Chili's Resurgence: Factors Behind Its Recent Success

Chili's resurgence stems from improved dining experiences and effective marketing strategies, driving significant sales growth amidst industry challenges.

### The Resurgence of Chili's: From Struggles to Strong Sales Growth
* 🍔 Chili's Grill and Bar has seen a remarkable turnaround, with fourth quarter sales **increasing nearly 15%** compared to the previous year, highlighting its ability to **resonate with today's consumers** in a challenging restaurant market.
* 📈 Brinker International, the parent company of Chili's, reported total revenues **exceeding $4.4 billion** in fiscal 2024, marking an **all-time high** for the company.
* 🔄 The brand's revival is attributed to CEO Kevin Hochman's strategic focus on **simplifying the menu and enhancing the dining experience**, leading to a **$440,000 increase in average sales per restaurant** over the past two fiscal years.
* 📉 In a significant shift, Chili's has reduced its menu by **more than 20%**, which has not only streamlined operations but also **improved guest satisfaction metrics**.
* 💰 The chain has invested **$200 million in capital expenditures** to improve restaurant facilities and enhance customer experiences, contributing to a **6% spike in traffic** in the most recent quarter.
* 📱 Social media has played a crucial role in driving sales, with viral items like the "**Triple Dipper**" mozzarella sticks accounting for **nearly 40% of growth** in the past quarter.
* 🍽 Chili's has successfully positioned itself as a **value-oriented alternative to fast food**, with its **$10.99 Big Smasher meal** appealing to consumers seeking **affordable dining options** amid rising food costs.
* 📊 Despite strong sales, concerns remain about **sustaining growth and profitability**, particularly as value offerings may not generate **high margins**, necessitating a **balanced menu strategy** to attract **diverse customer segments**.

Why are people going back to Chili's all of a sudden? I don't get it. Chili's Grill and Bar is an anomaly in the restaurant space right now. Hey Joe, can I get a thousand island please? At locations that have been open for more than a year. Chili's fourth quarter sales increased nearly 15% compared to the same time period in 2023. In a segment that is seeing declining traffic and flat sales is a tremendous accomplishment, and I think it speaks to how much what they did really resonates with today's consumer. Chili's parent company, Brinker International, reported its total revenues surpassing $4.4 billion in fiscal 2024. That's an all-time high for the company. While the brand has experienced some internet virality over the past few months, its current success didn't happen overnight. I've actually been at this turnaround for now. It's a little over two years, and we just started with

the fundamentals of casual dining. That sounds easy. It sounds kind of a little bit of motherhood and apple pie. The reality is it's really, really difficult to execute. So how did Chili's do it, and can they keep it up? Brinker International owns Chili's and Maggiano's Little Italy. Chili's accounts for more than 85% of its business. Its growth was pioneered by the founder of casual dining, Norman Brinker, who acquired the chain in 1983. There is a long-term history with Chili's that goes back to the Norman Brinker days. A lot of pride and having fun at the restaurant operations led culture. It was very much a youthful brand that was differentiated from grill and bar peers. The chain grew quickly, reaching a peak store count of over 1300 U.S. locations by 2008, and Brinker International's annual revenue had exceeded $4 billion. The recession hit the restaurant sector hard, especially casual dining, as consumers increasingly

opted to eat meals at home. Chili's has shut down stores almost every year since. And that brand slowly lost its way, often pursuing things that were outside the brand parameters. Extending the menu too far. For example. Why did you feel the need to narrow the offerings a bit? It? Yeah, you know, I think in legacy brands, it typically the way to try to get short term sales growth is you add more items and that will work in the short term, but it makes it very difficult for the restaurant teams to be able to execute unless the business is growing fast enough where they can afford more labor, it's very hard to run that menu. And so that's what we had. Guys I have a start out to 84. It would make our lives difficult on a Friday or Saturday night when we're really busy, and each zone in the kitchen is trying to pump out food as fast as possible and try to make a quality dish, and sometimes

that quality suffered. There was also a misguided focus placed on takeout and delivery. After falling from its highs in 2007, Brinker's revenue remained relatively stagnant in the decade leading up to the pandemic. Even the three years preceding Covid, the profitability of the business had gotten worse, partly because they were pursuing off-premise businesses. Ultimately, they took the money out of the advertising budget and put it into third-party delivery initiatives and even virtual brands to reach the consumer with the kitchens and the assets that they had. Well, those initiatives hurt the on-premise business. That all changed when CEO Kevin Hochman stepped in in 2022. Brinker International's 2024 revenue surpassed the highs it saw in the early 2000s. What's changed? Why are Americans going back to Chili's? What's happening is one, the actual experience is a whole lot better. But then two, you know, our marketing team has done a great job of getting back into the, we call it the zeitgeist or being relevant.

again. We weren't always at the top of the tier, and over the last two years, we've just seen such a turnaround. You know, from the support we get from, you know, our bosses to the technology, the culinary innovations, all of those things. It made Chili's fun again. Over the past two fiscal years, Chili's has grown its average sales per restaurant by about $440,000. That's 14% more than what it was before. In the same time period, Hochman says the menu has shrunk more than 20%. Now typically, you don't get rid of menu items because you're going to lose sales. We got rid of almost a quarter of our menu, and I'm happy to say that that simplification has worked. We have grown the business, we have improved guest metrics, and that's why we're beating the industry pretty significantly right now. In the 2024 fiscal year, Brinker International has invested $200 million in

capital expenditure. That means it was investing heavily in repairs, maintenance, and improving its restaurants overall. Brinker International share price is up around 60% since the start of 2024. But despite strong sales, the company did miss Wall Street's expectations for earnings in its most recent quarter. We went and put more labor into the restaurants, which is expensive. We accelerated facility improvements that we probably would have done next year and pulled them into this year. Wall Street didn't anticipate us making those additional investments to try to hold on to more of that traffic. And that was the change in expectations versus what they were seeing and what we knew. Traffic spiked by about 6% in Chili's most recent quarter compared to the same time period of last year. Ay, yo Chili's what. Part of that is due to recent success with social media? You hear 5% traffic growth and you're like, is that that much? Well, it doesn't happen throughout the day.

It happens during peak times. So, that could be, you know, in some cases, it could be 20, 30% more guests coming in. Right. And then spread across the day. It's 5%. So, you really got to staff up. If you don't want lines and you want them to have a good experience. To keep up. Brinker has spent an additional $5 million on staffing. Another $15 to $20 million of labor is planned for 2025. This is called the Triple Dipper. Chili's estimates that nearly 40% of its growth this past quarter came from these mozzarella sticks going viral on TikTok. You cannot tell me that's the most insane cheese pull you've ever seen. Every time a customer orders that, I'm like, oh, you saw it on TikTok? And they're like, yeah, it's hilarious. Within a week, you know what we were ordering in order to fulfill those orders tripled in some restaurants.

probably even more so. We were bringing in so many mozzarella planks that, you know, it was hard to store them all, but you didn't have to because they were going out just as quickly as they were coming in. The chain estimates that the other 60% of sales growth came from its $10.99 Big Smasher meal, meaning it's capitalizing on one of the most important consumer pain points at the current time: value. The inflation rate of limited service dining - think food you order at the counter - has outpaced that of sit-down restaurants for all of 2023 and even the first quarter of 2024, and Chili's saw an opportunity precisely there. How is this Chili's three for me only 10.99 when fast food is so expensive? It could be because we don't have to pay for any mascots. Please. Certainly, they've had decent success over the last couple of years, but this really now has

resonated with consumers in a way that I haven't seen a full-service promotion resonate in quite some time. We're a nostalgic brand that brings people in, and they've leaned into that, and they've leaned into socials, they've leaned into the advertising, and their innovations, their investments are working, and our traffic is up. Our sales are up. Brinker spent $14 million more on advertising in its fiscal fourth quarter of 2024, compared to the same time last year. Applebee's has pushed a similar strategy, but with less success. Its same-store sales have been in the negative every quarter over the past year, while Chili's have been in the positive. You ordered DoorDash nowadays or delivery, and you might pay $17-18 for a value meal of sorts from a fast-food place, and you're not getting a fraction of what we're offering with Chili's. As casual dining is marketing itself as an alternative to fast food. Even the CEO of Darden Restaurants, which owns chains like

Olive Garden and Longhorn Steakhouse said certain casual dining chains are taking customers from fast food competitors. Still, though, from a consumer spending perspective, over the past decade, limited service spending has increased as a percentage of overall sales, while full service dining has decreased. Limited service, which includes fast food and fast casual (i.e., upscale fast food), a little bit higher experience, but we bucket it all together in limited service, has outperformed. Traffic has been good. It's slowed as everything else has. Fast food chains are more exposed to the lower-income consumer who has pulled back with certain discretionary spending. Casual dining has more of a percentage of consumers that are over $100,000 in income. And that exposure, that relative exposure, has been good for them if they have the right value. However, when comparing a chain like Chili's to McDonald's, the scale of the companies must be put into context. Last year, Chili's revenue was around $3.5 billion.

while McDonald's revenue was over $25 billion. Double-digit sales growth is simply much harder to come by when you're that big. Plus, the reality is that consumers who frequent fast food chains versus casual dining chains are often coming from different income levels. Because the interest rates are higher, the wealth effects are less. The long-term real wage declines all hurt the under $50,000 cohort. And unfortunately for McDonald's, for example, they have to deal with that way more than Chili's. In addition to the fact that Chili's has played much better in the value realm and, in fact, quite astutely, Kevin Hochman and team have marketed to that relative value even versus fast food. The real test for Chili's will be sustaining this recent growth for the long haul. Customers need to not only be coming back, but they need to be spending more, too. Full service is not only the traffic conundrum getting people in the seats, but also then generating margin and a lot of the higher-margin items that are

generated by casual dining - alcohol, desserts, appetizers - have been the areas that consumers have cut back on. That's important because restaurants often rely on deals to bring people in the door and get them spending on other things. Value offerings themselves typically aren't generating high margins. At what point does that eat into profit, though? Are you concerned about that as a maybe long term... Well, certainly you have to be concerned with that because ultimately we have shareholders, and we got to have a great rate of return. You know, one of the things I'm proud that the team has been able to do is we have what's called a barbell strategy. So as long as we have items that we can offer for guests that want something a little bit more versus some guests that just want a hot price point, and we keep that mix in balance. Right? We're going to continue to grow profitability.

Why Americans Are Going Back to Chili's

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Chili's Comeback: A Remarkable Turnaround

Chili's Grill and Bar has seen a significant sales increase of nearly 15% in its fourth quarter of 2023, defying the trend of declining traffic in the restaurant industry.

The company's parent, Brinker International, reported record total revenues of over $4.

4 billion in fiscal 2024, with Chili's accounting for more than 85% of its business.

The brand's successful turnaround has been a two-year effort, focusing on the fundamentals of casual dining and narrowing its menu offerings for better execution.

Chili's Turnaround: From Struggle to Success

Chili's parent company, Brinker International, faced stagnant revenue and declining profitability for over a decade due to a misguided focus on takeout and delivery.

CEO Kevin Hochman's leadership since 2022 has led to a significant turnaround, with the company's 2024 revenue surpassing its early 2000s highs.

Key changes include a better customer experience, a simplified menu, heavy investment in restaurant improvements, and successful social media strategies, resulting in a 6% traffic spike in the most recent quarter.

Chili's Success Strategy: Staffing and Viral Menu Items

Chili's has experienced a 20-30% increase in guests during peak times, leading to a $5 million investment in staffing and an additional $15-20 million planned for 2025.

The restaurant's growth has been driven by the viral popularity of its mozzarella sticks on TikTok, which led to a tripling of orders in some locations.

99 Big Smasher meal has capitalized on the consumer demand for value, contributing to 60% of the chain's sales growth.

The Success of Chili's Amidst Changing Consumer Trends

Chili's has seen a positive impact from its nostalgic branding and increased advertising, resulting in higher traffic and sales.

In contrast, Applebee's has struggled with negative same-store sales.

The casual dining sector, including Chili's, is positioning itself as an alternative to fast food, benefiting from a higher percentage of customers with incomes over $100,000.

McDonald's, with over $25 billion in revenue, struggles with double-digit sales growth due to its size and the economic challenges faced by its customer base.

In contrast, Chili's has successfully marketed itself in the value realm and is focused on sustaining its recent growth by bringing customers back and encouraging them to spend more.

The restaurant industry faces challenges with high-margin items, and value offerings may impact long-term profitability, but a balanced strategy can help maintain growth.