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In order to beef up its breakfast offerings, IHOP, one of DineEquity Inc. (DIN - Snapshot Report)’s breakfast oriented brands, recently collaborated with The Quaker Oats Company to develop a new blend of oatmeal. This new breakfast item will be launched in October, featuring three different types of oats in exclusive flavors.

Chicago-based Quaker Oats has been owned by Pepsico Inc. (PEP - Analyst Report) since 2001. This the first time Quaker Oats formed an alliance with a Family Dining restaurant chain to create a branded item.

Breakfast has accounted for nearly 60% of the U.S. restaurant industry and remains a key driver of traffic growth in recent years. Thus, both DineEquity and Quaker Oats plan to capitalize on their respective product development talents to create a differentiated line of oatmeal within the burgeoning healthy breakfast category.

We believe that the deal is strategically positive for the parties. Breakfast is considered to be IHOP’s forte as consistent with its brand identity “Everything You Love About Breakfast.” This indicates that both the companies operate almost under the same vertical.

While the deal enables Quaker Oats to leverage IHOP’s industry-leading positioning at breakfast, IHOP will also reap the benefits from Quaker’s more than 100 years of experience in healthy breakfast service. Further, the association paves the way for Quaker Oats to present itself through a different business segment.

In addition to this Oatmeal blends, DineEquity has been striving persistently to give the American breakfast experience at IHOP a new meaning through menu innovation, strategic advertisement, technology and operational improvements.  

On the menu front, management is discarding underperforming items and opting for value and innovative breakfast options. It is presently on a test phase with new menu items, some of which will likely hit the market later this year. We believe that the new oatmeal offerings are one of them.

DineEquity currently carries a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.

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