PLANTING THE SEEDS OF ITS OWN SUCCESS; APPLEBEE'S WANTS BIGGER PIECE OF THE CASUAL-DINING MARKET PIE.

Byline: Dana Canedy The New York Times

Planet Hollywood names drinks after Arnold Schwarzenegger and Demi Moore movies. The Hard Rock Cafe displays glitzy memorabilia like Billy Joel's old piano.

At the Applebee's Neighborhood Bar and Grill in this suburb of Kansas City, the closest things to celebrity memorabilia are the autographed sneakers of Bill Elliott, a former basketball star at nearby Olathe South High School.

And while there are no celebrity pianos, a used hose from the local Fire Department hangs on the wall.

At Applebee's restaurants nationwide, the menu, too, has a hometown feel, featuring ``neighborhood specialties'' with local touches like chicken-fried steak in Texas and seafood gumbo in Boston. And if all that neighborhood feeling isn't enough, there's the price: The average bill is $8.50 a person, at least a dollar lower than at many competing chains in the ``casual dining'' market - including Chili's Grill and Bar, TGI Friday's and Olive Garden.

The idea is to make the restaurants seem local, cozy and affordable. And so far it has worked. Planet Hollywood and the Hard Rock Cafe may get a lot more attention, but Applebee's - taking a far different, less citified approach - has become the nation's largest and fastest-growing casual-dining chain in terms of number of stores and is among the largest and fastest-growing in revenue and earnings. Today Applebee's International Inc. has sales of $1.5 billion and operates more than 840 restaurants in 45 states, primarily in towns and sprawling suburbs in the Midwest and South.

Undaunted by all the competitors in this corner of the restaurant market, Applebee's plans to double in size within five years, opening at least 135 restaurants this year alone. That means moving into new, sometimes more urban terrain, including the New York metropolitan area.

Applebee's is also rolling out a new chain of Tex-Mex restaurants, called Rio Bravo Cantina. In addition to the 38 restaurants it now operates, the company plans to add 27 this year. Rio Bravo, which operates in the Southeast and Midwest, competes with chains like Chi Chi's and El Torito, both units of Family Restaurants Inc.

But continued growth will not come as easily. Even as Applebee's expands, sales at its restaurants open more than a year have declined or been flat in recent years.

Then there's the question of the company's relationship with its largest franchise owner, Apple South Inc. of Madison, Ga., whose chief executive tried to take over Applebee's in 1994 and who is opening a chain of Mexican restaurants that competes with Rio Bravo in some markets.

Indeed, while a consensus of 16 analysts polled by the First Call research firm rates the company's stock a buy, Applebee's shares have been up and down since reaching a high of $31 in January. They were unchanged Thursday at $25.75.

Applebee's - the name was chosen because it sounded apple-pie American - was created in Atlanta in 1980 by Bill and T.J. Palmer, a husband and wife who sold it to W.R. Grace three years later. Abe J. Gustin Jr., now chairman and co-chief executive, and a partner who has since retired became franchise owners in 1986 and bought what had become a 41-restaurant chain in 1988.

In the late 1970s, Gustin had been dismissed as national sales director of the Joseph Schlitz Brewing Co. after he and several other executives were investigated by the government on accusations of kickbacks and price-fixing. Although he was never charged with a crime, ``I felt if I was going to get back to work, it would have to be as an entrepreneur,'' Gustin said.

Now, at 62, he is handing off Applebee's leadership to Lloyd L. Hill, a former president of Kimberly Quality Care, a health care company in Boston. Hill has no previous restaurant experience but was brought in to transform Applebee's entrepreneurial culture into a more corporate one.

Applebee's, based in Overland Park, Kan., a suburb of Kansas City, has capitalized on health-conscious consumers seeking alternatives to fast food at a time when some older chains' concepts have gone stale for many diners. Darden Restaurants Inc., for example, is closing about 50 unprofitable Red Lobster and Olive Garden restaurants.

By contrast, Applebee's has reported several years of revenue and income growth, including a 23 percent increase in sales and a 30 percent jump in earnings last year. In the most recent quarter, ended March 30, sales increased 22 percent and earnings grew 30 percent, the company announced this week.

Its expansion reached New York City last week with the opening of a restaurant in Queens, to be followed in the next few years by more restaurants in Queens and Brooklyn.

Yet Applebee's is not without its problems. Analysts note that the casual-dining market is becoming saturated. And even as Applebee's expands, sales at its restaurants open at least a year declined in 1995 and were flat last year.

The company, though, says it is shortsighted to focus on sales at those restaurants. This is happening, it says, at a time when it is deliberately cutting into revenue of existing restaurants by opening others nearby in an attempt to dominate the market.

CAPTION(S):

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Chart: (Color) GROWTH OF CASUAL DINING

Although Applebee's has expanded its presence and its sales have increased, its same-store sales, or sales at restaurants open more than a year, have gone flat. How five of the top casual-dining restaurants in the U.S. compare

The New York Times