Financing

TV ads deliver a traffic boost for Chili's

The value-focused spots helped draw in customers. But the chain lost some off-premise business as it moved away from virtual brands.
Chili's exterior
Chili's dine-in traffic increased in the quarter, but was negative overall. / Photo: Shutterstock

When Chili’s Grill & Bar debuted its first TV ad in three years in February, the strategy was simple: Drive guests into restaurants with the promise of a good deal.

The spots, which ran from the end of February through March, highlighted the chain’s $10.99 3 For Me deal featuring a burger, fries, bottomless chips and salsa and a soft drink. 

The ads worked, helping Chili’s narrow its traffic gap to the industry as measured by Black Box Intelligence. In January, Chili’s trailed the industry average by 7 percentage points. In February, it was behind by 6 points. In March, while the ads were running, it narrowed the gap to 2.

“We’ve seen very, very significant improvements behind the advertising campaign,” Brinker International CEO Kevin Hochman said during a call with analysts Wednesday.

The spots were so effective that the 1,654-unit chain plans to run three or four TV campaigns next year, Hochman said. 

Still, it has a long way to go to fully restore its traffic, which was down nearly 6% in the fiscal third quarter. Same-store sales rose 9.6%, which consisted of 9.8% higher prices and a 5.6% positive mix shift, implying traffic of negative 5.8%.

Part of the shortfall was due to a reduced emphasis on Chili’s delivery-only virtual brands, which included phasing out the Maggiano’s Italian Classics concept altogether. That contributed 1 or 2 percentage points to the traffic decline, said CFO Joe Taylor. 

That was offset somewhat by an increase in dining room traffic, which was up year over year, Taylor said.

Executives said that reflected not only Chili’s renewed marketing push but also better food and service in its restaurants, which has been a major focus since Hochman became CEO last summer. All of Chili’s internal metrics, including food quality, customer intent to return, server attentiveness and guests reporting a problem continued to trend positive in the quarter, Hochman said. 

The CEO said the immediate boost provided by advertising, combined with broader operational improvements, will ultimately be the key to long-term traffic growth. 

“You have more trial [from TV ads] and then you have more repeat because the guests, when they came in, had a better experience,” he said. 

But Chili’s also wants that growth to be profitable. Though its latest ad played up value, the brand has pulled back on discounting overall under Hochman. About 29% of its sales featured discounts in the third quarter, down from 37% a year ago. It has raised prices significantly in recent quarters to catch up to inflation. And it is has changed the merchandising in its restaurants to encourage customers to order full-price menu items or trade up into higher 3 For Me tiers. 

“We don’t plaster the great values everywhere in the restaurant,” Hochman said. “We want folks that were going to come in to buy a fajita or anything full price to be able to get that, but those that came in for the deal to make sure that you're able to find it.”

Those efforts did not necessarily move the needle on profits in the quarter. Chili’s restaurant-level operating margin was 13.2%, or virtually flat year over year.

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