer and longer to approve plans, et cetera. So one of the things that we’ve done is, since the pandemic, we have started to get our franchisees to pivot toward doing retrofits of previously other restaurants. We’re very successful doing this, we’ve got about 600 of them in our system. We’ve done this for years and years. And that’s how we’re combating the kind of the economic factors of cost so much to build a building with inflation right now is, if you just retrofit an existing space, it’s actually much more beneficial.
It’s usually much faster to get the permitting approved. But we’re trying to be responsible doesn’t mean we don’t potentially have upside on this. But we also have not gotten the proof yet, that the issues we had last year have resolved themselves. So we’ve already opened 10 of the restaurants that we expected last year, in the first couple of months this year. So we’re feeling very confident with all the work we’re doing and building the pipeline, developing the pipeline, that we’re still long term going to hit the goals that we were looking for, but it may get stretched out a little differently than what we originally anticipated.
Eric Gonzalez: Okay, just the last one for me, can you maybe comment on the P&L impact of Fuzzy’s Taco’s in fourth quarter and maybe expectations for that contribution EBITDA next year?
John Peyton: Yes, Vance will walk us through that.
Vance Chang: So, Fuzzy, we closed in late of Q4. So there’s really not material impact Q4 financials. But going forward for ’23 it’s obviously built into our guidance. But the way I would think about it, for modeling purposes is in terms of G&A and EBITDA contribution. Fuzzy’s roughly replaces the company owned restaurant, of course, with a lot more growth potential in future years.
Eric Gonzalez: Perfect, I’ll get back in the queue. Thank you.
Operator: Our next question comes from the line of Todd Brooks, with Benchmark Company, your line is now open.
Todd Brooks: Hey, good morning, everybody. Thanks for taking my question. Just I’ll try to limited to two here. One is, as you look at the Fuzzy’s opportunity, can you talk about your long term vision for how big you think that concepts can be? And are you having an early discussion with Applebee’s or IHOP franchisees about potential cross sell opportunities that could really ignite the unit growth there? Especially if we get to a more normalized construction environment?
John Peyton: Hey, Todd, it’s John. Thanks, we’re interested in Fuzzy’s, because we thought it was a great brand, we love the Mexican category, and the fast casual category. And, we do that we do that as a combination as a, you know, fast growth and high potential. So, in terms of how big you know, I can’t put a number on it. But we certainly intend it to become a material part of our business. And that was the vision behind it. As we mentioned, there’s 125 additional restaurants in the pipeline for the next several years. And we’re just now beginning to work with our development team and the Fuzzy’s team to see we can do to expand that. We did a lot of research before we made this choice on several companies and landed on Fuzzy’s, including, pretty elaborate national tests and confirmed that we believe that the cuisine and the tacos and the design of the restaurants are applicable literally across the country, and that we can achieve a national footprint.
When it comes to thinking about with any of our existing franchisees at Applebee’s, or IHOP be interested in a Fuzzy’s. We have thought about that. And we’ve had a conversation with a few of them, I mean our point of view there is, investing in a Fuzzy’s would be great, but that is over and above their current commitments to, IHOP and Applebee’s based upon their development agreements with us.
Todd Brooks: Fair again. And then just a quick one for Vance. And I know Eric was touching on franchisee level returns. But as you’re looking out at kind of the cost picture in ’23, what’s your thoughts on the basket for the franchisees and maybe what you like to see from some inflation relief that could help drive their returns higher, and such a battenkill?
