Michael Halen of Bloomberg Intelligence, George Felix of Chili’s, and Nicole Portwood of Salad and Go share their perspectives in CREATED Talks
CREATE: The Event for Emerging Restaurateurs was designed to provide busy restaurateurs with useful information in quick, easily digestible presentations, sort of like TED talks. In fact, the program included three quick 20-minute presentations called CREATED Talks.
They began with Michael Halen, senior restaurant analyst for Bloomberg Intelligence, who gave us a rundown of the macroeconomic environment operators face.
“Restaurants are the canary in the coal mine,” he said; they’re an early indicator of what direction the economy is going, and for the past several years now, they have indicated that people are pulling back on their spending. That’s particularly true of low-income customers, but Halen said a recent survey indicated that 74% of consumers are cutting back on restaurant spending.
On top of 36 out of the past 38 months saw negative traffic at quick-service restaurants, the segment that caters most to low-income consumers.
Halen said the pullback was in response to rising menu prices, and is impacting most segments, including most fast-casual restaurants, with the notable exception of Chipotle, which continues to enjoy sales growth.
Casual dining chains are also suffering from low traffic, but family dining not so much, he said, maybe because consumers are trading down from casual, he said.
But fine dining is back as wealthy consumers continue to spend: Their equity in real estate continues to accrue, and their retirement plans look to be in good shape thanks to the bullish stock market.
Meanwhile, 50% of low-income consumers now have credit card debt, up from 39% in 2021, and 90-day delinquencies are 7% higher than before the pandemic.
On the bright side, real income has increased for 16 straight months, meaning that the inflation rate is lower than increases in income.
Minimum wages are slated to go up in nine states, including big ones like Florida and New York, which could affect restaurants’ profitability, but employee turnover rates are improving, reducing the expenses related to training.
To help bring customers back, chains are spending more money on advertising and also discounting.
Halen advised against straight discounting because it devalues guest perception of what an item is worth, but strategic pricing — varying menu prices based on the market, can be a useful strategy. He said Chipotle has “crushed it” thanks in part to its strategic pricing.
“They’re pricing down to the individual unit level,” he said.
Of all the different segments in society, Gen Z — those born after around 1995 — is the only one Halen expects to spend more in the next 12 months. He said they don’t remember the Great Recession of 2008-09, so aren’t worried about an economic slowdown. Perhaps more importantly, “most of them aren’t working and they have their parents’ credit cards.”
Chipotle is not the only chain that’s doing well at the moment. So is Chili’s Grill & Bar, and its chief marketing officer, George Felix, told attendees how the casual-dining chain is succeeding during this challenging time.
When Felix joined Chili’s two years ago, he said the in-restaurant experience at the chain “wasn’t ideal.” Maybe more importantly, “Chili’s had lost its relevance,” he said.
In the past, Chili’s, which probably introduced most American consumers to fajitas, appeared with some frequency in pop culture, including in The Office, the Austin Powers films, and of course, boy band NSync created their own version of the Baby Back Ribs jingle.
Felix delved into the brand’s archives to understand its history better and also mapped out its brand purpose. That purpose is to make everyone feel special through a fun atmosphere, delicious food and drinks, and “Chilihead hospitality,” Chilihead being the term for employees.
“The success we have is really due to the 60,000 Chiliheads,” Felix said.
He also had to determine where the brand should sit trend-wise: It’s not supposed to be cutting edge, but at “the forefront of the mainstream,” being cool without being off-putting. Hence new items like the Big Smasher, which ties into the ongoing smash burger trend while also resembling a larger version of the Big Mac, an item that has received flack as the Golden Arches has raised prices.
In fact, Felix and his team coined the term “McSpensive” as a reminder of how Chili’s should position itself.
Chili’s also introduced Nashville Hot sauce as an off-menu condiment for its fried mozzarella, an item that took on a life of its own as TikTokers created videos of themselves pulling the stretchy, stretchy cheese.
Chili’s also rationalized its menu to streamline operations and make the lives of its employees easier. It cut 25% of the menu in the past two years to focus on its “core four” categories of fajitas, burgers, Crispers (Chili’s version of chicken tenders), and Margaritas.
Next, Felix had to determine what drives guests to the brand, which he found was “great food served in generous portions at good value.” Hence, the 3 for Me menu offers guests a starter, beverage, and entrée for as little as $10.99. But half of the guests who buy the 3 for Me deal do so at higher price points of $14.99 or $16.99.
Felix said value doesn’t just mean a low price, but “what you get for what you pay,” which was why customers were willing to upgrade for more premium items.
As CMO, Felix leaned into some of the chain’s key marketing assets, including the popular Baby Back Ribs jingle, which he had Boyz II Men sing again in a recent commercial, and also sponsored a NASCAR car.
Although he acknowledged that few chains have the resources to do that, they can leverage their social media presence, no matter their size.
For example, Felix noticed a customer in Georgia who placed a huger order to cater her wedding and shared it on social media, so Chili’s launched wedding catering and offered it for free to the first three people who proposed in a Chili’s restaurant.
The result was more than 700,000 media impressions.
But that was nothing compared to the cheese pull videos of their fried mozzarella.
“There were like 50 million views in May,” he said, and they got another 50 million once the Nashville Hot option was “leaked.”
He said those successes don’t require a lot of money but instead understanding what their customers crave.
But people don’t, or at least probably shouldn’t, live on fried mozzarella alone, and the third CREATED talker presented a strategy to make nutritious food convenient and affordable.
Nicole Portwood, CMO of drive-thru chain Salad and Go, discussed that company’s vision for bringing nutritious food to as many people as they can.
“Americans are fed up with food inflation,” she said, adding that the current prices make it hard “for people to eat, let alone eat well.”
At least in the past, fast food was cheap, if not the healthiest option, she said. And although there are now plenty of salad concepts, they’re even more expensive than traditional quick-service options.
Salad and Go is “everything that the fast-food industry has been missing,” she said. It offers high-quality ingredients and better-for-you items, such as ranch dressing made with aquafaba, a chickpea derivative that reduces its calorie count. Prices for a salad with protein start at $6.79.
That’s because the Arizona-based chain has large central kitchens that wash, cut, and prepare everything and then ship them to small-footprint stores of around 750 square feet. The model cuts down on real-estate costs as well as labor, since they can be run by as few as three employees.
“We make this accessible to so many people who have been left behind” by our modern food system, she said.
Salad and Go has invested hundreds of millions of dollars in its infrastructure, and is now up to 150 locations. It’s looking to expand to states with the highest obesity rates, to “ensure that customers have the full spectrum of choice.”
Contact Bret Thorn at [email protected]
