IHOP exploring idea of 'fast casual' concept within locations

Pancake giant IHOP is in the process of developing a fast-casual concept that would launch within existing stores, the CEO of its parent company, DineEquity, said Tuesday in a phone interview with CNBC.

As the chain expands into nontraditional locations, including airports and colleges, IHOP is turning its attention to fast casual. Made up of such brands as Chipotle Mexican Grill and Panera Bread, it is a growth area within the relatively stagnant restaurant industry.

Fast-casual restaurants are characterized by more premium food options and fast-food-like service.

Source: IHOP

"We're exploring the idea of a fast-casual experience inside a traditional IHOP," said Julia A. Stewart, DineEquity's chairman and CEO, and interim president of IHOP, citing the segment's impressive growth.

She noted that a fast-casual concept is one of many things DineEquity will "alpha test" at both IHOP and Applebee's, the company's other brand.

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Such a move would capitalize on a bright spot within the dining space. Fast-casual traffic rose 7 percent for the year ended in December, while traffic for casual dining and family-style dining dropped 2 percent and 3 percent, respectively, according to market research firm NPD Group.

"Fast casual is where the opportunity has been," said Bonnie Riggs, NPD's restaurant analyst. "The industry overall is not growing. ... It's a real battle for market share."

IHOP's traditional restaurants fall into the family dining segment. Unlike casual dining chains, such as Applebee's, family dining restaurants typically do not have bars or serve liquor, and offer breakfast in addition to lunch and dinner.

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IHOP posted strong results in the fourth quarter. Same-store sales rose 4.5 percent, while full-year sales ticked 2.4 percent higher. The jump was largely due to a redesigned menu that entices customers to order more, Stewart said.

The chain wasn't immune to the traffic decline that many of its peers are seeing, however, and it noted a slight decline during the quarter.

Adding a fast-casual component at IHOP might take the form of a different menu or separate section—two ideas the company plans to explore, Stewart said.

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"It's nothing you're going to hear about anytime soon, but it's certainly an opportunity," she said.

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Applebee's has been testing a fast-casual concept at lunch at its Kansas City restaurants for the past year. The experience has been "much more complicated than we originally thought," Stewart said.

Although fast-casual dining has grown quickly, she does not think the industry's future lies squarely in that segment.

"I think there's absolutely a permanent desire for a sit-down restaurants," Steward said.

—By CNBC's Katie Little. Follow her on Twitter @KatieLittle.