The turnaround at Chili’s Grill and Bar is real.
Changes at the 1,500-unit chain continued to pay off in owner Brinker International’s fiscal third quarter, when Chili’s outpaced the industry on both sales and traffic and saw bottom-line growth as well.
Same-store sales rose 3.5% in the quarter ended March 27 thanks to higher menu prices and dine-in traffic. And while traffic was still negative overall, it was 4% better than the industry average, CEO Kevin Hochman said during an earnings call Tuesday.
The strong results prompted Dallas-based Brinker to raise its revenue guidance for the year to a range of $4.33 billion to $4.35 billion, up from $4.30 billion to $4.35 billion. Executives painted a picture of a brand that is firing on all cylinders after a sluggish post-pandemic period.
“We’re showing up really strong at a superior value [and] we’re delivering a better experience than we ever have,” Hochman told investors.
Here’s what’s working so well for Chili’s.
Value
The chain has been aggressive on value at a time when consumers are smarting from years’ worth of menu price inflation.
Chili’s has invested heavily in promoting its 3 for Me value menu, which offers customers an appetizer, entree and a non-alcoholic beverage starting at $10.99. It stepped up that effort further this week with a new burger, the Big Smasher, that is designed to compete with McDonald’s Big Mac. It also launched a new slate of TV ads that compare Chili’s value proposition to fast food.
Those efforts have resonated with guests. Hochman said Chili’s is seeing sales growth across all income brackets, even as other chains are reporting fewer visits from lower-income consumers.
The meal deals are also generating buzz for the brand. Hochman noted that the Big Smasher burger was the No. 1 trending topic on X (formerly known as Twitter) after it was launched Monday morning.
“That gets very exciting because we know we're on a topic that is very top of mind for guests,” he said.
Staffing
While value may be working to drive top-line growth, it hasn’t prevented Chili’s from expanding its bottom line too.
Restaurant-level operating margins increased by 80 basis points year over year to 14.2% in the quarter. (That includes results from Chili’s sister brand, Maggiano’s Little Italy.)
Asked what’s behind the growth, outgoing Brinker CFO Joe Taylor noted that better sales and a slowdown in labor and commodity inflation have helped.
But he also said that Chili’s is simply operating better now than it has over the past few years. That’s in part due to employees sticking around longer and getting better at their jobs, which has allowed Chili’s to keep staffing levels in place even as restaurants get busier.
Chili’s rolling three-month manager turnover now sits at 5%, while three-month hourly turnover has improved to about 26%, said incoming CFO Mika Ware.
“The muscle memory being built with that helps us run more efficient operations,” Taylor said. “We have restaurants that can maintain higher volumes while using the same amount of labor they've been using.”
Simplification
Aiding that improved execution have been Chili’s ongoing efforts to simplify its operations, largely by implementing ideas from employees themselves.
The third quarter brought a few more changes on that front that are designed to make Chili’s easier to run.
The brand dropped the smaller beef patties it used for its Lunch Burger, replacing them with its regular 7.5-ounce patty, giving managers one less SKU to keep track of and streamlining the cooking process. It also lowers food costs because Chili’s is now buying more of one kind of patty.
It also removed a step from its crispy chicken sandwich recipe. Employees no longer have to pound the raw chicken that it uses on the sandwich.
“That is like one of the worst jobs ever in the restaurant,” Hochman said. “And we actually found the chicken sandwich is juicier and more tasty when you don't pound it.
“These are examples where it's these little things that keep rolling out every month,” he continued. “It makes the restaurants so much more easy to operate.”
That has not only helped with turnover, but it has also translated to a better experience for customers. In the third quarter, Chili’s closely watched “dine-in guests with a problem” metric fell to 3.3%—the lowest level since the brand began tracking it.
The rosy earnings report pushed Brinker's stock up nearly 8% as of midday Tuesday.
“The ongoing momentum in our business encourages us that our strategy is working and the investments we're making are strengthening the core business, setting us up for long-term sustainable growth,” Hochman said.
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