Chili's sees a more conservative consumer

Customers gravitated toward more affordable menu items late last year, but the brand said underlying trends are strong.
Menu mix fell 4% at Chili's in its most recent quarter. | Photo: Shutterstock

Chili’s Grill & Bar customers tightened their belts a bit at the end of 2023.

Guests increasingly opted for affordability in the last quarter of the year, gravitating toward the chain’s 3 for Me value meals and ordering appetizers such as chicken wings and quesadillas as their main course, executives for Chili’s owner Brinker International said Wednesday.

The percentage of checks that featured some sort of deal ticked up 2 points quarter over quarter, to 31%, and menu mix fell 4% year over year.

Executives said the trade-down suggested some Americans are getting more conservative with their spending.

“We might see some softening in mix given where the consumer is,” Brinker CEO Kevin Hochman told analysts Wednesday. 

But they put most of the blame for the mix shift on difficult comparisons to last year, and added that some of it was self-inflicted: Chili’s menus featured big pictures of wings and quesadillas that were designed to entice guests to add them to their bill. Instead, many visitors ordered the items by themselves as entrees, possibly to save money.

New menus will ditch the pictures of wings and quesadillas, Hochman said, and will instead emphasize some of Chili’s premium items, like the Fajita Trio entree and the Triple Dipper appetizer. 

He cautioned against painting consumers with too broad a brush, pointing to mixed signals in the broader economy: Unemployment is low and wages are up, even as people are borrowing more and falling behind on credit card payments.

“In our own data we also see mixed messages,” he said, noting that spending on higher-priced items remains healthy even as another set of customers opt for value. “We believe that those mixed messages mean there are some consumers that are going to be more conservative and there are some consumers that are not really going to change their behaviors one way or the other.”

Overall, the negative mix was a minor blemish on what was otherwise another encouraging quarter for Chili’s, which has been working to turn itself around since Hochman became CEO in mid-2022.

Same-store sales rose 5% year over year and traffic was nearly flat at negative 0.6%. The transaction slowdown came entirely from Brinker’s scaled-back virtual brand business—traffic at the core concept was up 1.9% in the period, said CFO Joe Taylor. The results imply that menu prices were about 10% higher in the quarter.

Chili’s also outpaced industry sales by 4% and traffic by 2%, executives said.

That performance has the company feeling confident about the rest of the fiscal year. Brinker on Wednesday raised its revenue guidance to $4.3 billion to $4.35 billion, up slightly from $4.27 billion to $4.35 billion.

That comes despite widespread and prolonged bad weather in January that Brinker said would likely cost it $10 million to $12 million in sales this quarter.

Brinker’s optimism is being fueled by strong underlying trends such as guest satisfaction. Chili’s key performance metric—the percentage of guests with a problem—is at an all-time low of 3.6%, down from 5% more than two years ago. The brand’s marks for food quality, server attentiveness and customers’ intent to return also continue to tick up. And it has made strides in reducing turnover for managers and hourly employees.

“We feel very confident in the plan,” Hochman said. “There’s nothing that would tell us that anything operationally has changed in the business or that our strategy needs tweaking.”

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