The parent of Outback Steakhouse and Carrabba’s Italian Grill is ramping up delivery tests in a bid to win over customers who don’t want to leave home for a restaurant meal.
Bloomin’ Brands Inc. expects to offer delivery at 115 restaurants by the end of the first quarter in multiple tests of various strategies to get food directly to customers. The effort will be focused primarily on Outback and Carrabba’s.
The Tampa, Fla.-based casual-dining operator views delivery as one of the biggest opportunities the segment has had following a decade of industrywide traffic declines. The tests include the use of third-party delivery providers, as well as company-operated delivery service.
“The off-premise opportunity is the first structural tailwind in the industry in quite some time,” Liz Smith, Bloomin’ Brands CEO, said during the company’s fourth-quarter earnings call on Friday. “We intend to capture our fair share of occasions when dining at home is preferred.”
Delivery is a major trend in the restaurant industry, and numerous chains are working to increase delivery. Casual-dining chains, which have seen traffic decline for the past decade, have been increasingly aggressive in these efforts more recently.
Off-premise sales represented 10 percent of sales at Outback, and 11 percent of sales at Carrabba’s.
Smith said delivery could boost those percentages, becoming a $10 billion to $15 billion opportunity for the casual-dining segment by 2020.
“We think this is a huge opportunity,” she said, adding that Bloomin’ Brands will be aggressive in adding delivery, while taking care to make sure it doesn’t hurt quality.
“You have to really nail it and do it right,” Smith said.
Bloomin’ Brands’ delivery test comes as same-store sales fell in the fourth quarter. Same-store sales in the quarter ended Dec. 25 declined 3.5 percent at its four brands, including a 4.8-percent decline at the flagship Outback, a 2.3-percent decline at Carrabba’s, and a 1.9-percent decline at Bonefish Grill. Fleming’s Prime Steakhouse same-store sales rose 0.2 percent.
Executives said they have seen glimmers of hope, however, particularly at Outback. The company said same-store sales at the chain have turned positive so far in the first quarter, and there was a “meaningful change” in sales and traffic trends.
Bloomin’ Brands blames much of its sales problems late last year on a decision to shift away from discounting, which reduced traffic. Dave Deno, chief financial officer, said 2.3 percent of Outback’s traffic decline in the fourth quarter came from reduced discounting.
Promotions will always be part of the restaurant experience, Smith said, “but we were overinvesting in it.”
Instead, Bloomin’ Brands is focusing investments on improving quality and service inside its restaurants.
The company said improving the experience is key to getting customers back in its restaurants. Smith said improvements generate more traffic from core customers, who will spend more money to get a better experience. And traffic benefits come 26 to 39 weeks after investments are made. Discounting won’t be how casual-dining chains recover traffic.
“That is not what’s keeping customers out of stores,” Smith said. “What customers are looking for when they go out is an experience.
“It’s very clear that cheap food is not going to revitalize this category.”
The shift to quality didn’t keep Bloomin’ Brands from announcing the closure of 43 locations in various markets across the country. Many closures were of underperforming locations, including Bonefish Grill and Carrabba’s, in particular.
But executives also suggested that some closures were “strategic,” meaning Bloomin’ Brands decided the restaurants weren’t worth investments it plans to make in its brand in the coming years.
“We didn’t feel they warranted that kind of investment,” Deno said.
Executives don’t expect more closures.
“I think we did the heavy lifting on our strategic footprint,” Smith said.
Bloomin’ Brands also said it’s nearing the end of a major sale of its real estate in sale-leaseback deals, in which it leases real estate back from the buyer. The company sold 159 properties last year to investors for $560 million. It expects to sell another 60 locations, with total proceeds of $700 million.
Much of the proceeds are being sent back to shareholders in the form of stock buybacks.
Contact Jonathan Maze at [email protected]
Follow him on Twitter: @jonathanmaze
