IHOP cuts Applebee’s executive ranks as merger nears closure: CEO Goebel, CFO Lumpkin among 11 vets to step down
GLENDALE, CALIF. — Poised to complete what has been a drama-filled, $2.3 billion merger of two national chains, IHOP Inc. chairman and chief executive Julia Stewart promised to bring a “fresh perspective” to the leadership of Applebee’s upon the expected close of the transaction later this month.
But whatever new direction awaits the acquired casual-dining giant under IHOP’s ownership, that new course will be steered without input from 11 veteran Applebee’s executives, including its chief executive and chief financial officer.
Initially, eight key executives at Applebee’s International Inc.’s headquarters in Overland Park, Kan., would step down upon the scheduled Nov. 29 closure of the deal, including president and chief executive Dave Goebel and executive vice president-CFO Steve Lumpkin.
In addition, three regional vice-president positions would also eventually be cut as Applebee’s sells its 510 corporate-owned restaurants to franchisees and is transformed into a franchisor only.
When complete, the merger would create one of the largest systems in the industry, with more than 3,283 restaurants–1,328 under the IHOP and International House of Pancakes banners and 1,955 operating as Applebee’s Neighborhood Grill & Bar. The merged entities’ annual systemwide sales would be about $6.8 billion, and the IHOP-Applebee’s franchisor would have corporate revenues of more than $1.4 billion.
The realignment of IHOP’s and Applebee’s corporate structures under the Glendale-based parent company–soon to be renamed and given a new stock symbol–would also include the hiring of new presidents to lead each brand’s business unit.
“I think it’s time for a change at Applebee’s,” said Stewart, who was president of Applebee’s before her move to IHOP in 2001, after which she presided over an upturn in its fortunes as Applebee’s fell victim to a changing marketplace. In recent years, the industry’s largest casual-dining chain has suffered a prolonged downturn in same-store sales, necessitating costly upgrades even as the credit markets constricted, making Applebee’s vulnerable to a takeover.
“Given the results, we need a new leadership and a new direction” at Applebee’s, Stewart said. “It makes sense to bring in someone with a fresh perspective” as its new president.
Goebel, who was one of three Applebee’s executives on its board who unsuccessfully opposed the buyout and fought for a “standalone” turnaround plan, has been the chain’s chief executive since September of last year. He joined Applebee’s in February 2001 as senior vice president of franchise operations and later was promoted to executive vice president of operations, then to chief operating officer before being promoted to president in January 2005.
Stewart hopes to have her new team in place by early 2008, though she said it may take longer to find the right people.
“It’s not a bad thing that this may be a while,” she said.
In addition to her role as chief executive of the parent company, Stewart plans to devote a substantial portion of her time over the next several months to the day-to-day management of the acquired chain while working to “re-energize and differentiate the Applebee’s brand.”
Goebel and Applebee’s CFO Lumpkin declined to comment on their departure.
Foodservice securities analysts speculated that the exits of Goebel and Lumpkin in fact were inevitable.
In any case, “it’s hard to stick around when you don’t really want to be a part of that company,” said Howard Penney of Friedman, Billings, Ramsey and Co. in New York. “Julia didn’t really have any choice,” added Penney, who said he sees Goebel and Lumpkin as “victims of circumstances.”
“The people running Applebee’s were doing a great job,” Penney said. “They just got caught in a tough time.”
The other Applebee’s executives who will be leaving the company when the deal closes are Carin Stutz, executive vice president of operations; Michael Czinege, senior vice president and chief information officer; Kurt Hankins, senior vice president of menu development and innovation; Carol DiRaimo, vice president of investor relations; Larry Miller, vice president of finance; and Scott White, vice president of human resources, design and services.
IHOP indicated that some of Applebee’s corporate functions, such as finance, legal, development, international and human resources, will be integrated with those of IHOP, and that at least a few Applebee’s executives would be retained or promoted to lead some of the merged departments. However, no details of those changes were given.
Analyst Penney said a key challenge for Stewart would be to win the confidence and allegiance of Applebee’s franchisees, many of whom may feel some measure of loyalty to its departing executives.
After meeting with some of the nearly 800 staffers at Applebee’s headquarters last week and with franchisees in a conference call to explain the organizational realignment, Stewart said she was hearing enthusiastic anticipation for the future of the brand.
“They’re saying, ‘Let’s go, let’s move on.’ They’re chomping at the bit,” she said.
Further layoffs are expected, however, as Applebee’s moves toward becoming a nearly 100-percent-franchised brand, much as IHOP currently is following Stewart’s implementation of a conventional franchising model at IHOP Corp. Before she orchestrated that change, IHOP for decades had borne the cost of financing new-restaurant openings and then selling the branches to franchisees in turnkey transactions.
Over the next two or three months, Stewart expects to put together a “100-day plan” to outline her intentions for re-energizing Applebee’s, she said.
Stewart previously outlined a plan to sell off an average of 40 corporate Applebee’s restaurants per quarter, with the chain’s 42 existing franchisees having first dibs on those spinoffs.
However, analysts have warned that Stewart may not have an easy time turning around Applebee’s, given the macroeconomic pressures threatening the entire casual-dining segment as consumers increasingly tighten their belts in the face of falling home values and rising gasoline prices.
“The economic environment today is dramatically different than it was five years ago when she turned around IHOP,” Penney said. “Consumer malaise is broadening and getting worse.”
Stewart, however, brushes off doom-and-gloom predictions, noting that IHOP was in a similar situation as a struggling family-dining concept when she joined the company six years ago.
“When I got to IHOP, people were flocking from the [family] category,” she said. “We set about the task of re-energizing the brand, and we did it.
“I’m not going to worry about the macroeconomics. I can’t control the price of gas. There are a lot of people who have been to Applebee’s but just haven’t been there in a while. It’s my job to bring them back.”
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