BJ’s reins in growth amid efforts to spur sales

BJ’s reins in growth amid efforts to spur sales

Higher construction, labor and real estate costs lead company to pull back on development

With costs rising and sales uncertain, BJ’s Restaurants Inc. is putting its sales growth into a lower gear, hoping the slowdown will give it time to improve margins and operations, the company said Thursday.

Two years ago, the casual-dining chain added 17 locations; this year, the chain expects to add 10 locations, which will give it 197 in total by the end of the year.

Next year, CEO Greg Trojan said, BJ’s plans to add six more locations.

“The slower pace of expansion has allowed us to focus operationally on many new initiatives,” Trojan said. “It’s helped drive more management tenure, adding more local knowledge and team familiarity to our sales-building efforts.” 

This would be a “prudent” time to reduce it even further, he added.

Trojan suggested several other potential benefits. For one thing, real estate costs have increased as chains have developed more locations in recent years.

Construction costs have also increased. “Already historically high construction costs have been exacerbated by hurricanes Harvey and Irma,” Trojan said.

In addition, labor costs have been rising in recent years thanks to full employment and growing restaurant industry hiring. “Slowing our growth will help us battle the cost and margin pressures we are facing as a result of escalating labor rates and an uptick in labor costs,” Trojan said.

He also said that it would reduce the number of “immature restaurants” that require more training and support.

While the company is slowing development, Trojan said the company still believes there’s room in the U.S. for 400 BJ’s — double the chain’s current size.

“Our intent is to pick up the pace of expansion when the time is right for shareholders,” Trojan said.

Same-store sales and traffic have weakened over the past 18 months, according to numerous industry sales indexes. That weakness has some chains questioning their pace of openings.

Other issues also have chains cutting back on building new units. Zoe’s Kitchen Inc. has slowed its development, while Chipotle Mexican Grill Inc. and Canadian fast-casual chain Freshii have also reduced their development projections this year.

BJ’s said it planned to slow development after reporting a 1.7-percent decline in same-store sales in the third quarter ended Oct. 3. The company said Thursday that the two hurricanes had an outsized impact on sales, given that Texas and Florida are the chain’s next two largest markets after its home market of California.

Trojan said that July and August “were the most difficult back-to-back months of the year.” He also said that a 20-percent dip in movie attendance during the peak summer season didn’t help.

Executives said that same-store sales picked up in September and again in October — same-store sales are up 2 percent so far this month.

“The general industry is picking up some momentum in October, which is a good thing,” Trojan said.

Despite the weak sales in the quarter, he said the company outperformed other casual-dining chains, according to industry indexes Black Box Intelligence and Knapp Track. And Trojan said the chain’s traffic outperformed other casual dining chains by as much as 200 basis points.

BJ’s has been undertaking several efforts to build sales. One is through investments in takeout and delivery orders. The company has changed its ordering process online and on its smartphone app and has worked to expand its network of third-party delivery companies.

Traditionally, BJ’s gets fewer sales from off-premise orders than many other casual-dining chains. But the company believes there’s an opportunity to generate incremental sales by focusing more on that business.

Off-premise orders increased 17 percent in the third quarter, executives said.

The chain also gave its wait staff handheld ordering devices, which helped improve service. “Our food and drink delivery times have improved significantly and continue to drive positive guest feedback” on speed of service, Trojan said.

Contact Jonathan Maze at [email protected]

Follow him on Twitter: @jonathanmaze

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