Chili's bets on pizza to drive sales, margins

A systemwide rollout of the new pizza platform at Chili’s Grill & Bar, along with other menu enhancements, are expected to bolster the casual-dining chain’s bottom line, executives at parent company Brinker International Inc. said this week.

Chili’s is rolling out the pizza, which uses new capabilities gained during the chain’s kitchen retrofit program, to all company-owned locations this quarter, said Wyman Roberts, chief executive and president of Dallas-based Brinker.  

“We’ll bring it in to our franchise system once their new kitchens have been installed, more toward the end of the quarter,” Roberts said. “Then we will go on the air with these new products during the fourth quarter.”

In addition to 1,549 Chili’s restaurants, Brinker also owns the 44-unit Maggiano’s Little Italy concept. The discussion of the new pizza program, a major menu addition to Chili’s, best known for Southwestern fare and Big Mouth Burgers, comes as Brinker reported a second-quarter profit increase and an uptick in same-store sales.

Securities analysts looked favorably on the pizza’s food costs. Stephen Anderson, senior restaurant analyst with Miller Tabak + Co LLC, said in a note that Brinker’s food cost outlook had moderated, heading toward the lower end of the management’s guidance of 2 percent to 3 percent in the fiscal year.

“We expect the rollout of pizza throughout the Chili’s system to be slightly beneficial to food cost margins (relative to Chili’s more traditional protein-based entrées),” Anderson wrote, “and we think strong customer acceptance of this new permanent menu item may push [Brinker’s] food cost guidance below the 2 percent guidance.”

Anderson estimates each 25 basis-point reduction in food costs, or each 0.25-percent reduction — “which is what we think the pizza introduction could provide,” the note said — translates into an incremental earnings per share gain of between one and two cents, when all other factors are equal.

Anderson added that he expected Brinker to maintain “tight scrutiny over food costs through both menu engineering and skilled contracting.”

Brinker’s newly-minted chief executive Roberts added that the pizza is positioned as a single-diner meal, and that Chili’s hasn’t seen it being shared extensively. “We have kind of designed it around an individual portion,” he said. “It's a good portion, so maybe you can take some home, and we’re not seeing a lot of sharing, and obviously the cost of sale on that item is very favorable.”

Besides pizza, Chili’s in December introduced some other new menu items, Roberts said.

“We freshened our ‘Lighter Choices’ category with new mango-chile chicken and mango-chile tilapia, and standard appetizer and dessert categories with the introduction of freshly baked chocolate chip cookies and soft pretzel appetizers, items that work well with our new kitchen equipment,” Roberts said.

The new menu items are partially the product of Chili’s new ovens and other equipment that were part of the retrofit kitchens. Guy Constant, Brinker’s chief financial officer, said Chili’s is on track to complete the retrofits at all domestic franchise-owned restaurants by the end of March.

“We have completed 255 Chili’s reimages to date and by the end of fiscal 2013 we anticipate being complete on 370 company-owned restaurant reimages,” he explained. “We now have fully completed the reimage in 11 markets with an additional four markets in progress.”

Brinker is also planning to again start adding restaurants to its domestic count after a four-year hiatus from growth, Roberts said. Openings will be “in the neighborhood of 12 Chili’s in the next year and two to three Maggiano’s,” he noted.

 “We haven’t really built restaurants in the U.S. in quite a while, so there are some opportunities that have made themselves available over the last few years that we’ll take advantage of,” he said.

On Tuesday, Brinker reported net income of $37.2 million, or 50 cents per share, for the second quarter ended Dec. 26. In the same quarter a year earlier, Brinker earned $35.7 million, or 44 cents per share. Revenue rose 1.1 percent to $689.8 million.

Contact Ron Ruggless at ronald.ruggless@penton.com.
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