April 1, 2025 • 26 mins
Chili’s accelerated sales growth is sustainable because the company is working with the fundamentals of casual dining — the food, service and atmosphere are all better and team members are having more fun and making more money — Brinker’s CEO Kevin Hochman tells Bloomberg Intelligence. In this episode of the Choppin’ It Up podcast, Hochman sits down with BI’s senior restaurant and foodservice analyst Michael Halen to discuss why he believes Chili’s turnaround remains in the early innings. He also comments on menu simplification, strategic pricing and the importance of the Turbo Chef oven rollout, as well as improving sales and profitability at Maggiano’s.
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Episode Transcript
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Speaker 1 (00:13):
Welcome to Chopping It Up. I'm your host, Mike Hanlon,
the senior Restaurant and food Service analyst at Bloomberg Intelligence.
Our research and that of bi's five hundred analysts around
the globe can be found exclusively on the Bloomberg terminal.
If you enjoy the pod, I'd love it if you
could leave us a review on Apple or Spotify. Today
we're joined by Kevin Hakman Brinker CEO. Thanks for joining
(00:34):
me here in our New York studio.
Speaker 2 (00:36):
Kevin, Well, thanks for having me.
Speaker 3 (00:37):
Michael, I am a consumer of your pod, so I
appreciate you having me it.
Speaker 2 (00:41):
Oh, that's cool.
Speaker 1 (00:42):
I appreciate you. I appreciate you listening in. I woke
up to big news yesterday the opening of the Chili
Scranton branch.
Speaker 2 (00:50):
Yes.
Speaker 3 (00:50):
Well, we were on a very famous show almost twenty
years ago to the day, and.
Speaker 2 (00:57):
They ate that the.
Speaker 3 (00:58):
Chili's in Scranton, and we do not have a Chilis
in Scranton, believe it or not.
Speaker 2 (01:04):
It's funny.
Speaker 3 (01:04):
We tape some of that content with many of the
actors from that show and our guy on the ground,
Jesse Johnson. He does a lot of our advertising. He welcome,
he said, we welcome back to Scranton, and they're all like, hey,
we've never been to Scranton.
Speaker 2 (01:20):
All this was filmed in la so this was a
new experience for many of the actors of that show.
Speaker 3 (01:25):
And you know, so we basically have replicated the two
thousand and five Chilies that was in that episode to
the very details of the booths, etc.
Speaker 2 (01:34):
And it will.
Speaker 3 (01:35):
Also be the only Chilies in the world that now
sells the Awesome Blossom, which was you know, our version
of the bloomin Onion when that was a big business
war back in two thousand and five. So if you
want an Awesome Blossom at Chilies, there is one.
Speaker 2 (01:51):
You can go to, and that's in Scranton.
Speaker 1 (01:52):
Pennsylvania, only about a two and a half hour drive
from Awesome Manhattan. Chili's Lifetime move I'll be home from
Margarite today was pretty fantastic, by the way. I caught
that recently. So your marketing team has been busy.
Speaker 3 (02:08):
Yeah, Well, first of all, I didn't know you were
a lifetime movie fan, so I'm learning somebody.
Speaker 2 (02:12):
New about you every day. You know.
Speaker 3 (02:14):
You know our marketing team, you know, we're focused on
a couple of things. It's sales overnight and brand over time.
Sales every night is about driving you know, people and
traffic into our restaurants, and then brand over time is
where do we want to be positioned in the market.
Speaker 2 (02:25):
Right, And when Chili's was at its.
Speaker 3 (02:27):
Best, when we were growing in the eighties and the nineties,
we were about Margarita's, we were about Fahidas, we were
about chicken crispers, we were about ribs, and we're bringing
all these things back right. You know, it's funny, like
we've had this incredible success and you go across the
country talking to managers, many of them in the business
twenty thirty, some even forty years, and they're like, it
feels like Chili's again. Like it feels like we're back
(02:49):
to you know, slinging and having really busy restaurants, and
the team members are having fun with the guests, and
the guests are having fun with the team members. So
it definitely is a little bit of throwback. Right now,
based on the growth that we've had, it just feels
like we're an upstart, new brand.
Speaker 1 (03:03):
It's fun. It's fun to watch, you know, sam store
sales in the US up more than thirty percent in
calendar for Q you're comping over a five plus percent
result in the year prior, So absolutely unheard of for
a mature brand. For the listeners that haven't been following
this story as Colsey as I have and we have
(03:25):
on the street, what were the primary drivers.
Speaker 2 (03:27):
Of the group. Yeah, you know, it's interesting.
Speaker 3 (03:29):
A lot of people ask me, like when I took
this job, You're like, oh, isn't casual dining dead? And like,
I can't believe you took that job. And it's like, well,
if I believe that casual dining was dead, why would I.
Speaker 2 (03:37):
Ever take this job? Right?
Speaker 3 (03:38):
And there's some big leaders out there, you know, I'm
not afraid to say it publicly. Like you look at
a roadhouse and you look at Darden, and you look
at what they've been able to do over the years,
growing sales every year, expanding margins every year, doing the
right things by the guest, and they don't really have
secret sauce. It's about the fundamentals of casual diting, Like
why do you go out to eat? Michael, Like, you
go out because you want to have an hour with
(03:59):
friends and family. And we're going to have some credible
food and have it with great service and a fun,
you know, friendly atmosphere. And that's what we wanted to
get back to and that's why I took the job
here at Chili's. And the team you know now that
they've really been in lock to do the things that
they know they need to do to make guests feel
special and to support each other as team members. You know,
the sky's limit on the business. You know, we focused
on food, we focused on service, we focus on atmosphere,
(04:22):
and we focused on making the team members job more fun, easier.
Speaker 2 (04:26):
And more rewarding.
Speaker 3 (04:27):
We've been able to do all those things in the
last three years, and I think that's why we've had
such tremendous growth. Fifteen consecutive quarters of same store sales growth.
You know, our AUVs are up over fifty percent versus
when I started, restaurant margins up five points. I mean,
we are in a really good place. And the cool
thing about this is that we're just getting started. There's
more ahead of us on those fundamentals that we haven't
changed yet than are behind us. So I feel like
(04:48):
the sky's the limit for Chili's right now.
Speaker 1 (04:51):
Well, you know, last time we caught up you made
a point of that, you know, you said, you know
because I mentioned to you. Even though fourth quarter was
a meaningful acceleration in your sales trends, you know, some
investors were kind of concerned about your ability to comp
the comp Let's say, but you know you're contending and
you contend to you know, you said to me, it
(05:11):
is like we still have a long way to go.
We're in the early innings. Excuse the opening day baseball punt,
but what are you working on right now? That's kind
of maybe different, you know, that's going to keep the momentum.
Speaker 3 (05:25):
Yeah, you know, I get a question asked all the time,
you know, how are you what you need to comp
the comp? And uh, well, first of all, people don't realize, like,
you know, we've been growing, you know, all twelve quarters,
Like you know.
Speaker 2 (05:34):
I've been with this company and we've been we've been
growing same store sales.
Speaker 3 (05:36):
So it's not like it's like everybody sees this plus
thirty one and they're like, oh, they finally got it together.
This has been happening for a while. And now you know,
obviously we've been accelerating growth in the last few quarters
because I think a lot of these things that we've
been working on are coming together. But here's what I
tell the team. As long as we continue to improve
the fundamentals quarter after quarter, there's no reason why we
(05:57):
can't comp the comp because if you look at the
growth and how we're getting growth, it's not from like
an lto or some kind of deep discount. And then
we've got to figure out how to make the discount
deeper the next year, and then eventually it will stop.
You know, having the same efficacy that had when we
first did it. You know, we're doing it with the
fundamentals of casual dining. The food is better, the service
(06:17):
is significantly better, the atmosphere is significantly better, and the
team members are having a whole lot more fun and
they're getting way more compensated because of the growth that
we've had in the business.
Speaker 2 (06:27):
And so as long as.
Speaker 3 (06:27):
We continue to improve on those things, there's no reason
why we wouldn't come the comp because we're not just
getting boom splots. We're growing the business. It's maintaining that
level until we get to the next big initiative. So
you know, like for example, on food, you know, we
fixed the core for that's about at the time when
I started, it was forty percent of the business.
Speaker 2 (06:44):
It's now fifty percent of the business.
Speaker 3 (06:45):
That's chicken crispers, fajitas, margaritas, and burgers, and we just
made those the best they could be. We expanded some
of their presents on the menu. We got to a
barbell strategy, so you can have an entry level price
point and you can trade all the way up to
whatever premium in those four segments. You know that's going
to be finished as of this quarter when we do fajitas.
We got the rest of the menu to go so
q one of next year, which starts in July for us.
(07:07):
We got a new Ribs relaunch that's coming that's just phenomenal.
We've got a new Caeso coming. We've got a new
trash can style nachos in the back half. You know,
the planet is to get after things like steaks and salads.
So it's actually more on the menu that we haven't
touched than we have touched. And we're only as strong
as our weakest thing on the menu, So we get
everything up to like that high level that we know
(07:28):
we can be at Chili's.
Speaker 2 (07:29):
I think this guy's loving for the business that's just
one pillar. We also doing the same.
Speaker 3 (07:32):
Thing in service, We're doing the same thing in the atmosphere.
So I just think there's a lot more runway for us.
Speaker 1 (07:38):
In our research, we've seen the ability to draw millennials
and gen Z kind of correlates to same sotore sales outperformance,
and you've done a great job resonating with those consumers.
What are you seeing from the younger customers that are
coming into your brand that makes you think, you know,
the success with them can continue.
Speaker 2 (07:56):
Yeah.
Speaker 3 (07:57):
Well, the first thing is I think everybody sees the
TikTok stuff like, Wow, they're just really winning with gen Z,
and we are, and that's great, But I would say
we're winning with every cohort right now. There's there's no
corehord that's not growing. You know, gen Z is growing
a little bit faster than the rest. They're talking about
two points, but it's not like this. You know, fifty
percent of the growth is coming just from young people.
So it's a very balanced strategy, is the first thing
I would tell you. The second thing is, I do
(08:18):
think it's helpful to start bringing the next generation into chilies.
You know, many of them have never even tried Chilis,
and you know what's happening is we've been getting after
social media in a lot bigger way. We're doing with
menu items that young.
Speaker 2 (08:30):
People are excited about. So the Triple Dipper.
Speaker 3 (08:32):
Is really has been literally I mean it's been around
for decades, but it's built for the younger generation because
they like to like have lots of variety, lots of dipping,
not commit to one entree.
Speaker 2 (08:42):
You can get multiple things.
Speaker 3 (08:43):
Eighty percent of the guests that come in in order
to the Triple Dipper, that's what they eat their front of
their entree because they like the variety that they get
in it. So we use that item to kind of
enter in the social media space in TikTok, and it's
really exploded. I think people have a lot of fun
with the different items they can get on a triple Dipper.
And then when you actually get into the restaurant and
you try the cheese pull that you see on TikTok,
or you eat the honey Chipotle crispers, and it actually
(09:05):
looks and tastes like what you see online, You're like,
holy cow, Chili's low Key has gotten really, really good.
And that's exactly what's happening, and they're like, Hey, this
is going to be a part of our rotation. We're
gonna come here every Thursday. We're gonna come here every month.
And that's why the business is growing sustainably, is not
just they're not just trying it and then we're waiting
for the next trial driver. They're trying it and they're
making it a part of the rotation. And that's where
(09:26):
we wanted to be from day one. We talked about
how do we get in your consideration set so that
when you're thinking, hey, I'm in the mood for a
margarita or I'm in the mood for text mes or
whatever it is, at least you're considering chilies. Because if
you're not considering Chili's, we have no chance of getting
your trip. So we're now top of mind. We're delivering
on the experience you're seeing in media, and that's why
the business is sustainably growing.
Speaker 1 (09:44):
Yeah, that's what I was going to say. I was like,
that's why it was so important for you to nail
the ops first, right, so they don't they have a
great experience.
Speaker 3 (09:51):
And then yeah, I think that's the big thing that
I think a lot of people don't know about our story.
And I ran into a restaurant CEO at a basketball
game a couple months ago, and you can go gratulating
me on the ten ninety nine meal and how good
we were doing, and it's like he doesn't understand that
we've been in the gym working out on the operation.
The operation is so much improved. And you go to Chilis,
(10:12):
you're going to have a good experience and you're gonna
want to come back because it's fun, right, And when
you when you can do that, the marketing, the marketing
just gets so much more effective. And I was joking
the other day, but I wasn't really joking with our
team of like the number one driver wire marketing Oro.
Speaker 2 (10:25):
HASP skyrocketed so much.
Speaker 3 (10:27):
Is actually because the because the restaurant teams are doing
a much stronger job delivering the experience. So when we
put something on TV, we don't just get the spike,
but we get to continued to repeat business. So it's
an exciting time to be on this business.
Speaker 2 (10:39):
Yeah, that's cool.
Speaker 1 (10:40):
Alcohol mix is moderating for many of your competitors. What
are you seeing?
Speaker 3 (10:44):
We really haven't seen much of a pullback in that
you know. I think part of it is we have
a really good barbell strategy. So yeah, we're still half
of our drinks now or half of our market ratas
are ten dollars are over, So that's more premium ones
like you know, like a costam Egos or a Don Julio.
But you know the majority of the units that we
sell in Margarita's is our six dollars margarita a month.
So you know, even though terrorists might be impacting tequila,
(11:08):
or you go to a bar around here and you
get a twenty dollars to margarita, you know, you can
always come to Chili's. You don't need an app. It
doesn't matter what time of day you come. You can
always find a six dollars marguerite. And we make it
with pretty good liquor, you know, name brand that you
know and love, you know, fresh sour mix, all the
things that you would expect with a high end margarita,
but you get it for six bucks. And you know what,
quite frankly, I think that helps us hold on to
(11:29):
some incidents that otherwise would lose. So as long as
we protect the opening price points and then allow customers
to trade up for the ones that want to have
something a little more premium. I think we're going to
be okay on alcohol incidents.
Speaker 1 (11:40):
And you touched on tariffs. Do you think there'll be
a significant tariff impact to your business?
Speaker 2 (11:45):
No, No, we know, we looked at it.
Speaker 3 (11:47):
It's probably about ten or ten to fifteen million dollar impact.
Speaker 2 (11:51):
There's nothing we can't management. I mean, we spend over a.
Speaker 3 (11:54):
Billion dollars in our COGS budget, so you know you're
talking about about a point So we're going to manage
it like we manage any other headwind. But that's not
that that is not material to our business and we
will have no problem getting through that.
Speaker 2 (12:07):
Okay.
Speaker 1 (12:07):
And I saw last quarter you reduced you can you
continued to reduce SKUs some menu it.
Speaker 2 (12:13):
Yeah, well, and we'll continue to do that.
Speaker 3 (12:15):
So you know, part of the operational wins that we've
had has not just been about investing in the labor.
A big part of has been simplification. So you know,
we reduced over twenty five percent of our menu. We've
reduced a lot of prep steps, a lot of administrative
things that we asked the managers to do, which prevents
them from actually leading their teams or walking the floor
(12:35):
and seeing how guests are doing. You know, for example, inventory,
they don't inventory as often as they used to.
Speaker 2 (12:41):
They don't count all of the items every time.
Speaker 3 (12:43):
The inventory typically only the high cost items like alcohol
or protein.
Speaker 2 (12:47):
So and we hear from the managers, this.
Speaker 3 (12:50):
Is so much easier today to work in a Chili's
than it was three years ago. And there's still a
lot more room for us to fix. So, you know,
you know, I always it was like one simplification can end.
Speaker 2 (13:01):
I'm like, it's not.
Speaker 3 (13:02):
This is the way we do business now. And you know,
every quarter I'm going to be getting an errings call
and we'll go through the list of things that we
rolled out for that quarter. That's going to simplify the
restaurant because it's such an important part of our turnaround.
Speaker 1 (13:14):
Yeah, making place happier. And man, they hate taking inventory.
So turbo chef ovens, how come they've been such a
big hit with your operators? And how long to get
them rolled out system wide?
Speaker 3 (13:26):
Yeah, so you're referring to is it's pretty awesome technology
that allows you to replace There's a piece of equipment
we have in the restaurant called it Impinger. It's basically
a conveyor belt oven. Typically like QSR pizza concepts will
use it. So you put an item on one end
of the conveyor belt and then it slowly goes through
an oven on the conveyor belt, comes out the other end,
(13:49):
and it's you know, cooked perfectly in the ideal scenario.
Those ovens, they tend to break down pretty frequently. They
have a lot of moving parts, and when when the
impinger is not working in a chilis, it is really
hard to execute your venue. You gotta you know, you
gotta hand an egg it across the other equipment. So
we have this piece of equipment called turbo chefs that
(14:09):
are much more reliable. They cook a lot faster, they're
much more they cook much more evenly and consistently, and
we put it.
Speaker 2 (14:17):
We've been testing it for a couple of years now.
Speaker 3 (14:19):
We've known that we've always wanted to move to it,
but it'd be very expensive to write off the impingeride
ovens as well as bringing in the new ovens. But
we have a new rib recipe that we think we can.
We're going to blow out the doors on and it
requires having these turbos everywhere. It made it very easy
for us to pay for the turbo chefs, so we
decided to accelerate that We've nown sit in our last
(14:40):
earnings call. So by the end of this quarter, we're
gonna have turbo chefs in every restaurant, and then we're
gonna be relaunching ribs in Q one. And I think
anybody that tries our ribs after when we relaunch them,
we're going to realize, boy, that was a good investment.
Speaker 1 (14:51):
It's nice when you're generating so much more cash than
everyone expects, right, you can put more money into cap
bags and investment.
Speaker 2 (14:57):
Yes, right, It's so funny.
Speaker 3 (14:59):
Like one of the big things that like I think
I've learned in this turnaround has been, you know, whenever
you get into a business that's that maybe things aren't
going its way, A lot of it has to do
with the bad habits that you've accumulated over the years
because you've tried to claw back sales when things don't
go your way, and then you put bad habits in
the business that give you some short term relief on sales,
but at the end of the day, it just makes
it harder to do business. And we were pretty ruthless
(15:21):
about removing all those bad habits in year one and
year two, So things like having really bloated menus. Obviously,
when you add items to a menu, that's going to
give you sales, but if it doesn't grow your business enough,
then you just have less same labor or less labor
and you're trying to execute way more items. It's impossible.
So we've ripped a lot of those smaller mixing items
(15:42):
out of the business. We did a lot of discounting,
which you know, brought in guests that I think, you know,
really we're going to run across the.
Speaker 2 (15:48):
Street to the next big discount that they could get.
Speaker 3 (15:50):
Obviously, it costs us a lot of money that we
can't plow into out of store advertising, you know, we
got rid of most of that.
Speaker 2 (15:56):
We went to an everyday value she has you, which
we have today.
Speaker 3 (15:59):
You know, And there's other bad habits in the business.
But like when you pull those things out and then
you get them to get them out of your base,
and then you're able to reinvest in things that actually
matter on the long term experience of the business, great
things happen. And that's the lesson I want to take
with me for the rest of my career is like
like take the take the paint, get out of the
bad habits, get them behind you, and then don't look back.
Speaker 1 (16:20):
Yeah, it was bold ripping out the discounting. At the
time that you did, it was a time when the
low income consumers first started pulling back. So kudos to
you man. That was I'm sure not an easy decision
to make.
Speaker 3 (16:32):
Yeah, you know, I felt like it was going to
happen anyway, So it's like, what what does it matter.
We've lost about two points of traffic when we did.
I mean, we literally saw the inflection change in the business.
And you know, once once we got out of our
our base, we never looked back on that. And that
was a lot of dollars that we are But like
when I started, our marketing budget was about thirty or
forty million dollars total and we're now over one hundred
(16:52):
million dollars. One hundred and thirty million dollars I think
is the last count. And you know, that's a big
part of driving trial and knowing the business. So we've
got money to work and to deploy into the business.
That's you know, not just about a discount and attracting,
you know, a new set of guests that are interested
in our brand for what we're offering, not.
Speaker 2 (17:07):
Just how low a price we can offer.
Speaker 1 (17:09):
How's the strategic pricing work coming along, and how long
will it take to implement pricing increases across the system.
Speaker 3 (17:15):
Well, I think strategic pricing is just going to be
a way we do business, right, Like, obviously you've got
mid single digit wage inflation. That's just the thing that
we're going to It's just gonna be a thing in
the business forever.
Speaker 2 (17:25):
Right.
Speaker 3 (17:25):
Obviously you've got some cogs challenges, you know, you know,
it's moderated, it's like low single digits now, but it's
still it's still not what it was you know, maybe
ten years ago, right where you didn't really have much inflation.
So you're always going to have to have some type
of pricing into the business because what we don't want
to do is allow pricing not to keep up with
inflation and then we end up having to cut things
(17:46):
like labor or repairs and maintenance, and then.
Speaker 2 (17:48):
We're back where we started three years ago.
Speaker 3 (17:50):
Right, So Jiji pricing will always be an important part
of the business and making sure we keep up with
the cost structure of the business.
Speaker 2 (17:57):
It's going really well.
Speaker 3 (17:58):
You know, we we partner with Deloitte to help us
think through you know, how do we minimize any kind
of traffic losses as we for the pricing that we
have to deploy to the business. And generally speaking, it's
worked for us. You know, you know if we look back,
you know, three years later, so in they're turnaround right
now where the where the value leaders in the industry.
You know, we've been able to expand margins and expand
you know ppa in check and are you know our
(18:19):
we have record record profits, record EBA. So I feel
like we've done a really good job managing pricing.
Speaker 2 (18:26):
Uh.
Speaker 1 (18:26):
Last time we spoke, you mentioned that customer tokenization and
data mining is going to take a little bit longer
than expected to move the needle. Is this a fiscal
twenty twenty six story.
Speaker 3 (18:37):
Yeah, you know, I don't know how much of that
is going to be like a CRM loyalty driver. Like
what I think now is is the big idea is
like how do we mind the data so that we
understand the impact of the initiatives that we deployed the
Is it so like, for example, we relaunched RIBS, it'd
be really helpful to understand who's coming in. After they
come in and try their ribs, are they coming back
like these? This is all tokenization and transaction level data
(18:59):
can give us. That's a very Those are very valuable
pieces of data, more so than even just be able
to market with them. You know, when we first tokenized
the data, we all got really excited and we learned, hey,
you got to go to a third party and spend
you know, six figures every time you want to pull
the data go.
Speaker 2 (19:13):
That doesn't work.
Speaker 3 (19:14):
That's not you know, that's not a practical way to
run the business. And so we've got a new leader,
Alex Knight, Senior director for Data Analytics.
Speaker 2 (19:22):
He's going to clean that all lot up.
Speaker 3 (19:23):
He's going to bring some of that analysis in house
so we'll be able to get a reporting just like
we have sales reports and we have tons of data
and reporting.
Speaker 2 (19:31):
That comes out.
Speaker 3 (19:31):
Why can't I can't it be at the transaction level
with tokens And so Alex is working on that. So
I think once we get that in place, I think
it's going to be a lot easier to be able
to share with the investor community how we're doing on
things like frequency and penetration, and more importantly, it's going
to help us understand the impact of our initiatives. So,
you know, I think it's probably going to be a
fiscal twenty six when it's done, but you know, we
(19:53):
won't know until until we get a little bit more
line of sight.
Speaker 2 (19:55):
On the plan.
Speaker 1 (19:57):
Let's not forget about Maggiano's. What are you focused on there?
And when? You know, when can we expect traffic to
turn positive?
Speaker 2 (20:05):
Yeah?
Speaker 3 (20:05):
So, so maj is going through a similar turnaround that
Chili's did. There are a lot of bad habits in
the business that we put in there.
Speaker 2 (20:10):
You know.
Speaker 3 (20:11):
We had we had this thing, this take home pasta
that we charged six bucks for and we'd have you know,
a cook every couple of days make a bunch, you know,
a bunch of like, you know, pastas, and package them
up and put them in the fridge. And we would
sell five different variants that and the poor server would
have to sell that. So after he took your order
at the end of that, he'd say, hey, do you
want to buy you know, a six dollars take home
(20:31):
pasta after you finish your dinner?
Speaker 2 (20:32):
I mean it's just odd, right, So he got.
Speaker 3 (20:34):
Rid of that thing we got rid of we double
your pasta for for five dollars. That's a form of
discounting that creates a false sense of traffic when there's
not really traffic. It's just mixed, and a bunch of
other things that we were doing a lot of coup
onting on the business.
Speaker 2 (20:49):
So we're in that.
Speaker 3 (20:50):
We're kind of in that year one that Chilie was
in on the turnaround, which is get rid of the
bad habits, take the hit on traffic. So there's probably
a three or four point hit on traffic from all
the things that we're changing in the business. And then
obviously you got the macro and they're not quite having,
you know, the same experience that chili'ses have in terms
of being able to fight the macro.
Speaker 2 (21:08):
So you know, this year one, I think you're.
Speaker 3 (21:10):
Gonna see, just like Chili's traffic decline, sales are going
to hang in there. We're going to improve profitability, and
then as we deploy the investments in the business, I
think you're going to see it get better in year two.
You know, it took five quarters for us at Chili's
to start changing the trend in traffic, and then it
took seven quarters to actually go positive on traffic, So
I think we're probably at least a year away from
(21:30):
seeing meaningful traffic changes in ma Gianos. But it does
feel like they're working on the right things, improving the service,
improving the food, and getting rid of the bad habits.
Speaker 2 (21:39):
So I don't know why it wouldn't work a year
from now, but we'll see, you know, we'll see, like
everybody else.
Speaker 1 (21:44):
Good stuff. Lisa adjusted leverage fell to two point three
times at the end of fiscal two Q What are
your plans for excess cash this year and next and
should we expect buybacks to accelerate.
Speaker 3 (21:55):
Yeah, we've been real clear on like our capulication strategy,
which is number one we want to support of business,
so like we you know, we slowed down new builds,
like we we we've been very late, and you know
we we have been doing minimal share buybacks to basically
offset delution. Very focused on making sure what does the
business need to get it back on track, so like
(22:15):
repairs and maintenance, labor, investments in food, like all the
right things that you need to do. So that's kind
of priority one that's not going to change, Like everybody's like,
you know, when are you going to start, you know,
giving dollars back to the shareholder.
Speaker 2 (22:26):
And it's like, well, how.
Speaker 3 (22:27):
About we continue to deliver great comp results, right, and
that'll just give us more options in the future.
Speaker 2 (22:32):
That's number one.
Speaker 3 (22:33):
Number two is I want to get our debt down
to zero because we have a ton of debt with
our leases, so there's no reason to have additional debt
beyond that. So we've paid down about six hundred million
dollars a debt was actually, yeah, six hundred million dollars
a debt since I started. You know, I'd like to
get that to zero. Eventually we'll have the revolver. We
expect down in the next twelve to eighteen months will
(22:55):
be the revolver will be down to zero. So that
I'll just leave one bond that we have outstanding. Don't
know if we can retire early or not, we'll take
a look at it. But like after that, after we
retire our debt, that we're going to look at returning
cash to shareholders. And you know, we look at our projections,
We're gonna have a lot of options by that time, right,
so you know that could be share buybacks, that probably
be our preferred method, but at some.
Speaker 2 (23:17):
Point maybe we'd be in state of dividend.
Speaker 3 (23:19):
But you know, the good news is things are looking
real positive from the cash flow standpoints, so it's going
to give us a lot of options in the future
to reconsider that for sure.
Speaker 1 (23:28):
All right now, the real important question, what's your favorite
orders at both chains?
Speaker 3 (23:33):
Well, at Chili's, you know, I don't think you can
go wrong with the burger personally, Like I just I mean,
I love hamburgers to start, but like, I actually think
we have the best burger in the industry. I just
think it's so darn good, and I'm pretty objective person like,
you know, I wouldn't just be like a Homer on it.
But to me, that's I think the best product that
we make is incredible and the values unbelievable. At ten
(23:54):
ninety nine, you know, we've we've really done a good
job of improving our fry recipe too, So I mean,
you're getting a good burger and fries at ten ninety nine,
I think that thing is unbeatable. And then UH for Maggiano's,
my favorite is the UH I love to get. So
it's a little bit of a menu hack because I
want to eat the whole thing, and the Maggiano's portions.
Speaker 2 (24:13):
Are so big.
Speaker 3 (24:15):
But I'll get the the shrimp fridayavlo, but I'll get
it put over broccoli instead of pasta, so I can
eat the whole thing and and not feel bad about it.
Speaker 2 (24:23):
Right, But I mean it's like that.
Speaker 3 (24:24):
I mean, let's be honest, It's a few servings on
that ball. So the value is so good on it.
So when you do that, at least you can eat
all the shrimp. I mean, the number of shrimps you
get on it's humblu It's it is so good and
it's such a good value. So but there's also a
bunch of new items coming out of Maggianos now, like
the fetichini alfredo that we just launched last week. It's
probably the best vetichini alfredo I've ever tasted. Like I
was like, guys, you guys should name this the world's
(24:46):
greatest alfredo, Like people have never had something like this.
Our new chicken palm is absolutely incredible, super crispy, super flavorful.
So we have we have a new chef there, Anthony,
who was a he was he won Iron chef. He
beat U chef Masjiro Morimoto in the Bronzino Battle and
now he is doing battle ma Giano's to make our
(25:07):
menu incredible.
Speaker 2 (25:08):
He's doing a phenomenal job.
Speaker 1 (25:10):
That's cool, man. This has been fun. It's it's been
a lot of fun following the story. Thanks again for
doing this. Uh, why don't you tell the audience where
to find their closest Chilis and ma Gianos in which
social media channels they should be following the brands on?
Speaker 2 (25:22):
Okay?
Speaker 3 (25:23):
Yeah, so, well, you can just go to like Chilis
dot Comramagianos dot com to find out where your local
one is. And there's only fifty Magianos, so you may
not be able to find one, unfortunately. But the good
news this is a ton of Chilis. You're definitely gonna
be able to find one close to you. And then,
you know, I'd recommend you follow that the Chili's has
an unbelievable Twitter feed and Instagram feed as well as
our TikTok, so we have an incredible social media manager
(25:47):
or social media team I should say that does a
great job. And then and then Magiano is just getting started,
so they're probably on Facebook is probably where you connect
with them, But we got a new marketer to there,
Mike Wesley, the VP of marketing, who's I think going
to take their marketing to.
Speaker 2 (26:00):
In pretty big heights.
Speaker 3 (26:00):
He worked with George and I at Young Brands too,
so he knows a thing or two about resuscitating brand.
So I'm excited about to see what Machias.
Speaker 2 (26:08):
Is going to do too.
Speaker 3 (26:09):
But you can't go wrong with either brand, so you know,
make sure you get out there and enjoy very cool.
Speaker 1 (26:15):
I want to thank the audience for tuning in. If
you like the discussion, please share it with your friends
and colleagues. Check back next week for an interview with
Alex Mercedo, the co founder and CEO of Authentic Restaurant
Brands
Welcome to Chopping It Up. I'm your host, Mike Hanlon,
the senior Restaurant and food Service analyst at Bloomberg Intelligence.
Our research and that of bi's five hundred analysts around
the globe can be found exclusively on the Bloomberg terminal.
If you enjoy the pod, I'd love it if you
could leave us a review on Apple or Spotify. Today
we're joined by Kevin Hakman Brinker CEO. Thanks for joining
(00:34):
me here in our New York studio.
Speaker 2 (00:36):
Kevin, Well, thanks for having me.
Speaker 3 (00:37):
Michael, I am a consumer of your pod, so I
appreciate you having me it.
Speaker 2 (00:41):
Oh, that's cool.
Speaker 1 (00:42):
I appreciate you. I appreciate you listening in. I woke
up to big news yesterday the opening of the Chili
Scranton branch.
Speaker 2 (00:50):
Yes.
Speaker 3 (00:50):
Well, we were on a very famous show almost twenty
years ago to the day, and.
Speaker 2 (00:57):
They ate that the.
Speaker 3 (00:58):
Chili's in Scranton, and we do not have a Chilis
in Scranton, believe it or not.
Speaker 2 (01:04):
It's funny.
Speaker 3 (01:04):
We tape some of that content with many of the
actors from that show and our guy on the ground,
Jesse Johnson. He does a lot of our advertising. He welcome,
he said, we welcome back to Scranton, and they're all like, hey,
we've never been to Scranton.
Speaker 2 (01:20):
All this was filmed in la so this was a
new experience for many of the actors of that show.
Speaker 3 (01:25):
And you know, so we basically have replicated the two
thousand and five Chilies that was in that episode to
the very details of the booths, etc.
Speaker 2 (01:34):
And it will.
Speaker 3 (01:35):
Also be the only Chilies in the world that now
sells the Awesome Blossom, which was you know, our version
of the bloomin Onion when that was a big business
war back in two thousand and five. So if you
want an Awesome Blossom at Chilies, there is one.
Speaker 2 (01:51):
You can go to, and that's in Scranton.
Speaker 1 (01:52):
Pennsylvania, only about a two and a half hour drive
from Awesome Manhattan. Chili's Lifetime move I'll be home from
Margarite today was pretty fantastic, by the way. I caught
that recently. So your marketing team has been busy.
Speaker 3 (02:08):
Yeah, Well, first of all, I didn't know you were
a lifetime movie fan, so I'm learning somebody.
Speaker 2 (02:12):
New about you every day. You know.
Speaker 3 (02:14):
You know our marketing team, you know, we're focused on
a couple of things. It's sales overnight and brand over time.
Sales every night is about driving you know, people and
traffic into our restaurants, and then brand over time is
where do we want to be positioned in the market.
Speaker 2 (02:25):
Right, And when Chili's was at its.
Speaker 3 (02:27):
Best, when we were growing in the eighties and the nineties,
we were about Margarita's, we were about Fahidas, we were
about chicken crispers, we were about ribs, and we're bringing
all these things back right. You know, it's funny, like
we've had this incredible success and you go across the
country talking to managers, many of them in the business
twenty thirty, some even forty years, and they're like, it
feels like Chili's again. Like it feels like we're back
(02:49):
to you know, slinging and having really busy restaurants, and
the team members are having fun with the guests, and
the guests are having fun with the team members. So
it definitely is a little bit of throwback. Right now,
based on the growth that we've had, it just feels
like we're an upstart, new brand.
Speaker 1 (03:03):
It's fun. It's fun to watch, you know, sam store
sales in the US up more than thirty percent in
calendar for Q you're comping over a five plus percent
result in the year prior, So absolutely unheard of for
a mature brand. For the listeners that haven't been following
this story as Colsey as I have and we have
(03:25):
on the street, what were the primary drivers.
Speaker 2 (03:27):
Of the group. Yeah, you know, it's interesting.
Speaker 3 (03:29):
A lot of people ask me, like when I took
this job, You're like, oh, isn't casual dining dead? And like,
I can't believe you took that job. And it's like, well,
if I believe that casual dining was dead, why would I.
Speaker 2 (03:37):
Ever take this job? Right?
Speaker 3 (03:38):
And there's some big leaders out there, you know, I'm
not afraid to say it publicly. Like you look at
a roadhouse and you look at Darden, and you look
at what they've been able to do over the years,
growing sales every year, expanding margins every year, doing the
right things by the guest, and they don't really have
secret sauce. It's about the fundamentals of casual diting, Like
why do you go out to eat? Michael, Like, you
go out because you want to have an hour with
(03:59):
friends and family. And we're going to have some credible
food and have it with great service and a fun,
you know, friendly atmosphere. And that's what we wanted to
get back to and that's why I took the job
here at Chili's. And the team you know now that
they've really been in lock to do the things that
they know they need to do to make guests feel
special and to support each other as team members. You know,
the sky's limit on the business. You know, we focused
on food, we focused on service, we focus on atmosphere,
(04:22):
and we focused on making the team members job more fun, easier.
Speaker 2 (04:26):
And more rewarding.
Speaker 3 (04:27):
We've been able to do all those things in the
last three years, and I think that's why we've had
such tremendous growth. Fifteen consecutive quarters of same store sales growth.
You know, our AUVs are up over fifty percent versus
when I started, restaurant margins up five points. I mean,
we are in a really good place. And the cool
thing about this is that we're just getting started. There's
more ahead of us on those fundamentals that we haven't
changed yet than are behind us. So I feel like
(04:48):
the sky's the limit for Chili's right now.
Speaker 1 (04:51):
Well, you know, last time we caught up you made
a point of that, you know, you said, you know
because I mentioned to you. Even though fourth quarter was
a meaningful acceleration in your sales trends, you know, some
investors were kind of concerned about your ability to comp
the comp Let's say, but you know you're contending and
you contend to you know, you said to me, it
(05:11):
is like we still have a long way to go.
We're in the early innings. Excuse the opening day baseball punt,
but what are you working on right now? That's kind
of maybe different, you know, that's going to keep the momentum.
Speaker 3 (05:25):
Yeah, you know, I get a question asked all the time,
you know, how are you what you need to comp
the comp? And uh, well, first of all, people don't realize, like,
you know, we've been growing, you know, all twelve quarters,
Like you know.
Speaker 2 (05:34):
I've been with this company and we've been we've been
growing same store sales.
Speaker 3 (05:36):
So it's not like it's like everybody sees this plus
thirty one and they're like, oh, they finally got it together.
This has been happening for a while. And now you know,
obviously we've been accelerating growth in the last few quarters
because I think a lot of these things that we've
been working on are coming together. But here's what I
tell the team. As long as we continue to improve
the fundamentals quarter after quarter, there's no reason why we
(05:57):
can't comp the comp because if you look at the
growth and how we're getting growth, it's not from like
an lto or some kind of deep discount. And then
we've got to figure out how to make the discount
deeper the next year, and then eventually it will stop.
You know, having the same efficacy that had when we
first did it. You know, we're doing it with the
fundamentals of casual dining. The food is better, the service
(06:17):
is significantly better, the atmosphere is significantly better, and the
team members are having a whole lot more fun and
they're getting way more compensated because of the growth that
we've had in the business.
Speaker 2 (06:27):
And so as long as.
Speaker 3 (06:27):
We continue to improve on those things, there's no reason
why we wouldn't come the comp because we're not just
getting boom splots. We're growing the business. It's maintaining that
level until we get to the next big initiative. So
you know, like for example, on food, you know, we
fixed the core for that's about at the time when
I started, it was forty percent of the business.
Speaker 2 (06:44):
It's now fifty percent of the business.
Speaker 3 (06:45):
That's chicken crispers, fajitas, margaritas, and burgers, and we just
made those the best they could be. We expanded some
of their presents on the menu. We got to a
barbell strategy, so you can have an entry level price
point and you can trade all the way up to
whatever premium in those four segments. You know that's going
to be finished as of this quarter when we do fajitas.
We got the rest of the menu to go so
q one of next year, which starts in July for us.
(07:07):
We got a new Ribs relaunch that's coming that's just phenomenal.
We've got a new Caeso coming. We've got a new
trash can style nachos in the back half. You know,
the planet is to get after things like steaks and salads.
So it's actually more on the menu that we haven't
touched than we have touched. And we're only as strong
as our weakest thing on the menu, So we get
everything up to like that high level that we know
(07:28):
we can be at Chili's.
Speaker 2 (07:29):
I think this guy's loving for the business that's just
one pillar. We also doing the same.
Speaker 3 (07:32):
Thing in service, We're doing the same thing in the atmosphere.
So I just think there's a lot more runway for us.
Speaker 1 (07:38):
In our research, we've seen the ability to draw millennials
and gen Z kind of correlates to same sotore sales outperformance,
and you've done a great job resonating with those consumers.
What are you seeing from the younger customers that are
coming into your brand that makes you think, you know,
the success with them can continue.
Speaker 2 (07:56):
Yeah.
Speaker 3 (07:57):
Well, the first thing is I think everybody sees the
TikTok stuff like, Wow, they're just really winning with gen Z,
and we are, and that's great, But I would say
we're winning with every cohort right now. There's there's no
corehord that's not growing. You know, gen Z is growing
a little bit faster than the rest. They're talking about
two points, but it's not like this. You know, fifty
percent of the growth is coming just from young people.
So it's a very balanced strategy, is the first thing
I would tell you. The second thing is, I do
(08:18):
think it's helpful to start bringing the next generation into chilies.
You know, many of them have never even tried Chilis,
and you know what's happening is we've been getting after
social media in a lot bigger way. We're doing with
menu items that young.
Speaker 2 (08:30):
People are excited about. So the Triple Dipper.
Speaker 3 (08:32):
Is really has been literally I mean it's been around
for decades, but it's built for the younger generation because
they like to like have lots of variety, lots of dipping,
not commit to one entree.
Speaker 2 (08:42):
You can get multiple things.
Speaker 3 (08:43):
Eighty percent of the guests that come in in order
to the Triple Dipper, that's what they eat their front of
their entree because they like the variety that they get
in it. So we use that item to kind of
enter in the social media space in TikTok, and it's
really exploded. I think people have a lot of fun
with the different items they can get on a triple Dipper.
And then when you actually get into the restaurant and
you try the cheese pull that you see on TikTok,
or you eat the honey Chipotle crispers, and it actually
(09:05):
looks and tastes like what you see online, You're like,
holy cow, Chili's low Key has gotten really, really good.
And that's exactly what's happening, and they're like, Hey, this
is going to be a part of our rotation. We're
gonna come here every Thursday. We're gonna come here every month.
And that's why the business is growing sustainably, is not
just they're not just trying it and then we're waiting
for the next trial driver. They're trying it and they're
making it a part of the rotation. And that's where
(09:26):
we wanted to be from day one. We talked about
how do we get in your consideration set so that
when you're thinking, hey, I'm in the mood for a
margarita or I'm in the mood for text mes or
whatever it is, at least you're considering chilies. Because if
you're not considering Chili's, we have no chance of getting
your trip. So we're now top of mind. We're delivering
on the experience you're seeing in media, and that's why
the business is sustainably growing.
Speaker 1 (09:44):
Yeah, that's what I was going to say. I was like,
that's why it was so important for you to nail
the ops first, right, so they don't they have a
great experience.
Speaker 3 (09:51):
And then yeah, I think that's the big thing that
I think a lot of people don't know about our story.
And I ran into a restaurant CEO at a basketball
game a couple months ago, and you can go gratulating
me on the ten ninety nine meal and how good
we were doing, and it's like he doesn't understand that
we've been in the gym working out on the operation.
The operation is so much improved. And you go to Chilis,
(10:12):
you're going to have a good experience and you're gonna
want to come back because it's fun, right, And when
you when you can do that, the marketing, the marketing
just gets so much more effective. And I was joking
the other day, but I wasn't really joking with our
team of like the number one driver wire marketing Oro.
Speaker 2 (10:25):
HASP skyrocketed so much.
Speaker 3 (10:27):
Is actually because the because the restaurant teams are doing
a much stronger job delivering the experience. So when we
put something on TV, we don't just get the spike,
but we get to continued to repeat business. So it's
an exciting time to be on this business.
Speaker 2 (10:39):
Yeah, that's cool.
Speaker 1 (10:40):
Alcohol mix is moderating for many of your competitors. What
are you seeing?
Speaker 3 (10:44):
We really haven't seen much of a pullback in that
you know. I think part of it is we have
a really good barbell strategy. So yeah, we're still half
of our drinks now or half of our market ratas
are ten dollars are over, So that's more premium ones
like you know, like a costam Egos or a Don Julio.
But you know the majority of the units that we
sell in Margarita's is our six dollars margarita a month.
So you know, even though terrorists might be impacting tequila,
(11:08):
or you go to a bar around here and you
get a twenty dollars to margarita, you know, you can
always come to Chili's. You don't need an app. It
doesn't matter what time of day you come. You can
always find a six dollars marguerite. And we make it
with pretty good liquor, you know, name brand that you
know and love, you know, fresh sour mix, all the
things that you would expect with a high end margarita,
but you get it for six bucks. And you know what,
quite frankly, I think that helps us hold on to
(11:29):
some incidents that otherwise would lose. So as long as
we protect the opening price points and then allow customers
to trade up for the ones that want to have
something a little more premium. I think we're going to
be okay on alcohol incidents.
Speaker 1 (11:40):
And you touched on tariffs. Do you think there'll be
a significant tariff impact to your business?
Speaker 2 (11:45):
No, No, we know, we looked at it.
Speaker 3 (11:47):
It's probably about ten or ten to fifteen million dollar impact.
Speaker 2 (11:51):
There's nothing we can't management. I mean, we spend over a.
Speaker 3 (11:54):
Billion dollars in our COGS budget, so you know you're
talking about about a point So we're going to manage
it like we manage any other headwind. But that's not
that that is not material to our business and we
will have no problem getting through that.
Speaker 2 (12:07):
Okay.
Speaker 1 (12:07):
And I saw last quarter you reduced you can you
continued to reduce SKUs some menu it.
Speaker 2 (12:13):
Yeah, well, and we'll continue to do that.
Speaker 3 (12:15):
So you know, part of the operational wins that we've
had has not just been about investing in the labor.
A big part of has been simplification. So you know,
we reduced over twenty five percent of our menu. We've
reduced a lot of prep steps, a lot of administrative
things that we asked the managers to do, which prevents
them from actually leading their teams or walking the floor
(12:35):
and seeing how guests are doing. You know, for example, inventory,
they don't inventory as often as they used to.
Speaker 2 (12:41):
They don't count all of the items every time.
Speaker 3 (12:43):
The inventory typically only the high cost items like alcohol
or protein.
Speaker 2 (12:47):
So and we hear from the managers, this.
Speaker 3 (12:50):
Is so much easier today to work in a Chili's
than it was three years ago. And there's still a
lot more room for us to fix. So, you know,
you know, I always it was like one simplification can end.
Speaker 2 (13:01):
I'm like, it's not.
Speaker 3 (13:02):
This is the way we do business now. And you know,
every quarter I'm going to be getting an errings call
and we'll go through the list of things that we
rolled out for that quarter. That's going to simplify the
restaurant because it's such an important part of our turnaround.
Speaker 1 (13:14):
Yeah, making place happier. And man, they hate taking inventory.
So turbo chef ovens, how come they've been such a
big hit with your operators? And how long to get
them rolled out system wide?
Speaker 3 (13:26):
Yeah, so you're referring to is it's pretty awesome technology
that allows you to replace There's a piece of equipment
we have in the restaurant called it Impinger. It's basically
a conveyor belt oven. Typically like QSR pizza concepts will
use it. So you put an item on one end
of the conveyor belt and then it slowly goes through
an oven on the conveyor belt, comes out the other end,
(13:49):
and it's you know, cooked perfectly in the ideal scenario.
Those ovens, they tend to break down pretty frequently. They
have a lot of moving parts, and when when the
impinger is not working in a chilis, it is really
hard to execute your venue. You gotta you know, you
gotta hand an egg it across the other equipment. So
we have this piece of equipment called turbo chefs that
(14:09):
are much more reliable. They cook a lot faster, they're
much more they cook much more evenly and consistently, and
we put it.
Speaker 2 (14:17):
We've been testing it for a couple of years now.
Speaker 3 (14:19):
We've known that we've always wanted to move to it,
but it'd be very expensive to write off the impingeride
ovens as well as bringing in the new ovens. But
we have a new rib recipe that we think we can.
We're going to blow out the doors on and it
requires having these turbos everywhere. It made it very easy
for us to pay for the turbo chefs, so we
decided to accelerate that We've nown sit in our last
(14:40):
earnings call. So by the end of this quarter, we're
gonna have turbo chefs in every restaurant, and then we're
gonna be relaunching ribs in Q one. And I think
anybody that tries our ribs after when we relaunch them,
we're going to realize, boy, that was a good investment.
Speaker 1 (14:51):
It's nice when you're generating so much more cash than
everyone expects, right, you can put more money into cap
bags and investment.
Speaker 2 (14:57):
Yes, right, It's so funny.
Speaker 3 (14:59):
Like one of the big things that like I think
I've learned in this turnaround has been, you know, whenever
you get into a business that's that maybe things aren't
going its way, A lot of it has to do
with the bad habits that you've accumulated over the years
because you've tried to claw back sales when things don't
go your way, and then you put bad habits in
the business that give you some short term relief on sales,
but at the end of the day, it just makes
it harder to do business. And we were pretty ruthless
(15:21):
about removing all those bad habits in year one and
year two, So things like having really bloated menus. Obviously,
when you add items to a menu, that's going to
give you sales, but if it doesn't grow your business enough,
then you just have less same labor or less labor
and you're trying to execute way more items. It's impossible.
So we've ripped a lot of those smaller mixing items
(15:42):
out of the business. We did a lot of discounting,
which you know, brought in guests that I think, you know,
really we're going to run across the.
Speaker 2 (15:48):
Street to the next big discount that they could get.
Speaker 3 (15:50):
Obviously, it costs us a lot of money that we
can't plow into out of store advertising, you know, we
got rid of most of that.
Speaker 2 (15:56):
We went to an everyday value she has you, which
we have today.
Speaker 3 (15:59):
You know, And there's other bad habits in the business.
But like when you pull those things out and then
you get them to get them out of your base,
and then you're able to reinvest in things that actually
matter on the long term experience of the business, great
things happen. And that's the lesson I want to take
with me for the rest of my career is like
like take the take the paint, get out of the
bad habits, get them behind you, and then don't look back.
Speaker 1 (16:20):
Yeah, it was bold ripping out the discounting. At the
time that you did, it was a time when the
low income consumers first started pulling back. So kudos to
you man. That was I'm sure not an easy decision
to make.
Speaker 3 (16:32):
Yeah, you know, I felt like it was going to
happen anyway, So it's like, what what does it matter.
We've lost about two points of traffic when we did.
I mean, we literally saw the inflection change in the business.
And you know, once once we got out of our
our base, we never looked back on that. And that
was a lot of dollars that we are But like
when I started, our marketing budget was about thirty or
forty million dollars total and we're now over one hundred
(16:52):
million dollars. One hundred and thirty million dollars I think
is the last count. And you know, that's a big
part of driving trial and knowing the business. So we've
got money to work and to deploy into the business.
That's you know, not just about a discount and attracting,
you know, a new set of guests that are interested
in our brand for what we're offering, not.
Speaker 2 (17:07):
Just how low a price we can offer.
Speaker 1 (17:09):
How's the strategic pricing work coming along, and how long
will it take to implement pricing increases across the system.
Speaker 3 (17:15):
Well, I think strategic pricing is just going to be
a way we do business, right, Like, obviously you've got
mid single digit wage inflation. That's just the thing that
we're going to It's just gonna be a thing in
the business forever.
Speaker 2 (17:25):
Right.
Speaker 3 (17:25):
Obviously you've got some cogs challenges, you know, you know,
it's moderated, it's like low single digits now, but it's
still it's still not what it was you know, maybe
ten years ago, right where you didn't really have much inflation.
So you're always going to have to have some type
of pricing into the business because what we don't want
to do is allow pricing not to keep up with
inflation and then we end up having to cut things
(17:46):
like labor or repairs and maintenance, and then.
Speaker 2 (17:48):
We're back where we started three years ago.
Speaker 3 (17:50):
Right, So Jiji pricing will always be an important part
of the business and making sure we keep up with
the cost structure of the business.
Speaker 2 (17:57):
It's going really well.
Speaker 3 (17:58):
You know, we we partner with Deloitte to help us
think through you know, how do we minimize any kind
of traffic losses as we for the pricing that we
have to deploy to the business. And generally speaking, it's
worked for us. You know, you know if we look back,
you know, three years later, so in they're turnaround right
now where the where the value leaders in the industry.
You know, we've been able to expand margins and expand
you know ppa in check and are you know our
(18:19):
we have record record profits, record EBA. So I feel
like we've done a really good job managing pricing.
Speaker 2 (18:26):
Uh.
Speaker 1 (18:26):
Last time we spoke, you mentioned that customer tokenization and
data mining is going to take a little bit longer
than expected to move the needle. Is this a fiscal
twenty twenty six story.
Speaker 3 (18:37):
Yeah, you know, I don't know how much of that
is going to be like a CRM loyalty driver. Like
what I think now is is the big idea is
like how do we mind the data so that we
understand the impact of the initiatives that we deployed the
Is it so like, for example, we relaunched RIBS, it'd
be really helpful to understand who's coming in. After they
come in and try their ribs, are they coming back
like these? This is all tokenization and transaction level data
(18:59):
can give us. That's a very Those are very valuable
pieces of data, more so than even just be able
to market with them. You know, when we first tokenized
the data, we all got really excited and we learned, hey,
you got to go to a third party and spend
you know, six figures every time you want to pull
the data go.
Speaker 2 (19:13):
That doesn't work.
Speaker 3 (19:14):
That's not you know, that's not a practical way to
run the business. And so we've got a new leader,
Alex Knight, Senior director for Data Analytics.
Speaker 2 (19:22):
He's going to clean that all lot up.
Speaker 3 (19:23):
He's going to bring some of that analysis in house
so we'll be able to get a reporting just like
we have sales reports and we have tons of data
and reporting.
Speaker 2 (19:31):
That comes out.
Speaker 3 (19:31):
Why can't I can't it be at the transaction level
with tokens And so Alex is working on that. So
I think once we get that in place, I think
it's going to be a lot easier to be able
to share with the investor community how we're doing on
things like frequency and penetration, and more importantly, it's going
to help us understand the impact of our initiatives. So,
you know, I think it's probably going to be a
fiscal twenty six when it's done, but you know, we
(19:53):
won't know until until we get a little bit more
line of sight.
Speaker 2 (19:55):
On the plan.
Speaker 1 (19:57):
Let's not forget about Maggiano's. What are you focused on there?
And when? You know, when can we expect traffic to
turn positive?
Speaker 2 (20:05):
Yeah?
Speaker 3 (20:05):
So, so maj is going through a similar turnaround that
Chili's did. There are a lot of bad habits in
the business that we put in there.
Speaker 2 (20:10):
You know.
Speaker 3 (20:11):
We had we had this thing, this take home pasta
that we charged six bucks for and we'd have you know,
a cook every couple of days make a bunch, you know,
a bunch of like, you know, pastas, and package them
up and put them in the fridge. And we would
sell five different variants that and the poor server would
have to sell that. So after he took your order
at the end of that, he'd say, hey, do you
want to buy you know, a six dollars take home
(20:31):
pasta after you finish your dinner?
Speaker 2 (20:32):
I mean it's just odd, right, So he got.
Speaker 3 (20:34):
Rid of that thing we got rid of we double
your pasta for for five dollars. That's a form of
discounting that creates a false sense of traffic when there's
not really traffic. It's just mixed, and a bunch of
other things that we were doing a lot of coup
onting on the business.
Speaker 2 (20:49):
So we're in that.
Speaker 3 (20:50):
We're kind of in that year one that Chilie was
in on the turnaround, which is get rid of the
bad habits, take the hit on traffic. So there's probably
a three or four point hit on traffic from all
the things that we're changing in the business. And then
obviously you got the macro and they're not quite having,
you know, the same experience that chili'ses have in terms
of being able to fight the macro.
Speaker 2 (21:08):
So you know, this year one, I think you're.
Speaker 3 (21:10):
Gonna see, just like Chili's traffic decline, sales are going
to hang in there. We're going to improve profitability, and
then as we deploy the investments in the business, I
think you're going to see it get better in year two.
You know, it took five quarters for us at Chili's
to start changing the trend in traffic, and then it
took seven quarters to actually go positive on traffic, So
I think we're probably at least a year away from
(21:30):
seeing meaningful traffic changes in ma Gianos. But it does
feel like they're working on the right things, improving the service,
improving the food, and getting rid of the bad habits.
Speaker 2 (21:39):
So I don't know why it wouldn't work a year
from now, but we'll see, you know, we'll see, like
everybody else.
Speaker 1 (21:44):
Good stuff. Lisa adjusted leverage fell to two point three
times at the end of fiscal two Q What are
your plans for excess cash this year and next and
should we expect buybacks to accelerate.
Speaker 3 (21:55):
Yeah, we've been real clear on like our capulication strategy,
which is number one we want to support of business,
so like we you know, we slowed down new builds,
like we we we've been very late, and you know
we we have been doing minimal share buybacks to basically
offset delution. Very focused on making sure what does the
business need to get it back on track, so like
(22:15):
repairs and maintenance, labor, investments in food, like all the
right things that you need to do. So that's kind
of priority one that's not going to change, Like everybody's like,
you know, when are you going to start, you know,
giving dollars back to the shareholder.
Speaker 2 (22:26):
And it's like, well, how.
Speaker 3 (22:27):
About we continue to deliver great comp results, right, and
that'll just give us more options in the future.
Speaker 2 (22:32):
That's number one.
Speaker 3 (22:33):
Number two is I want to get our debt down
to zero because we have a ton of debt with
our leases, so there's no reason to have additional debt
beyond that. So we've paid down about six hundred million
dollars a debt was actually, yeah, six hundred million dollars
a debt since I started. You know, I'd like to
get that to zero. Eventually we'll have the revolver. We
expect down in the next twelve to eighteen months will
(22:55):
be the revolver will be down to zero. So that
I'll just leave one bond that we have outstanding. Don't
know if we can retire early or not, we'll take
a look at it. But like after that, after we
retire our debt, that we're going to look at returning
cash to shareholders. And you know, we look at our projections,
We're gonna have a lot of options by that time, right,
so you know that could be share buybacks, that probably
be our preferred method, but at some.
Speaker 2 (23:17):
Point maybe we'd be in state of dividend.
Speaker 3 (23:19):
But you know, the good news is things are looking
real positive from the cash flow standpoints, so it's going
to give us a lot of options in the future
to reconsider that for sure.
Speaker 1 (23:28):
All right now, the real important question, what's your favorite
orders at both chains?
Speaker 3 (23:33):
Well, at Chili's, you know, I don't think you can
go wrong with the burger personally, Like I just I mean,
I love hamburgers to start, but like, I actually think
we have the best burger in the industry. I just
think it's so darn good, and I'm pretty objective person like,
you know, I wouldn't just be like a Homer on it.
But to me, that's I think the best product that
we make is incredible and the values unbelievable. At ten
(23:54):
ninety nine, you know, we've we've really done a good
job of improving our fry recipe too, So I mean,
you're getting a good burger and fries at ten ninety nine,
I think that thing is unbeatable. And then UH for Maggiano's,
my favorite is the UH I love to get. So
it's a little bit of a menu hack because I
want to eat the whole thing, and the Maggiano's portions.
Speaker 2 (24:13):
Are so big.
Speaker 3 (24:15):
But I'll get the the shrimp fridayavlo, but I'll get
it put over broccoli instead of pasta, so I can
eat the whole thing and and not feel bad about it.
Speaker 2 (24:23):
Right, But I mean it's like that.
Speaker 3 (24:24):
I mean, let's be honest, It's a few servings on
that ball. So the value is so good on it.
So when you do that, at least you can eat
all the shrimp. I mean, the number of shrimps you
get on it's humblu It's it is so good and
it's such a good value. So but there's also a
bunch of new items coming out of Maggianos now, like
the fetichini alfredo that we just launched last week. It's
probably the best vetichini alfredo I've ever tasted. Like I
was like, guys, you guys should name this the world's
(24:46):
greatest alfredo, Like people have never had something like this.
Our new chicken palm is absolutely incredible, super crispy, super flavorful.
So we have we have a new chef there, Anthony,
who was a he was he won Iron chef. He
beat U chef Masjiro Morimoto in the Bronzino Battle and
now he is doing battle ma Giano's to make our
(25:07):
menu incredible.
Speaker 2 (25:08):
He's doing a phenomenal job.
Speaker 1 (25:10):
That's cool, man. This has been fun. It's it's been
a lot of fun following the story. Thanks again for
doing this. Uh, why don't you tell the audience where
to find their closest Chilis and ma Gianos in which
social media channels they should be following the brands on?
Speaker 2 (25:22):
Okay?
Speaker 3 (25:23):
Yeah, so, well, you can just go to like Chilis
dot Comramagianos dot com to find out where your local
one is. And there's only fifty Magianos, so you may
not be able to find one, unfortunately. But the good
news this is a ton of Chilis. You're definitely gonna
be able to find one close to you. And then,
you know, I'd recommend you follow that the Chili's has
an unbelievable Twitter feed and Instagram feed as well as
our TikTok, so we have an incredible social media manager
(25:47):
or social media team I should say that does a
great job. And then and then Magiano is just getting started,
so they're probably on Facebook is probably where you connect
with them, But we got a new marketer to there,
Mike Wesley, the VP of marketing, who's I think going
to take their marketing to.
Speaker 2 (26:00):
In pretty big heights.
Speaker 3 (26:00):
He worked with George and I at Young Brands too,
so he knows a thing or two about resuscitating brand.
So I'm excited about to see what Machias.
Speaker 2 (26:08):
Is going to do too.
Speaker 3 (26:09):
But you can't go wrong with either brand, so you know,
make sure you get out there and enjoy very cool.
Speaker 1 (26:15):
I want to thank the audience for tuning in. If
you like the discussion, please share it with your friends
and colleagues. Check back next week for an interview with
Alex Mercedo, the co founder and CEO of Authentic Restaurant
Brands
Host
Michael Halen
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