Chuy’s travels its own path on labor, development

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Stung by many of the sales and profit issues afflicting larger competitors, the 100-unit Chuy’s full-service Tex-Mex chain is responding differently on several fronts, particularly in how it manages galloping labor costs.

It, too, is looking for topline increases from catering, the form of off-premise business that caught hold in casual dining during the latter part of 2018.  Applebee’s parent, Dine Brands Global, cited catering as a significant source of revenue growth in the fourth quarter, as did Red Robin and Carrabba’s Italian Grill owner, Bloomin’ Brands.

For Chuy’s, that means expanding its catering operations to six more markets, from a current tally of five. During the fourth quarter, when two of those five markets came online, the chain generated revenues of $1.6 million, or four times the volume of the year-ago period.

The Austin, Texas-based chain is also shifting to more of a local-store marketing approach, a strategy that has worked well for Bloomin’s brands, which include Outback Steakhouse and Bonefish Grill. Chuy’s plans to test “out-of-the-box local store marketing ideas and specific day of the week specials” in an undisclosed number of locations, said CEO Steve Hislop.

But the brand will pursue its own course on labor. Texas Roadhouse, Red Robin and other full-service operators are adding hours and positions at the unit level, aiming for a differentiating caliber of service. Chuy’s is embracing technology that reallocates some operational responsibilities to servers, “reducing our managers per store,” Hislop said.

The operator is also embracing a new technology tool that identifies markets where the consumer psychographics fit the profile of an ideal customer for the Chuy’s brand.  Management of parent company Chuy’s Holdings indicated that the chain will not enter new markets until the new capability is tested and deployed, which should be sometime next year.

It plans to open five to seven restaurants this year in markets where the brand already has a presence. Nine branches were added to the chain in 2018.

CFO Jon Howie said Chuy’s has raised prices by about 2.8% to 3%, or higher than normal, to offset escalating labor costs.

Chuy’s posted a same-store sales gain of 0.9% for the fourth quarter ended Dec. 30 and 0.5% for 2018. The results reflect a 52-week fiscal 2018, compared with a 53-week fiscal 2017.

Revenues for the year rose 7.7% to $398.2 million. Net income slid by 81%, to $5.5 million. The profit comparison reflects favorable tax adjustments to Chuy’s 2017 results because of changes to federal regulations for that year. 

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