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Chili's may make '2 for 20' permanent

Brinker shifting value strategy after slow 1Q sales

Chili’s Grill & Bar executives indicated Wednesday that the past year’s “2 for $20” promotion will be moving into a permanent spot on the casual-dining chain’s menu as it shifts away from promotional discounting.

The hints at new value messaging came as parent company Brinker International Inc. reported a nearly 36-percent increase in profit for the first quarter on reduced expenses and a lower tax rate.

Net income for the Sept. 29-ended quarter rose to $21.4 million, or 21 cents per share, compared with $15.8 million, or 15 cents per share, a year ago. Revenue fell 6 percent, to $654.9 million from $696.5 million, reflecting lower same-store sales at Chili's and 30 fewer restaurants than in the same period last year.

Chili’s revenue declined 7.7 percent in the quarter, to $557.8 million, and same-store sales were down 5 percent. Brinker said capacity slipped 3.5 percent with the sale of 21 restaurants to franchisees and the closure of nine restaurants since the same quarter last year.

The 45-unit Maggiano’s Little Italy had first-quarter revenue of $81.7 million and a same-store sales increase of 1.4 percent, mostly because of increased traffic. Executives said sales were helped by increased expense-account and private-party dining.

Wyman Roberts, president of Brinker’s 1,510-unit Chili’s division, said in an earnings call with analysts Wednesday that the “2 for $20” deal, which includes a shared appetizer and two entrées, would fit into what Chili’s sees as its “everyday value” position and move the chain away from relying on promotions-driven traffic.

“For the future of ‘2 for $20,’ we see that that will probably make its way onto our menu,” Roberts said. “We’re obviously happy with the guest acceptance of that offer. We’re comfortable with the margin impact that it is having on our business.”

“That means fixing the base menu to provide more everyday value and getting our lunch proposition to be stronger on a day-in, day-out base and not driven so much by what the promotion of the day is,” Roberts said.

He added that having “2 for $20” on the menu permanently would allow Chili’s to "free up our advertising" for lunch and dinner promotions that are currently being tested.

Chili’s has been working on menu, service and kitchen changes to make the dining experience faster and at a better value, added Doug Brooks, chairman and chief executive of Brinker.

“We want to take as many costs as we can out of our existing buildings to allow us to be more flexible about what we charge, to compete better at lunch with fast-casual operators,” Brooks said. “Whether we be the low-cost [provider] in casual-dining, I couldn’t say for sure. But what we want to be able to do is offer value as an everyday offer to the guest and have margins that improve.”

Other highlights of Brinker’s first-quarter earnings and conference call:

- Royalty and franchise income. These revenues were $15.4 million for the quarter, an increase of 3.4 percent over the same period a year ago.  International franchise same-store sales increased 0.4 percent for the quarter while domestic franchise same-store sales decreased 5.8 percent for the same period.
- Incremental dessert sales at Chili’s. Guy Constant, Brinker’s new chief financial officer, said the popularity of the “2 for $20” offer was fueling some incremental sales in desserts, which are not part of the deal. “On balance, even one dessert getting added is good from a PPA [per person average] point of view,” he said. “We do see higher PPA this year than we did last year simply because of the incidence of desserts.” Last year, Chili’s featured a “3 for $20” promotion that included a shared dessert for six weeks during the first quarter and for 10 weeks during the second quarter.

- Chili’s kitchen retrofits. “By modifying the equipment and processes used in our kitchens, we’ll deliver a more consistent and higher quality product to our guest at an improved pace while generating substantial labor improvements by reducing the heart-of-the-house hours,” Brooks said. Roberts said retrofitted kitchens in five domestic units and two international units are “yielding solid results.” After tests prove effective, Brinker eventually sees completing 50 kitchen retrofits a month.

- Chili's labor. Executives said they are seeing front-of-house savings from the "team service" approach rolled out systemwide over this past year. Two servers work as a team and share a larger number of tables than in the past, when one server worked stations alone. Both servers introduce themselves to newly seated tables and work together to provide drinks, take orders, run food and other services.

- International. During the quarter, Brinker signed deals for expansion in Brazil and opened new units in India and Egypt.

- Maggiano’s beverage program. The chain rolled out a new beverage program in the past month that included a smaller wine list — down to fewer than 60 bottles from 90 — that is categorized by flavors rather than varietals and geography. Also, a number of bottles in the $30 range were added,  with the chain seeing by-the-glass drinkers buying up to the bottle purchase.

Besides its 1,555 Chili’s and Maggiano’s restaurants, Brinker also holds a minority investment in Romano's Macaroni Grill.

Contact Ron Ruggless at [email protected].

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