Skift Take
Chili's isn't all too concerned with converting value-focused customers into higher spenders at this point. The company is choosing to ride out the foot traffic momentum, at a time when many restaurants are struggling with the metric.
— Danni Santana
The appeal of Chili’s revamped value menu among diners resulted in a strong earnings performance for the casual-dining chain, parent company Brinker International disclosed, Tuesday.
The Dallas, Texas-based subsidiary grew company-owned store sales by 2.9 percent, and franchised locations by 3.4 percent in its fiscal second quarter. Customer traffic for the period ending Dec. 26 also increased 2.9 percent, according to the restaurant group.
By comparison, Brinker International, which additionally owns Maggiano’s Little Italy, disclosed combined 2.5 percent sales growth for its two brands. Maggiano’s posted a 1.8 percent boost in comparable-store sales along with a 1.3 percent rise in store traffic.
An All New Value Menu
Chili’s introduced its reconfigured value menu in early October built around its 3 for $10 meal offering. The menu also includes cheap lunch combos and a 2 for $25 three-course meal dinner option. The move consequently led to positive store sales each month thereafter, according to Brinker CEO Wyman Roberts.
“The 3 for $10 deal is a relevant and compelling offer that is sustainable for the foreseeable future,” said Roberts, on the company’s earnings call with analysts. “It’s at the right level of preference for customers, and it’s driving traffic because it meets the needs of our lunch and our dinner, as well as our takeout guests.”
When challenged by analysts about how Chili’s will turn diners into higher checks in the future, Roberts argued that since the majority of Chili’s customers order off the main menu, the goal of its value menu will remain to bring customers back. The percentage of diners that order predominantly from the value menu is in the low teens, according to the company.
To further offset sales it could be losing by the marketing its new value menu, Chili’s has also raised lunch combos from $6 to $8 and its trademark 2 for $20 option by five dollars in recent months. At every opportunity, restaurant operators are also looking for diners to add on to their checks through additional appetizers and alcoholic beverages.
“We will continue to look at pricing in a way that continues to keep our margin structure intact, but are also focused on driving traffic,” said Roberts. “We think that for too long, this industry—and you’re starting to see it now—people talk about comp sales growth with negative traffic growth. How long can you continue to drive sales growth with traffic declines?”
Off-Premise Shines Again
Takeout orders grew another 20 percent at Chili’s, following reported double-digit growth in late October. The segment now accounts for 12 percent of Chili’s total business.
Even so, the chain remains quiet on the delivery partner front, blaming delivery fees that cut a big chunk out of managers’ operating margins. Roberts says Brinker is in talks with all the big delivery players, but the company is still not satisfied.
“We are cautious on business model implications and significant fees, but more importantly, the impact it has on our systems isn’t great,” he said. “From a technology standpoint, given that so many of these third parties are really priding themselves on being experts, we’re challenging them to integrate better.”
With no delivery partner or mobile ordering option, Chili’s off-premise business has taken off primarily online. Both of those missing components are top of mind for the company going forward.
“We’ve rushed some technology ideas out into the field a little prematurely, and that’s why I talked about delivery and integration of that technology being critical,” said Roberts. “And right now the technology on [mobile ordering] just isn’t consistent enough. We’re working with our partners to get it there. But it has to be dependable and that’s our focus right now.”
