I could spend the next 500 words expanding on all of the details of the past quarter and rehashing the guidance, which was obviously a big disappointment, but I don’t see the point. Right now, the only thing that matters is what senior management is going to do to stem the decline in same-store sales and take the Chili’s brand to a level that will put it significantly above the competition.
While the current promotion “3 courses, 2 people for $20” may have helped have helped stem the decline in same-store sales in July, it’s not a game changer for Chili’s. The current Chili’s promotion is only slightly different from the current Applebee’s promotion of “2 entrée’s for $20.” Management acknowledged that this current promotion is only a short-term fix to drive traffic in this extremely competitive environment. To that end, management said it will be implementing a new initiative in late fiscal 1Q2010 that it said will drive long-term menu innovation. The company did not provide any further details about this initiative.
So what is management thinking? The Brinker management team needs to be thinking that it must elevate the Chili’s brand, so that the food it serves is substantially better than the competition. In the Bar & Grill “sea of sameness,” it’s imperative that it makes substantial changes and does not just launch some run of the mill value promotion. Chili’s needs to start taking significant market share from its competition while its competitors are on the ropes. Many of Chili’s competitors in the Bar & Ggrill segment are either marginally profitable or are so significantly leveraged, they have limited ability to navigate the challenging environment.
Chili’s needs to go for the jugular while it can!
Earlier this year, I had the opportunity to work in a Chili’s, put on a Chef’s coat and “fire up” a Fajita. Without going into details, what struck me was how complicated it was to execute the current menu. If my memory serves me correctly, there are three different sizes of chicken breasts with six different marinades. It is very easy to put the wrong size breast with a meal at the wrong price point, costing the store incremental profitability.
So why do I bring this up? The menu has begun to complicate Chili’s ability to execute effectively. Chili’s needs to simplify its back of the house operations by reducing the menu to include only the core items that represent the bulk of the chain’s sales. At the same time, it can increase the quality of the items left on the menu. A menu that is simpler to execute will translate into better food delivered to the guest with fewer complaints, thereby allowing the concept to build increased customer loyalty. Importantly, it will provide a better work environment for restaurant employees.
A strategy like this is not without risks, but it’s also not unprecedented in the restaurant industry and for consumer companies. In the restaurant industry, McDonald’s did it a few years back and the old “Philip Morris” did it in 1994 when it was under attack from “discount” brands. Also, if I’m not mistaken, Grand Metropolitan (the UK based beverage company) reduced its SKUs in the mid 1990’s before it was taken over.