Eat with style, and more
Brinker International (NYSE: EAT)—which operates around 1,232 Chili’s Grill & Bar locations in the US and 364 internationally—has been surging ahead of its peers by acknowledging inflation fatigue, and then tempting potential customers with a meatier offering.
The fast casual chain, known for its burgers, has specifically placed McDonald’s Corp (NYSE: MCD) in its sights, launching new products like the Big Smasher it promoted as having “twice the beef of a Big Mac.” Last month, Chili’s took another swing at the world’s biggest fast food chain with the introduction of the Big QP—which stands for Bigger than a Quarter Pound—to its “3 For Me” menu that comes with fries and bottomless chips, salsa and fountain drink for just $10.99. The value proposition is simple, with a McDonald’s Quarter Pounder with Cheese Meal currently priced around $11.99.
“As consumer frustration grows faster than the cost of a drive-thru meal, Chili’s Grill & Bar is once again coming to the rescue,” the company said with the announcement of a tongue-in-cheek ‘Fast Food Financing’ pop-up in New York, styled as a mock payday loan shop, that rewarded visitors with gift cards.
The novelty-driven messaging has been working, and Brinker on Tuesday reported same-store sales growth in its latest quarter of 31% that was largely driven by a 21% uptick in traffic. Operational improvements including menu simplification, system tweaks and efforts to retain workers in high turnover roles like dishwashing helped increase its margin from 14.2% to 18.9%. McDonald’s, in its latest quarter, saw comparable US sales decline 3.6%.
Dining fundamentals
“These results were achieved by our continued focus on the fundamentals of casual dining: food, service and atmosphere,” Brinker CEO Kevin Hochman said on a call with investors after the company also raised full-year guidance on momentum that has not slowed down. He said marketing is drawing in new customers, while operations teams are focused on keeping them coming back.
“Our world class marketing team also continues to find new ways to insert the brand into pop culture and differentiate Chili’s from its casual dining peers,” Hochman continued. “This is what we call building the brand over time and is a way to separate ourselves from a sea of casual dining competitors.”
Despite the solid quarter that exceeded analyst expectations, Brinker shares quickly declined 15% after the results release in a move that suggests investors may be concerned about the company’s ability to maintain the upward trajectory as other players in the highly competitive industry try to catch up. The shares are still up 137% over the past year, however, drastically outperforming peers including Applebee’s owner Dine Brands Global (NYSE: DIN), Darden Restaurants (NYSE: DRI) and Bloomin’ Brands (NASDAQ: BLMN).
Fast food staples haven’t fared much better, with McDonald’s shares rising 14.8% over the past year, while Burger King owner Restaurant Brands International (NYSE: QSR) is down 11.4%. Wendy’s Co. (NASDAQ: WEN), which is also known for its salty social media presence, declined 37% over the same period.
A trip down memory lane
Back at Chili’s, Hochman reported that traffic into its restaurants was holding up. CFO Mika Ware, meanwhile, said the company is well prepared to absorb any tariff-related price increases that come its way, as nearly 80% of its supply chain is already sourced from within the US.
“I don’t think that the value equation is just about the lowest price, and I think we’ve proven now it’s about both the price as well as what you get and the experience that you have,” Hochman said. “I think what you’re seeing in the industry is the guys that are growing market share right now, they’re the ones that generally have better experiences.”
The chain is also planning to bank on another big phenomenon: nostalgia.
The Chili’s jingle for its Baby Back Ribs is an icon of the 1990s, and it’s been leaning into the resurgence of classic brands from the era with the recent launch of a Saved by the Bell–inspired margarita being promoted by Tiffani Thiessen, the actress who played one of Bayside High’s most famous alumni in the beloved high school comedy series. Continuing with the foray into vintage television, it also opened a location in Scranton, Pennsylvania that channels the hit sitcom The Office—which was set in that city—for anyone who’d rather relive the oughts, and the social media campaign surrounding it has so far generated over 9 billion impressions.
Chili’s has found success in bringing in inflation-rattled customers looking for a deal and serving them a bigger burger. It’s now promising to take them back to the days when none of the current economic morass was even a worry, even if just for a few hours.
