Brinker International Inc., parent to the Chili’s Grill & Bar brand, found lower-income consumers reduced visits in the fourth quarter, especially with high gasoline prices in June, executives said Wednesday.
The Dallas-based parent to Chili’s and Maggiano’s Little Italy, which Wednesday announced earnings for the fourth quarter ended June 29, saw traffic tighten in the period, said Kevin Hochman, Brinker CEO and president.
That led the company to consider such ideas as reducing food discounts through the My Chili’s Rewards programs and sharing menu items from its virtual brands, such as the flavors and curly fries from It’s Just Wings, on the Chili’s menu. And some items from the Chili’s menus, such as tenders, may be added to the virtual brand’s menu, Hochman said.
“We find ourselves in interesting times with the inflationary environment, a dimmer economic outlook and a worried consumer,” Hochman said in an earnings call with stock analysts. “I'm confident the interventions were putting in place today to simplify operations, to win with the guests, to implement more strategic pricing, to launch sales-driving initiatives and to take cost out of the business will help us fight through our near-term challenges.”
Joe Taylor, Brinker’s chief financial officer, said traffic was impacted especially by lower-income value-oriented guests staying away from the brands.
Hochman said he had two teams of senior executives looking at ideas to improve the profitability.
“One team is dedicated to near-term ideas to drive sustainable and profitable sales layers,” Hochman said. “They have been charged with identifying customer-insight-driven sales opportunities as well as bringing exciting new initiatives to our dining rooms to help accelerate traffic recovery.
“The other team is charged with simplifying operations so we can improve our guest experience,” he said. “We will take unnecessary cost and complexity out of the business, which will free up labor to reinvest into things that will help us win with the guest.” That team is looking at operations, from menu to back-of-house prep, Hochman said.
Hochman said as much as 37% of Chili’s checks include some type of discount, usually through the My Chili’s Reward loyalty program. “It's just simply too high for our brand, and we just need to we need to figure out ways to get that lower,” he said.
Hochman suggested the company would feature existing value platforms, such as the “3 for Me” combinations, which start at $10.99 per person for an appetizer, entrée and unlimited beverage, or the $9 Lunch Specials.
Hochman said Chili’s will also launch what it calls the “Raise the Bar” initiative to increase bar-area traffic, which he said could “spill over into the dining room too.” The bar initiative includes new drinks and food for happy hour daily as well as the launch of “NFL Sunday Ticket” in the restaurants.
“We're looking at other things that we can use outside of football season to help driving traffic,” he said. “Obviously those are more full-revenue guests that we can get in to enjoy food and drink.”
Taylor said commodity costs were higher in nearly every category of the menu during the fourth quarter, with inflation nearing 15%. Poultry, which makes up about 52% of the menu mix, saw the highest increases, he said.
To accommodate that inflation, the Brinker brands are taking price increases. “Chili's is expected to exit the first quarter at close to an 8% price a level the brand will maintain throughout the fiscal year,” Taylor said. “Maggiano's will exit the first quarter in the mid-5% range, and it's anticipated to average closer to 7% for the year.”
Taylor also said the Brinker brands were working on improving retention rates for hourly workers. “We're very focused on the retention side to try and get back into that better-than-industry positioning on traffic,” he said.
For the fourth quarter ended June 29, Brinker’s net income was $40.2 million, or 90 cents a share, down from $75 million, or $1.58 a share, in the same period a year ago. Revenue was $1.021.5 billion compared to $1.008.6 billion in the same quarter last year.
Combined same-store sales for Brinker rose 3.1% in the fourth quarter, including increases of 0.3% at Chili’s and 30.1% at Maggiano’s.
As of June 29, Brinker International owned and franchised 1,650 restaurants, including 1,232 Chili’s in the United States, 364 Chili’s internationally and 54 Maggiano’s. The company also operates two virtual brands: It's Just Wings and Maggiano's Italian Classics.
Chili’s plans to add 19 new restaurants in the 2023 fiscal year.
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