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Brinker’s Hochman on Chili’s Accelerating Sales · Choppin’ It Up by Bloomberg Intelligence

0:13
Speaker 1: Welcome to Chopping It Up. I'm your host, Mike Hanlon,
0:16
Speaker 1: the senior Restaurant and food Service analyst at Bloomberg Intelligence.
0:20
Speaker 1: Our research and that of bi's five hundred analysts around
0:23
Speaker 1: the globe can be found exclusively on the Bloomberg terminal.
0:26
Speaker 1: If you enjoy the pod, I'd love it if you
0:28
Speaker 1: could leave us a review on Apple or Spotify. Today
0:30
Speaker 1: we're joined by Kevin Hakman Brinker CEO. Thanks for joining
0:34
Speaker 1: me here in our New York studio.
0:36
Speaker 2: Kevin, Well, thanks for having me.
0:37
Speaker 3: Michael, I am a consumer of your pod, so I
0:40
Speaker 3: appreciate you having me it.
0:41
Speaker 2: Oh, that's cool.
0:42
Speaker 1: I appreciate you. I appreciate you listening in. I woke
0:45
Speaker 1: up to big news yesterday the opening of the Chili
0:49
Speaker 1: Scranton branch.
0:50
Speaker 2: Yes.
0:50
Speaker 3: Well, we were on a very famous show almost twenty
0:54
Speaker 3: years ago to the day, and.
0:57
Speaker 2: They ate that the.
0:58
Speaker 3: Chili's in Scranton, and we do not have a Chilis
1:02
Speaker 3: in Scranton, believe it or not.
1:04
Speaker 2: It's funny.
1:04
Speaker 3: We tape some of that content with many of the
1:08
Speaker 3: actors from that show and our guy on the ground,
1:13
Speaker 3: Jesse Johnson. He does a lot of our advertising. He welcome,
1:16
Speaker 3: he said, we welcome back to Scranton, and they're all like, hey,
1:18
Speaker 3: we've never been to Scranton.
1:20
Speaker 2: All this was filmed in la so this was a
1:22
Speaker 2: new experience for many of the actors of that show.
1:25
Speaker 3: And you know, so we basically have replicated the two
1:28
Speaker 3: thousand and five Chilies that was in that episode to
1:32
Speaker 3: the very details of the booths, etc.
1:34
Speaker 2: And it will.
1:35
Speaker 3: Also be the only Chilies in the world that now
1:38
Speaker 3: sells the Awesome Blossom, which was you know, our version
1:42
Speaker 3: of the bloomin Onion when that was a big business
1:46
Speaker 3: war back in two thousand and five. So if you
1:49
Speaker 3: want an Awesome Blossom at Chilies, there is one.
1:51
Speaker 2: You can go to, and that's in Scranton.
1:52
Speaker 1: Pennsylvania, only about a two and a half hour drive
1:56
Speaker 1: from Awesome Manhattan. Chili's Lifetime move I'll be home from
2:00
Speaker 1: Margarite today was pretty fantastic, by the way. I caught
2:03
Speaker 1: that recently. So your marketing team has been busy.
2:08
Speaker 3: Yeah, Well, first of all, I didn't know you were
2:09
Speaker 3: a lifetime movie fan, so I'm learning somebody.
2:12
Speaker 2: New about you every day. You know.
2:14
Speaker 3: You know our marketing team, you know, we're focused on
2:15
Speaker 3: a couple of things. It's sales overnight and brand over time.
2:18
Speaker 3: Sales every night is about driving you know, people and
2:21
Speaker 3: traffic into our restaurants, and then brand over time is
2:24
Speaker 3: where do we want to be positioned in the market.
2:25
Speaker 2: Right, And when Chili's was at its.
2:27
Speaker 3: Best, when we were growing in the eighties and the nineties,
2:30
Speaker 3: we were about Margarita's, we were about Fahidas, we were
2:33
Speaker 3: about chicken crispers, we were about ribs, and we're bringing
2:38
Speaker 3: all these things back right. You know, it's funny, like
2:40
Speaker 3: we've had this incredible success and you go across the
2:42
Speaker 3: country talking to managers, many of them in the business
2:44
Speaker 3: twenty thirty, some even forty years, and they're like, it
2:47
Speaker 3: feels like Chili's again. Like it feels like we're back
2:49
Speaker 3: to you know, slinging and having really busy restaurants, and
2:54
Speaker 3: the team members are having fun with the guests, and
2:56
Speaker 3: the guests are having fun with the team members. So
2:58
Speaker 3: it definitely is a little bit of throwback. Right now,
3:00
Speaker 3: based on the growth that we've had, it just feels
3:02
Speaker 3: like we're an upstart, new brand.
3:03
Speaker 1: It's fun. It's fun to watch, you know, sam store
3:07
Speaker 1: sales in the US up more than thirty percent in
3:10
Speaker 1: calendar for Q you're comping over a five plus percent
3:15
Speaker 1: result in the year prior, So absolutely unheard of for
3:18
Speaker 1: a mature brand. For the listeners that haven't been following
3:22
Speaker 1: this story as Colsey as I have and we have
3:25
Speaker 1: on the street, what were the primary drivers.
3:27
Speaker 2: Of the group. Yeah, you know, it's interesting.
3:29
Speaker 3: A lot of people ask me, like when I took
3:30
Speaker 3: this job, You're like, oh, isn't casual dining dead? And like,
3:33
Speaker 3: I can't believe you took that job. And it's like, well,
3:34
Speaker 3: if I believe that casual dining was dead, why would I.
3:37
Speaker 2: Ever take this job? Right?
3:38
Speaker 3: And there's some big leaders out there, you know, I'm
3:41
Speaker 3: not afraid to say it publicly. Like you look at
3:43
Speaker 3: a roadhouse and you look at Darden, and you look
3:45
Speaker 3: at what they've been able to do over the years,
3:47
Speaker 3: growing sales every year, expanding margins every year, doing the
3:50
Speaker 3: right things by the guest, and they don't really have
3:53
Speaker 3: secret sauce. It's about the fundamentals of casual diting, Like
3:55
Speaker 3: why do you go out to eat? Michael, Like, you
3:57
Speaker 3: go out because you want to have an hour with
3:59
Speaker 3: friends and family. And we're going to have some credible
4:01
Speaker 3: food and have it with great service and a fun,
4:03
Speaker 3: you know, friendly atmosphere. And that's what we wanted to
4:06
Speaker 3: get back to and that's why I took the job
4:07
Speaker 3: here at Chili's. And the team you know now that
4:11
Speaker 3: they've really been in lock to do the things that
4:13
Speaker 3: they know they need to do to make guests feel
4:14
Speaker 3: special and to support each other as team members. You know,
4:16
Speaker 3: the sky's limit on the business. You know, we focused
4:19
Speaker 3: on food, we focused on service, we focus on atmosphere,
4:22
Speaker 3: and we focused on making the team members job more fun, easier.
4:26
Speaker 2: And more rewarding.
4:27
Speaker 3: We've been able to do all those things in the
4:28
Speaker 3: last three years, and I think that's why we've had
4:30
Speaker 3: such tremendous growth. Fifteen consecutive quarters of same store sales growth.
4:34
Speaker 3: You know, our AUVs are up over fifty percent versus
4:36
Speaker 3: when I started, restaurant margins up five points. I mean,
4:39
Speaker 3: we are in a really good place. And the cool
4:42
Speaker 3: thing about this is that we're just getting started. There's
4:44
Speaker 3: more ahead of us on those fundamentals that we haven't
4:46
Speaker 3: changed yet than are behind us. So I feel like
4:48
Speaker 3: the sky's the limit for Chili's right now.
4:51
Speaker 1: Well, you know, last time we caught up you made
4:53
Speaker 1: a point of that, you know, you said, you know
4:56
Speaker 1: because I mentioned to you. Even though fourth quarter was
4:59
Speaker 1: a meaningful acceleration in your sales trends, you know, some
5:02
Speaker 1: investors were kind of concerned about your ability to comp
5:05
Speaker 1: the comp Let's say, but you know you're contending and
5:10
Speaker 1: you contend to you know, you said to me, it
5:11
Speaker 1: is like we still have a long way to go.
5:14
Speaker 1: We're in the early innings. Excuse the opening day baseball punt,
5:18
Speaker 1: but what are you working on right now? That's kind
5:22
Speaker 1: of maybe different, you know, that's going to keep the momentum.
5:25
Speaker 3: Yeah, you know, I get a question asked all the time,
5:27
Speaker 3: you know, how are you what you need to comp
5:29
Speaker 3: the comp? And uh, well, first of all, people don't realize, like,
5:31
Speaker 3: you know, we've been growing, you know, all twelve quarters,
5:34
Speaker 3: Like you know.
5:34
Speaker 2: I've been with this company and we've been we've been
5:35
Speaker 2: growing same store sales.
5:36
Speaker 3: So it's not like it's like everybody sees this plus
5:38
Speaker 3: thirty one and they're like, oh, they finally got it together.
5:42
Speaker 3: This has been happening for a while. And now you know,
5:44
Speaker 3: obviously we've been accelerating growth in the last few quarters
5:47
Speaker 3: because I think a lot of these things that we've
5:48
Speaker 3: been working on are coming together. But here's what I
5:51
Speaker 3: tell the team. As long as we continue to improve
5:54
Speaker 3: the fundamentals quarter after quarter, there's no reason why we
5:57
Speaker 3: can't comp the comp because if you look at the
5:58
Speaker 3: growth and how we're getting growth, it's not from like
6:01
Speaker 3: an lto or some kind of deep discount. And then
6:04
Speaker 3: we've got to figure out how to make the discount
6:06
Speaker 3: deeper the next year, and then eventually it will stop.
6:09
Speaker 3: You know, having the same efficacy that had when we
6:12
Speaker 3: first did it. You know, we're doing it with the
6:13
Speaker 3: fundamentals of casual dining. The food is better, the service
6:17
Speaker 3: is significantly better, the atmosphere is significantly better, and the
6:20
Speaker 3: team members are having a whole lot more fun and
6:22
Speaker 3: they're getting way more compensated because of the growth that
6:26
Speaker 3: we've had in the business.
6:27
Speaker 2: And so as long as.
6:27
Speaker 3: We continue to improve on those things, there's no reason
6:30
Speaker 3: why we wouldn't come the comp because we're not just
6:32
Speaker 3: getting boom splots. We're growing the business. It's maintaining that
6:35
Speaker 3: level until we get to the next big initiative. So
6:38
Speaker 3: you know, like for example, on food, you know, we
6:40
Speaker 3: fixed the core for that's about at the time when
6:43
Speaker 3: I started, it was forty percent of the business.
6:44
Speaker 2: It's now fifty percent of the business.
6:45
Speaker 3: That's chicken crispers, fajitas, margaritas, and burgers, and we just
6:50
Speaker 3: made those the best they could be. We expanded some
6:52
Speaker 3: of their presents on the menu. We got to a
6:54
Speaker 3: barbell strategy, so you can have an entry level price
6:56
Speaker 3: point and you can trade all the way up to
6:58
Speaker 3: whatever premium in those four segments. You know that's going
7:00
Speaker 3: to be finished as of this quarter when we do fajitas.
7:03
Speaker 3: We got the rest of the menu to go so
7:04
Speaker 3: q one of next year, which starts in July for us.
7:07
Speaker 3: We got a new Ribs relaunch that's coming that's just phenomenal.
7:10
Speaker 3: We've got a new Caeso coming. We've got a new
7:13
Speaker 3: trash can style nachos in the back half. You know,
7:15
Speaker 3: the planet is to get after things like steaks and salads.
7:18
Speaker 3: So it's actually more on the menu that we haven't
7:20
Speaker 3: touched than we have touched. And we're only as strong
7:23
Speaker 3: as our weakest thing on the menu, So we get
7:25
Speaker 3: everything up to like that high level that we know
7:28
Speaker 3: we can be at Chili's.
7:29
Speaker 2: I think this guy's loving for the business that's just
7:31
Speaker 2: one pillar. We also doing the same.
7:32
Speaker 3: Thing in service, We're doing the same thing in the atmosphere.
7:35
Speaker 3: So I just think there's a lot more runway for us.
7:38
Speaker 1: In our research, we've seen the ability to draw millennials
7:41
Speaker 1: and gen Z kind of correlates to same sotore sales outperformance,
7:45
Speaker 1: and you've done a great job resonating with those consumers.
7:48
Speaker 1: What are you seeing from the younger customers that are
7:52
Speaker 1: coming into your brand that makes you think, you know,
7:55
Speaker 1: the success with them can continue.
7:56
Speaker 2: Yeah.
7:57
Speaker 3: Well, the first thing is I think everybody sees the
7:59
Speaker 3: TikTok stuff like, Wow, they're just really winning with gen Z,
8:01
Speaker 3: and we are, and that's great, But I would say
8:03
Speaker 3: we're winning with every cohort right now. There's there's no
8:06
Speaker 3: corehord that's not growing. You know, gen Z is growing
8:08
Speaker 3: a little bit faster than the rest. They're talking about
8:10
Speaker 3: two points, but it's not like this. You know, fifty
8:12
Speaker 3: percent of the growth is coming just from young people.
8:15
Speaker 3: So it's a very balanced strategy, is the first thing
8:17
Speaker 3: I would tell you. The second thing is, I do
8:18
Speaker 3: think it's helpful to start bringing the next generation into chilies.
8:21
Speaker 3: You know, many of them have never even tried Chilis,
8:24
Speaker 3: and you know what's happening is we've been getting after
8:26
Speaker 3: social media in a lot bigger way. We're doing with
8:29
Speaker 3: menu items that young.
8:30
Speaker 2: People are excited about. So the Triple Dipper.
8:32
Speaker 3: Is really has been literally I mean it's been around
8:35
Speaker 3: for decades, but it's built for the younger generation because
8:37
Speaker 3: they like to like have lots of variety, lots of dipping,
8:40
Speaker 3: not commit to one entree.
8:42
Speaker 2: You can get multiple things.
8:43
Speaker 3: Eighty percent of the guests that come in in order
8:45
Speaker 3: to the Triple Dipper, that's what they eat their front of
8:46
Speaker 3: their entree because they like the variety that they get
8:48
Speaker 3: in it. So we use that item to kind of
8:50
Speaker 3: enter in the social media space in TikTok, and it's
8:53
Speaker 3: really exploded. I think people have a lot of fun
8:55
Speaker 3: with the different items they can get on a triple Dipper.
8:57
Speaker 3: And then when you actually get into the restaurant and
9:00
Speaker 3: you try the cheese pull that you see on TikTok,
9:02
Speaker 3: or you eat the honey Chipotle crispers, and it actually
9:05
Speaker 3: looks and tastes like what you see online, You're like,
9:08
Speaker 3: holy cow, Chili's low Key has gotten really, really good.
9:11
Speaker 3: And that's exactly what's happening, and they're like, Hey, this
9:13
Speaker 3: is going to be a part of our rotation. We're
9:14
Speaker 3: gonna come here every Thursday. We're gonna come here every month.
9:17
Speaker 3: And that's why the business is growing sustainably, is not
9:19
Speaker 3: just they're not just trying it and then we're waiting
9:21
Speaker 3: for the next trial driver. They're trying it and they're
9:23
Speaker 3: making it a part of the rotation. And that's where
9:26
Speaker 3: we wanted to be from day one. We talked about
9:28
Speaker 3: how do we get in your consideration set so that
9:30
Speaker 3: when you're thinking, hey, I'm in the mood for a
9:31
Speaker 3: margarita or I'm in the mood for text mes or
9:33
Speaker 3: whatever it is, at least you're considering chilies. Because if
9:36
Speaker 3: you're not considering Chili's, we have no chance of getting
9:38
Speaker 3: your trip. So we're now top of mind. We're delivering
9:41
Speaker 3: on the experience you're seeing in media, and that's why
9:43
Speaker 3: the business is sustainably growing.
9:44
Speaker 1: Yeah, that's what I was going to say. I was like,
9:46
Speaker 1: that's why it was so important for you to nail
9:47
Speaker 1: the ops first, right, so they don't they have a
9:50
Speaker 1: great experience.
9:51
Speaker 3: And then yeah, I think that's the big thing that
9:53
Speaker 3: I think a lot of people don't know about our story.
9:55
Speaker 3: And I ran into a restaurant CEO at a basketball
9:58
Speaker 3: game a couple months ago, and you can go gratulating
10:00
Speaker 3: me on the ten ninety nine meal and how good
10:02
Speaker 3: we were doing, and it's like he doesn't understand that
10:04
Speaker 3: we've been in the gym working out on the operation.
10:07
Speaker 3: The operation is so much improved. And you go to Chilis,
10:12
Speaker 3: you're going to have a good experience and you're gonna
10:14
Speaker 3: want to come back because it's fun, right, And when
10:16
Speaker 3: you when you can do that, the marketing, the marketing
10:18
Speaker 3: just gets so much more effective. And I was joking
10:20
Speaker 3: the other day, but I wasn't really joking with our
10:22
Speaker 3: team of like the number one driver wire marketing Oro.
10:25
Speaker 2: HASP skyrocketed so much.
10:27
Speaker 3: Is actually because the because the restaurant teams are doing
10:29
Speaker 3: a much stronger job delivering the experience. So when we
10:32
Speaker 3: put something on TV, we don't just get the spike,
10:35
Speaker 3: but we get to continued to repeat business. So it's
10:37
Speaker 3: an exciting time to be on this business.
10:39
Speaker 2: Yeah, that's cool.
10:40
Speaker 1: Alcohol mix is moderating for many of your competitors. What
10:43
Speaker 1: are you seeing?
10:44
Speaker 3: We really haven't seen much of a pullback in that
10:46
Speaker 3: you know. I think part of it is we have
10:48
Speaker 3: a really good barbell strategy. So yeah, we're still half
10:51
Speaker 3: of our drinks now or half of our market ratas
10:54
Speaker 3: are ten dollars are over, So that's more premium ones
10:56
Speaker 3: like you know, like a costam Egos or a Don Julio.
10:59
Speaker 3: But you know the majority of the units that we
11:01
Speaker 3: sell in Margarita's is our six dollars margarita a month.
11:04
Speaker 3: So you know, even though terrorists might be impacting tequila,
11:08
Speaker 3: or you go to a bar around here and you
11:09
Speaker 3: get a twenty dollars to margarita, you know, you can
11:12
Speaker 3: always come to Chili's. You don't need an app. It
11:14
Speaker 3: doesn't matter what time of day you come. You can
11:16
Speaker 3: always find a six dollars marguerite. And we make it
11:18
Speaker 3: with pretty good liquor, you know, name brand that you
11:21
Speaker 3: know and love, you know, fresh sour mix, all the
11:23
Speaker 3: things that you would expect with a high end margarita,
11:26
Speaker 3: but you get it for six bucks. And you know what,
11:27
Speaker 3: quite frankly, I think that helps us hold on to
11:29
Speaker 3: some incidents that otherwise would lose. So as long as
11:32
Speaker 3: we protect the opening price points and then allow customers
11:34
Speaker 3: to trade up for the ones that want to have
11:36
Speaker 3: something a little more premium. I think we're going to
11:37
Speaker 3: be okay on alcohol incidents.
11:40
Speaker 1: And you touched on tariffs. Do you think there'll be
11:43
Speaker 1: a significant tariff impact to your business?
11:45
Speaker 2: No, No, we know, we looked at it.
11:47
Speaker 3: It's probably about ten or ten to fifteen million dollar impact.
11:51
Speaker 2: There's nothing we can't management. I mean, we spend over a.
11:54
Speaker 3: Billion dollars in our COGS budget, so you know you're
11:57
Speaker 3: talking about about a point So we're going to manage
12:00
Speaker 3: it like we manage any other headwind. But that's not
12:03
Speaker 3: that that is not material to our business and we
12:05
Speaker 3: will have no problem getting through that.
12:07
Speaker 2: Okay.
12:07
Speaker 1: And I saw last quarter you reduced you can you
12:10
Speaker 1: continued to reduce SKUs some menu it.
12:13
Speaker 2: Yeah, well, and we'll continue to do that.
12:15
Speaker 3: So you know, part of the operational wins that we've
12:17
Speaker 3: had has not just been about investing in the labor.
12:20
Speaker 3: A big part of has been simplification. So you know,
12:23
Speaker 3: we reduced over twenty five percent of our menu. We've
12:26
Speaker 3: reduced a lot of prep steps, a lot of administrative
12:29
Speaker 3: things that we asked the managers to do, which prevents
12:32
Speaker 3: them from actually leading their teams or walking the floor
12:35
Speaker 3: and seeing how guests are doing. You know, for example, inventory,
12:38
Speaker 3: they don't inventory as often as they used to.
12:41
Speaker 2: They don't count all of the items every time.
12:43
Speaker 3: The inventory typically only the high cost items like alcohol
12:46
Speaker 3: or protein.
12:47
Speaker 2: So and we hear from the managers, this.
12:50
Speaker 3: Is so much easier today to work in a Chili's
12:52
Speaker 3: than it was three years ago. And there's still a
12:55
Speaker 3: lot more room for us to fix. So, you know,
12:58
Speaker 3: you know, I always it was like one simplification can end.
13:01
Speaker 2: I'm like, it's not.
13:02
Speaker 3: This is the way we do business now. And you know,
13:05
Speaker 3: every quarter I'm going to be getting an errings call
13:07
Speaker 3: and we'll go through the list of things that we
13:09
Speaker 3: rolled out for that quarter. That's going to simplify the
13:11
Speaker 3: restaurant because it's such an important part of our turnaround.
13:14
Speaker 1: Yeah, making place happier. And man, they hate taking inventory.
13:17
Speaker 1: So turbo chef ovens, how come they've been such a
13:22
Speaker 1: big hit with your operators? And how long to get
13:24
Speaker 1: them rolled out system wide?
13:26
Speaker 3: Yeah, so you're referring to is it's pretty awesome technology
13:31
Speaker 3: that allows you to replace There's a piece of equipment
13:34
Speaker 3: we have in the restaurant called it Impinger. It's basically
13:37
Speaker 3: a conveyor belt oven. Typically like QSR pizza concepts will
13:41
Speaker 3: use it. So you put an item on one end
13:44
Speaker 3: of the conveyor belt and then it slowly goes through
13:46
Speaker 3: an oven on the conveyor belt, comes out the other end,
13:49
Speaker 3: and it's you know, cooked perfectly in the ideal scenario.
13:53
Speaker 3: Those ovens, they tend to break down pretty frequently. They
13:56
Speaker 3: have a lot of moving parts, and when when the
13:59
Speaker 3: impinger is not working in a chilis, it is really
14:01
Speaker 3: hard to execute your venue. You gotta you know, you
14:03
Speaker 3: gotta hand an egg it across the other equipment. So
14:07
Speaker 3: we have this piece of equipment called turbo chefs that
14:09
Speaker 3: are much more reliable. They cook a lot faster, they're
14:12
Speaker 3: much more they cook much more evenly and consistently, and
14:16
Speaker 3: we put it.
14:17
Speaker 2: We've been testing it for a couple of years now.
14:19
Speaker 3: We've known that we've always wanted to move to it,
14:21
Speaker 3: but it'd be very expensive to write off the impingeride
14:24
Speaker 3: ovens as well as bringing in the new ovens. But
14:26
Speaker 3: we have a new rib recipe that we think we can.
14:29
Speaker 3: We're going to blow out the doors on and it
14:31
Speaker 3: requires having these turbos everywhere. It made it very easy
14:35
Speaker 3: for us to pay for the turbo chefs, so we
14:38
Speaker 3: decided to accelerate that We've nown sit in our last
14:40
Speaker 3: earnings call. So by the end of this quarter, we're
14:42
Speaker 3: gonna have turbo chefs in every restaurant, and then we're
14:44
Speaker 3: gonna be relaunching ribs in Q one. And I think
14:47
Speaker 3: anybody that tries our ribs after when we relaunch them,
14:49
Speaker 3: we're going to realize, boy, that was a good investment.
14:51
Speaker 1: It's nice when you're generating so much more cash than
14:53
Speaker 1: everyone expects, right, you can put more money into cap
14:56
Speaker 1: bags and investment.
14:57
Speaker 2: Yes, right, It's so funny.
14:59
Speaker 3: Like one of the big things that like I think
15:01
Speaker 3: I've learned in this turnaround has been, you know, whenever
15:04
Speaker 3: you get into a business that's that maybe things aren't
15:06
Speaker 3: going its way, A lot of it has to do
15:08
Speaker 3: with the bad habits that you've accumulated over the years
15:10
Speaker 3: because you've tried to claw back sales when things don't
15:13
Speaker 3: go your way, and then you put bad habits in
15:15
Speaker 3: the business that give you some short term relief on sales,
15:17
Speaker 3: but at the end of the day, it just makes
15:19
Speaker 3: it harder to do business. And we were pretty ruthless
15:21
Speaker 3: about removing all those bad habits in year one and
15:24
Speaker 3: year two, So things like having really bloated menus. Obviously,
15:28
Speaker 3: when you add items to a menu, that's going to
15:30
Speaker 3: give you sales, but if it doesn't grow your business enough,
15:33
Speaker 3: then you just have less same labor or less labor
15:36
Speaker 3: and you're trying to execute way more items. It's impossible.
15:39
Speaker 3: So we've ripped a lot of those smaller mixing items
15:42
Speaker 3: out of the business. We did a lot of discounting,
15:44
Speaker 3: which you know, brought in guests that I think, you know,
15:46
Speaker 3: really we're going to run across the.
15:48
Speaker 2: Street to the next big discount that they could get.
15:50
Speaker 3: Obviously, it costs us a lot of money that we
15:52
Speaker 3: can't plow into out of store advertising, you know, we
15:55
Speaker 3: got rid of most of that.
15:56
Speaker 2: We went to an everyday value she has you, which
15:58
Speaker 2: we have today.
15:59
Speaker 3: You know, And there's other bad habits in the business.
16:01
Speaker 3: But like when you pull those things out and then
16:04
Speaker 3: you get them to get them out of your base,
16:05
Speaker 3: and then you're able to reinvest in things that actually
16:08
Speaker 3: matter on the long term experience of the business, great
16:10
Speaker 3: things happen. And that's the lesson I want to take
16:12
Speaker 3: with me for the rest of my career is like
16:14
Speaker 3: like take the take the paint, get out of the
16:16
Speaker 3: bad habits, get them behind you, and then don't look back.
16:20
Speaker 1: Yeah, it was bold ripping out the discounting. At the
16:22
Speaker 1: time that you did, it was a time when the
16:25
Speaker 1: low income consumers first started pulling back. So kudos to
16:29
Speaker 1: you man. That was I'm sure not an easy decision
16:31
Speaker 1: to make.
16:32
Speaker 3: Yeah, you know, I felt like it was going to
16:34
Speaker 3: happen anyway, So it's like, what what does it matter.
16:36
Speaker 3: We've lost about two points of traffic when we did.
16:38
Speaker 3: I mean, we literally saw the inflection change in the business.
16:41
Speaker 3: And you know, once once we got out of our
16:43
Speaker 3: our base, we never looked back on that. And that
16:45
Speaker 3: was a lot of dollars that we are But like
16:46
Speaker 3: when I started, our marketing budget was about thirty or
16:49
Speaker 3: forty million dollars total and we're now over one hundred
16:52
Speaker 3: million dollars. One hundred and thirty million dollars I think
16:54
Speaker 3: is the last count. And you know, that's a big
16:56
Speaker 3: part of driving trial and knowing the business. So we've
16:58
Speaker 3: got money to work and to deploy into the business.
17:00
Speaker 3: That's you know, not just about a discount and attracting,
17:03
Speaker 3: you know, a new set of guests that are interested
17:05
Speaker 3: in our brand for what we're offering, not.
17:07
Speaker 2: Just how low a price we can offer.
17:09
Speaker 1: How's the strategic pricing work coming along, and how long
17:12
Speaker 1: will it take to implement pricing increases across the system.
17:15
Speaker 3: Well, I think strategic pricing is just going to be
17:17
Speaker 3: a way we do business, right, Like, obviously you've got
17:20
Speaker 3: mid single digit wage inflation. That's just the thing that
17:22
Speaker 3: we're going to It's just gonna be a thing in
17:24
Speaker 3: the business forever.
17:25
Speaker 2: Right.
17:25
Speaker 3: Obviously you've got some cogs challenges, you know, you know,
17:28
Speaker 3: it's moderated, it's like low single digits now, but it's
17:31
Speaker 3: still it's still not what it was you know, maybe
17:33
Speaker 3: ten years ago, right where you didn't really have much inflation.
17:36
Speaker 3: So you're always going to have to have some type
17:38
Speaker 3: of pricing into the business because what we don't want
17:41
Speaker 3: to do is allow pricing not to keep up with
17:44
Speaker 3: inflation and then we end up having to cut things
17:46
Speaker 3: like labor or repairs and maintenance, and then.
17:48
Speaker 2: We're back where we started three years ago.
17:50
Speaker 3: Right, So Jiji pricing will always be an important part
17:53
Speaker 3: of the business and making sure we keep up with
17:54
Speaker 3: the cost structure of the business.
17:57
Speaker 2: It's going really well.
17:58
Speaker 3: You know, we we partner with Deloitte to help us
18:00
Speaker 3: think through you know, how do we minimize any kind
18:02
Speaker 3: of traffic losses as we for the pricing that we
18:04
Speaker 3: have to deploy to the business. And generally speaking, it's
18:07
Speaker 3: worked for us. You know, you know if we look back,
18:09
Speaker 3: you know, three years later, so in they're turnaround right
18:12
Speaker 3: now where the where the value leaders in the industry.
18:14
Speaker 3: You know, we've been able to expand margins and expand
18:16
Speaker 3: you know ppa in check and are you know our
18:19
Speaker 3: we have record record profits, record EBA. So I feel
18:22
Speaker 3: like we've done a really good job managing pricing.
18:26
Speaker 2: Uh.
18:26
Speaker 1: Last time we spoke, you mentioned that customer tokenization and
18:29
Speaker 1: data mining is going to take a little bit longer
18:32
Speaker 1: than expected to move the needle. Is this a fiscal
18:34
Speaker 1: twenty twenty six story.
18:37
Speaker 3: Yeah, you know, I don't know how much of that
18:39
Speaker 3: is going to be like a CRM loyalty driver. Like
18:42
Speaker 3: what I think now is is the big idea is
18:44
Speaker 3: like how do we mind the data so that we
18:45
Speaker 3: understand the impact of the initiatives that we deployed the
18:49
Speaker 3: Is it so like, for example, we relaunched RIBS, it'd
18:51
Speaker 3: be really helpful to understand who's coming in. After they
18:54
Speaker 3: come in and try their ribs, are they coming back
18:56
Speaker 3: like these? This is all tokenization and transaction level data
18:59
Speaker 3: can give us. That's a very Those are very valuable
19:01
Speaker 3: pieces of data, more so than even just be able
19:03
Speaker 3: to market with them. You know, when we first tokenized
19:06
Speaker 3: the data, we all got really excited and we learned, hey,
19:09
Speaker 3: you got to go to a third party and spend
19:11
Speaker 3: you know, six figures every time you want to pull
19:13
Speaker 3: the data go.
19:13
Speaker 2: That doesn't work.
19:14
Speaker 3: That's not you know, that's not a practical way to
19:16
Speaker 3: run the business. And so we've got a new leader,
19:19
Speaker 3: Alex Knight, Senior director for Data Analytics.
19:22
Speaker 2: He's going to clean that all lot up.
19:23
Speaker 3: He's going to bring some of that analysis in house
19:26
Speaker 3: so we'll be able to get a reporting just like
19:28
Speaker 3: we have sales reports and we have tons of data
19:30
Speaker 3: and reporting.
19:31
Speaker 2: That comes out.
19:31
Speaker 3: Why can't I can't it be at the transaction level
19:33
Speaker 3: with tokens And so Alex is working on that. So
19:36
Speaker 3: I think once we get that in place, I think
19:38
Speaker 3: it's going to be a lot easier to be able
19:39
Speaker 3: to share with the investor community how we're doing on
19:42
Speaker 3: things like frequency and penetration, and more importantly, it's going
19:45
Speaker 3: to help us understand the impact of our initiatives. So,
19:48
Speaker 3: you know, I think it's probably going to be a
19:50
Speaker 3: fiscal twenty six when it's done, but you know, we
19:53
Speaker 3: won't know until until we get a little bit more
19:55
Speaker 3: line of sight.
19:55
Speaker 2: On the plan.
19:57
Speaker 1: Let's not forget about Maggiano's. What are you focused on there?
20:01
Speaker 1: And when? You know, when can we expect traffic to
20:04
Speaker 1: turn positive?
20:05
Speaker 2: Yeah?
20:05
Speaker 3: So, so maj is going through a similar turnaround that
20:08
Speaker 3: Chili's did. There are a lot of bad habits in
20:09
Speaker 3: the business that we put in there.
20:10
Speaker 2: You know.
20:11
Speaker 3: We had we had this thing, this take home pasta
20:14
Speaker 3: that we charged six bucks for and we'd have you know,
20:16
Speaker 3: a cook every couple of days make a bunch, you know,
20:19
Speaker 3: a bunch of like, you know, pastas, and package them
20:21
Speaker 3: up and put them in the fridge. And we would
20:23
Speaker 3: sell five different variants that and the poor server would
20:26
Speaker 3: have to sell that. So after he took your order
20:28
Speaker 3: at the end of that, he'd say, hey, do you
20:29
Speaker 3: want to buy you know, a six dollars take home
20:31
Speaker 3: pasta after you finish your dinner?
20:32
Speaker 2: I mean it's just odd, right, So he got.
20:34
Speaker 3: Rid of that thing we got rid of we double
20:37
Speaker 3: your pasta for for five dollars. That's a form of
20:41
Speaker 3: discounting that creates a false sense of traffic when there's
20:43
Speaker 3: not really traffic. It's just mixed, and a bunch of
20:46
Speaker 3: other things that we were doing a lot of coup
20:48
Speaker 3: onting on the business.
20:49
Speaker 2: So we're in that.
20:50
Speaker 3: We're kind of in that year one that Chilie was
20:52
Speaker 3: in on the turnaround, which is get rid of the
20:54
Speaker 3: bad habits, take the hit on traffic. So there's probably
20:57
Speaker 3: a three or four point hit on traffic from all
21:00
Speaker 3: the things that we're changing in the business. And then
21:01
Speaker 3: obviously you got the macro and they're not quite having,
21:04
Speaker 3: you know, the same experience that chili'ses have in terms
21:06
Speaker 3: of being able to fight the macro.
21:08
Speaker 2: So you know, this year one, I think you're.
21:10
Speaker 3: Gonna see, just like Chili's traffic decline, sales are going
21:13
Speaker 3: to hang in there. We're going to improve profitability, and
21:15
Speaker 3: then as we deploy the investments in the business, I
21:17
Speaker 3: think you're going to see it get better in year two.
21:19
Speaker 3: You know, it took five quarters for us at Chili's
21:22
Speaker 3: to start changing the trend in traffic, and then it
21:24
Speaker 3: took seven quarters to actually go positive on traffic, So
21:28
Speaker 3: I think we're probably at least a year away from
21:30
Speaker 3: seeing meaningful traffic changes in ma Gianos. But it does
21:33
Speaker 3: feel like they're working on the right things, improving the service,
21:36
Speaker 3: improving the food, and getting rid of the bad habits.
21:39
Speaker 2: So I don't know why it wouldn't work a year
21:41
Speaker 2: from now, but we'll see, you know, we'll see, like
21:43
Speaker 2: everybody else.
21:44
Speaker 1: Good stuff. Lisa adjusted leverage fell to two point three
21:48
Speaker 1: times at the end of fiscal two Q What are
21:50
Speaker 1: your plans for excess cash this year and next and
21:53
Speaker 1: should we expect buybacks to accelerate.
21:55
Speaker 3: Yeah, we've been real clear on like our capulication strategy,
21:58
Speaker 3: which is number one we want to support of business,
22:01
Speaker 3: so like we you know, we slowed down new builds,
22:03
Speaker 3: like we we we've been very late, and you know
22:06
Speaker 3: we we have been doing minimal share buybacks to basically
22:08
Speaker 3: offset delution. Very focused on making sure what does the
22:12
Speaker 3: business need to get it back on track, so like
22:15
Speaker 3: repairs and maintenance, labor, investments in food, like all the
22:18
Speaker 3: right things that you need to do. So that's kind
22:20
Speaker 3: of priority one that's not going to change, Like everybody's like,
22:23
Speaker 3: you know, when are you going to start, you know,
22:25
Speaker 3: giving dollars back to the shareholder.
22:26
Speaker 2: And it's like, well, how.
22:27
Speaker 3: About we continue to deliver great comp results, right, and
22:30
Speaker 3: that'll just give us more options in the future.
22:32
Speaker 2: That's number one.
22:33
Speaker 3: Number two is I want to get our debt down
22:35
Speaker 3: to zero because we have a ton of debt with
22:37
Speaker 3: our leases, so there's no reason to have additional debt
22:40
Speaker 3: beyond that. So we've paid down about six hundred million
22:44
Speaker 3: dollars a debt was actually, yeah, six hundred million dollars
22:47
Speaker 3: a debt since I started. You know, I'd like to
22:50
Speaker 3: get that to zero. Eventually we'll have the revolver. We
22:53
Speaker 3: expect down in the next twelve to eighteen months will
22:55
Speaker 3: be the revolver will be down to zero. So that
22:56
Speaker 3: I'll just leave one bond that we have outstanding. Don't
22:59
Speaker 3: know if we can retire early or not, we'll take
23:01
Speaker 3: a look at it. But like after that, after we
23:03
Speaker 3: retire our debt, that we're going to look at returning
23:07
Speaker 3: cash to shareholders. And you know, we look at our projections,
23:10
Speaker 3: We're gonna have a lot of options by that time, right,
23:12
Speaker 3: so you know that could be share buybacks, that probably
23:15
Speaker 3: be our preferred method, but at some.
23:17
Speaker 2: Point maybe we'd be in state of dividend.
23:19
Speaker 3: But you know, the good news is things are looking
23:21
Speaker 3: real positive from the cash flow standpoints, so it's going
23:24
Speaker 3: to give us a lot of options in the future
23:26
Speaker 3: to reconsider that for sure.
23:28
Speaker 1: All right now, the real important question, what's your favorite
23:30
Speaker 1: orders at both chains?
23:33
Speaker 3: Well, at Chili's, you know, I don't think you can
23:35
Speaker 3: go wrong with the burger personally, Like I just I mean,
23:37
Speaker 3: I love hamburgers to start, but like, I actually think
23:40
Speaker 3: we have the best burger in the industry. I just
23:42
Speaker 3: think it's so darn good, and I'm pretty objective person like,
23:46
Speaker 3: you know, I wouldn't just be like a Homer on it.
23:49
Speaker 3: But to me, that's I think the best product that
23:51
Speaker 3: we make is incredible and the values unbelievable. At ten
23:54
Speaker 3: ninety nine, you know, we've we've really done a good
23:56
Speaker 3: job of improving our fry recipe too, So I mean,
23:59
Speaker 3: you're getting a good burger and fries at ten ninety nine,
24:01
Speaker 3: I think that thing is unbeatable. And then UH for Maggiano's,
24:06
Speaker 3: my favorite is the UH I love to get. So
24:09
Speaker 3: it's a little bit of a menu hack because I
24:11
Speaker 3: want to eat the whole thing, and the Maggiano's portions.
24:13
Speaker 2: Are so big.
24:15
Speaker 3: But I'll get the the shrimp fridayavlo, but I'll get
24:18
Speaker 3: it put over broccoli instead of pasta, so I can
24:20
Speaker 3: eat the whole thing and and not feel bad about it.
24:23
Speaker 2: Right, But I mean it's like that.
24:24
Speaker 3: I mean, let's be honest, It's a few servings on
24:26
Speaker 3: that ball. So the value is so good on it.
24:29
Speaker 3: So when you do that, at least you can eat
24:30
Speaker 3: all the shrimp. I mean, the number of shrimps you
24:32
Speaker 3: get on it's humblu It's it is so good and
24:34
Speaker 3: it's such a good value. So but there's also a
24:37
Speaker 3: bunch of new items coming out of Maggianos now, like
24:39
Speaker 3: the fetichini alfredo that we just launched last week. It's
24:42
Speaker 3: probably the best vetichini alfredo I've ever tasted. Like I
24:44
Speaker 3: was like, guys, you guys should name this the world's
24:46
Speaker 3: greatest alfredo, Like people have never had something like this.
24:49
Speaker 3: Our new chicken palm is absolutely incredible, super crispy, super flavorful.
24:54
Speaker 3: So we have we have a new chef there, Anthony,
24:57
Speaker 3: who was a he was he won Iron chef. He
24:59
Speaker 3: beat U chef Masjiro Morimoto in the Bronzino Battle and
25:04
Speaker 3: now he is doing battle ma Giano's to make our
25:07
Speaker 3: menu incredible.
25:08
Speaker 2: He's doing a phenomenal job.
25:10
Speaker 1: That's cool, man. This has been fun. It's it's been
25:12
Speaker 1: a lot of fun following the story. Thanks again for
25:14
Speaker 1: doing this. Uh, why don't you tell the audience where
25:17
Speaker 1: to find their closest Chilis and ma Gianos in which
25:19
Speaker 1: social media channels they should be following the brands on?
25:22
Speaker 2: Okay?
25:23
Speaker 3: Yeah, so, well, you can just go to like Chilis
25:25
Speaker 3: dot Comramagianos dot com to find out where your local
25:28
Speaker 3: one is. And there's only fifty Magianos, so you may
25:30
Speaker 3: not be able to find one, unfortunately. But the good
25:32
Speaker 3: news this is a ton of Chilis. You're definitely gonna
25:34
Speaker 3: be able to find one close to you. And then,
25:36
Speaker 3: you know, I'd recommend you follow that the Chili's has
25:39
Speaker 3: an unbelievable Twitter feed and Instagram feed as well as
25:42
Speaker 3: our TikTok, so we have an incredible social media manager
25:47
Speaker 3: or social media team I should say that does a
25:49
Speaker 3: great job. And then and then Magiano is just getting started,
25:51
Speaker 3: so they're probably on Facebook is probably where you connect
25:54
Speaker 3: with them, But we got a new marketer to there,
25:56
Speaker 3: Mike Wesley, the VP of marketing, who's I think going
25:58
Speaker 3: to take their marketing to.
26:00
Speaker 2: In pretty big heights.
26:00
Speaker 3: He worked with George and I at Young Brands too,
26:02
Speaker 3: so he knows a thing or two about resuscitating brand.
26:05
Speaker 3: So I'm excited about to see what Machias.
26:08
Speaker 2: Is going to do too.
26:09
Speaker 3: But you can't go wrong with either brand, so you know,
26:12
Speaker 3: make sure you get out there and enjoy very cool.
26:15
Speaker 1: I want to thank the audience for tuning in. If
26:17
Speaker 1: you like the discussion, please share it with your friends
26:19
Speaker 1: and colleagues. Check back next week for an interview with
26:22
Speaker 1: Alex Mercedo, the co founder and CEO of Authentic Restaurant
26:26
Speaker 1: Brands