Third quarter earnings reports have been mostly positive for restaurant companies based on sales metrics. Pricing increases averaging 8.5% will yield such lifts, after all.
Under the surface, however, traffic remains a challenge – a concern as this metric tends to better symbolize demand. Traffic in October dropped 2.6% year-over-year, according to Revenue Management Solutions, and marked the industry's eighth consecutive month of traffic decline. These numbers illustrate the balance operators are trying to strike to protect their margins in an inflationary environment without turning off too many guests. It's a delicate balance to be sure, and silver bullets seem to be largely elusive. That said, there have been some bright spots. Executives from First Watch touted higher traffic levels during the company's Q3 call, for instance, citing seasonal menus and alcohol as critical drivers. McDonald's also experienced a traffic lift on the quarter, driven in large part by a massively successful marketing cadence.
Then there’s Texas Roadhouse, which also experienced positive traffic – a half point overall, with dining room traffic up 3.3%. The casual dining chain is now running on 10 consecutive years of positive traffic growth, in fact, with no limited-time offers or flashy marketing campaigns in sight. That the company has maintained such a streak through its own pricing increases and the segment’s overall challenges is somewhat anomalous. During a meeting earlier this week, Travis Doster, vice president of communications, said the company's trajectory is driven simply by consistency and value.
“The reason I’m optimistic about our brand is because we are value-based. Two made-from-scratch sides and bread? That’s a lot of food,” he said, referencing the complimentary offerings that come with an entrée order. “And we’re never going to commoditize our experience. There is pride in baking our own bread and chopping vegetables and making potatoes each day. We’re serious when we say we need to earn every customer,” Doster said.
In other words, Texas Roadhouse is serious about driving traffic. It is part of the brand's culture, which is also somewhat of a differentiator. During a recent tour of its Louisville, Kentucky, headquarters, this culture was displayed on every possible inch of wall space – murals of the original investors, Texas flags, American flags, Andy Armadillo (the chain's mascot) and his friend Iggy, framed photos of musicians and athletes and jerseys, neon guitars, margarita-themed knickknacks, and so much more, including a full-scale replica of a bar and kitchen. The building also includes a space for beehives, where a beekeeper cares for tens of thousands of honeybees who produce the honey distributed by the company, including for its signature cinnamon honey butter. A giant poster featuring a photo of late founder Kent Taylor, who died last year, is signed by the entire staff, with notes such as, “We miss you, but will not forget the mission.”
During the tour, there were several references to Taylor’s book, “Made From Scratch,” as being the chain’s roadmap. The book follows the chain’s journey from its beginnings nearly 30 years ago. Not much has changed since then.
“I’ve been with this company a long time and what stands out to me most about Texas Roadhouse is our consistency. I’m not the only one who has been here a long time. We are able to stick to the plan because we have consistently focused on our mission of legendary food and service. We don’t have a lot of new people coming in trying to change that,” Doster said.
No doubt “value” is defined differently these days, and Texas Roadhouse could be a case study as to how. Gone are the dollar menus and deep discounts that further erode operators’ already thinning margins. During the current economic environment, value means affordability, but also experience, quality, service, convenience. The NPD Group recently reiterated this shift, reporting that consumers are taking less advantage of restaurant deals than they did during the Great Recession. Foodservice deal occasions were down 1%, and non-deal orders were down 2% in the quarter compared to a year ago, NPD noted. Further, the major restaurant chains that increased their deal offerings in September didn’t outperform those that didn’t. Overall, according to NPD, the top-performing chains across the board had high customer satisfaction scores based on friendly service, quality food, the taste of food and affordability.
Of course, now convenience is also at play. Despite its refusal to stray from its founding principles, Texas Roadhouse has embraced off-premises business and technology out of necessity. Doster said this shift allowed more customers to discover the brand during the pandemic, which has also helped boost traffic.
"People, I think, grew tired of cooking and drive-thrus, and that worked in our favor," he said.
For context, off-premises business was between 5% and 8% pre-pandemic for the chain and is now up to 20% in some locations even with a strong return to dine-in. Doster expects this mix to sustain as more operators and consumers alike embrace tech-enabled efficiencies and conveniences.
“During our recent annual fall tour with managing partners, more questions came up about technology than ever. Our partners want to make it easier for customers and better for employees with technologies like kitchen display systems and Roadhouse Pay (pay-at-the-table). We all also know we’re not going to look at anything that takes away from our legendary food and service mission,” Doster said.
In maintaining that mission, one of the biggest challenges is that the Texas Roadhouse model requires high labor. It's hard work to make those sides from scratch every day, but Doster notes that the team believes "people can taste effort," and therefore labor isn't something the chain is going to cut corners on. As such, Texas Roadhouse offers scheduling flexibility, college tuition reimbursement, a managing partner model and more.
"We are focused on the culture and that includes flexibility and quality of life. That means getting extra staffed so you can give time off. It starts with our managing partner model, which induces pride and ensures that consistency we want," Doster said. "We earn our customers with every plate. Some may say it’s cliché, but we’ve proven it works."
It is perhaps worth noting that Texas Roadhouse has been ranked No. 1 on the American Customer Satisfaction Index for the past several years in a row.
Contact Alicia Kelso at [email protected]
