Chili's Needs More Than a Jingle
Brinker International needs to get its baby back.
The operator of the Chili's restaurant chain, whose "baby back ribs" jingle is forever imprinted on the American psyche, is hemorrhaging traffic as customers skip the casual bar and grill in favor of fast food joints or other restaurant alternatives.
Shares in the company fell as much as 9 percent Tuesday as investors digested another quarter of unappetizing financial results and a forecast of another quarter of negative comparable sales growth.
The company reported a 4.1 percent year-over-year drop in sales at established, company-owned Chili's locations, capping off four straight quarters of sales declines at the 1,200-unit chain that became the crown jewel of the Brinker empire after getting rid of Romano's Macaroni Grill in 2008 and On The Border in 2010. (Brinker still operates 50 Maggiano's restaurants.)
Worse, though, is a 4.9 percent drop in customer traffic from the year before, the fifth straight decline at Chili's restaurants. And the traffic drop came even as the company used big TV ads to push new options on its 2-for-$20 value menu, such as steak. Bloomberg Intelligence analyst Michael Halen points out the promotion might have just driven diners to rivals Outback Steakhouse and Texas Roadhouse, which often get a boost when competitors spend money advertising juicy Texas-sized steaks.
The steak mishap speaks to a larger menu of problems at Chili's as it tries to keep loyal customers that came of age with the Tex-Mex restaurant in the 1980s and 1990s, while connecting with a new generation of diners who see little difference between the ubiquitous chain and competitors such as Applebee's and Ruby Tuesday.
While Chili's has benefited from smart technology investments such as tabletop tablets, it seems the casual dining chain has lost any sense of its restaurant identity.
To juice sales, it has jumped over the past few years from menu platform to menu platform -- restaurant jargon for a group of new menu offerings under a common theme. It launched Fresh Mex in 2014, a healthier play on Tex-Mex staples such as quesadillas and burritos, which did pretty well for the company. But then, it started highlighting what it called Fresh Tex, a confusing term for items such as its classic rib eye, sirloin and baby back ribs, which customers had a hard time identifying as anything different from its normal offerings.
Meanwhile, instead of pushing more appetizers or desserts, servers had been tasked with getting diners to sign up for Chili's new loyalty program, which it launched last year. The program ended up hurting sales, as well as profits, since it ended up giving offers mainly to already-loyal customers who would have eaten at the restaurants without the added discounts.
And it failed to keep up with a recent rash of discounts from rejuvenated competitors such as Darden-operated Olive Garden and fast-food chains such as McDonald's, which have been wrapped up in a burger price war over the past few months and have been drawing customers from sit-down chains, particularly at lunch.
Chili's knows it has a problem -- CEO Wyman Roberts on Tuesday admitted the company needed to make itself more relevant -- but it's unclear it's willing to do anything too drastic about it.
In a sign the company is really struggling for new ideas, it said it has again resurrected its iconic baby back ribs jingle in a big marketing push that will continue this year.
Chili's had stopped using it in 2006 because "at some point you have to give things a rest," according to then-president Todd Diener. It brought the tune back in 2009 after four straight quarters of declining same-store-sales. Back then, it was struggling to boost sales after the 2008 recession zapped its strategy at the time of opening new stores to fuel growth. The ads worked a little bit of their magic then, but it didn't last. This time around, Chili's needs to work a little harder to make its restaurants sing.
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