BJ's Rides a Red-Hot Year to Long-Term Success
There’s no denying BJ’s Restaurants had a banner run in 2018. But CEO Greg Trojan doesn’t want to become a prisoner of the moment. Taking market share isn’t exactly a revolutionary concept for the 202-unit brand, founded in 1978 and public since 1996 (the company was known as Chicago Pizza & Brewery prior to August 16, 2004).
In fact, over the past five years, BJ’s has outpaced the casual-dining industry in traffic and sales by an average of about 100 basis points, according to Black Box data. However, BJ’s performance has never quite looked like this.
The graph below illustrates how BJ’s comp sales have progressed over the past five years.
Thanks to five openings in 2018, the chain’s revenue rose 8.3 percent. Traffic was up 1.6 percent, which beat BJ’s competition by about 270 basis points as the brand achieved its fifth straight quarter of positive guest counts. Even more, BJ’s plans to contribute nearly $300 million in annual sales this coming year as new openings join the base. “We believe our ability to drive share, in good and challenging periods, reflects favorably on our path to make BJ's the best causal dining concept [ever] by focusing on food quality, value, service, and great guest experiences,” Trojan said, echoing a goal shared over the years by BJ’s management.
Broken down, here’s what 2018 looked like in same-store sales:
- Q4: 4.5 percent
- Q3: 6.9 percent
- Q2: 5.6 percent
- Q1: 4.2 percent
It’s worth noting that Q4 stacked on a positive 1.6 percent quarter in 2017, showing consistency in BJ’s momentum. The previous six quarters were all negative.
This past quarter did show some deceleration compared to previous periods in 2018, but that’s all relative to BJ’s own success. The 1.1 percent traffic growth, for example, was below its 2.6 percent Q3 growth. This was to be expected, though, as BJ’s lapped key growth initiatives, like delivery, slow-roasted menu, and operational efficiencies such as server tablets. And BJ's results are tepid so far in Q1, around 1–2 percent, due to extreme weather, the brand said. But that should turn as the forecast does.
In Q4, BJ’s was able to drive restaurant-level operating margin up 50 basis points to 17.2 percent and lift overall operating margin 90 basis points to 5.1 percent, surging profits. The chain, which previously said it would slow growth to focus on sales performance, debuted just one restaurant in Q4. It plans to accelerate development to seven to nine locations in 2019 from 2018’s five openings.
Years, not a year, of changes
BJ’s strategic pillars have matured for years now, Trojan said. What’s happening currently, the spike you’re seeing, can be credited to a couple of dynamics. BJ’s is cashing in on long-term plans that cost heavy in the short-term, and going deeper on initiatives that worked historically. It’s not a sudden shift in strategy.
Let’s unpack the menu avenue first. BJ’s has done a masterful job balancing value with check growth. The chain’s daily Brewhouse Specials and Happy Hour offerings continue to drive traffic. And BJ’s refuses to take pricing on any of those key value leaders. In 2019, it’s actually adding slow roast pork and tri-tip sirloin items to the Brewhouse Specials, which embed everyday value into BJ’s core menu. The success of both platforms allowed BJ’s to stray from intense promotional-based activity. Trojan said BJ’s would continue to disproportionally protect its lower price-point offerings in 2019 and use its broad menu to implement nominal pricing. All without sacrificing the fundamental value appeal guests expect. BJ’s menu features more than 140 offerings and stretches the high-low gamut with hard-to-rival variety.
In early February, BJ’s introduced zucchini noodles, or Zoodles, to its EnLIGHTenment entrees geared toward health-conscious guests. On the other side, the slow-roast lineup tracks indulgent and higher on the price bar. That kind of value in abundance courts a different guest than the daily deals. BJ’s is adding a tri-tip sirloin entrée in March and plans to continue bringing more options into the fold as it expands slow roast oven capacity. BJ’s launched prime rib, pork chops, and fresh roasted turkey items in mid-2017 with the platform, which carried a heavy cost upfront but has since paid dividends. In Q3 alone, the slow-roast menu saw a 16 percent rise in orders versus the prior-year period. This thanks to a near doubling of BJ’s prime rib and double bone-in pork chop entrees.
It’s helped drive check in balance with the value promotions. Check growth is somewhere between 2.5–3 for BJ’s right now. This as guest traffic levels steadily climb. Combined, BJ’s will have the ability to manage profit margins given the current cost environment.
“We believe our continued balance of product mix and promotion will enable us to achieve check growth again in 2019 while continuing to protect the important value proposition that is core to our concept,” Trojan said.
When asked about the overall value climate for restaurants, Trojan said a healthier economic environment allows some chains to pull back on the depth of discounting. BJ’s would rather invest in its current everyday value elements, like the Happy Hour and Brewhouse Specials, than run promotional programs or deeper discounts. “We’re going to continue to, with the breadth of our menu, be able to drive check where people want to spend those extra dollars on great value and quality, but also being present on all dayparts with very compelling everyday value and price points,” he said. “That’s really central to our strategy when it comes to be competitive on value.”
Labor, and the ‘dogfight’ ahead
One of BJ’s priorities for 2018 is to implement improvements to the physical organization of its kitchens, along with some back-of-house labor responsibilities. Trojan said these changes should lead to better quality, speed, and enhanced employee satisfaction.
BJ’s is electing to take this route to improve efficiencies related to prep, walk-in, storage organization, food safety and sanitation, and cook-line organization as opposed to reducing labor hours. Getting the systems in place will take about 125 hours of training per restaurants, CFO Greg Levin said. Not to mention the additional learning curve that will carry through the end of Q2. All said, labor should represent about 36 percent of costs for BJ’s moving forward. But it’s a burden worth tackling in that format, especially given what’s coming down the pipe in terms of wage growth.
The chain saw about a 4.5 percent increase in average hourly wages in Q4. It absorbed another minimum wage increase in California and expects to face pressures both at the hourly and manager level in 2018. Total, BJ’s predicts upward pressure in the 5 percent range for 2019.
Regardless of how labor shifts, BJ’s plans to rely on sales initiatives to balance the burden. Because, right now, its restaurants are fully staffed and net promoter scores are surging. That’s not a coincidence.
“It's one of the reasons that we're looking at our kitchen systems … It's not about taking labor out, and I know everybody wants to come up and figure out ways to take labor out,” he said. “We'll always look at that and become more efficient, but it’s also setting up our restaurants to make it easier to work in our kitchens and make it more productive and efficient that way just so we can hold on to people.”
Some of these operational changes could lighten another issue.
“I think a lot of restaurants are putting in more overtime then they like and you end up paying a higher wage rate there,” Levin added. “So, we're hoping that some of the things we put in place here will help reduce overtime and keep wage inflation lined up.”
Overall, BJ’s turnover rates were actually a bit lower in 2018 versus 2017.
“But that being said, it's just a dog fight out there and I think, as Greg mentioned, we're focusing on retaining more people, particularly the great people that we have and the kitchen initiative, as an example, is how do we make it a better place to work in our kitchens,” Trojan said.
What BJ’s doesn’t want to do is cut hours, he added, “and make it harder on our people. That's the last thing we want … Thinking differently about staffing gives us a competitive advantage, and attracting people is a high priority.”
A new pillar emerges
When BJ’s delivery launched in 2017, the channel, naturally, represented zero gains in its business. Off-premises sales at that point were about 5 percent (entirely take-out). Today, BJ’s is at 9.5 percent. The growth has taken place primarily through delivery as take-out maintains a relatively flat number as a percentage of total sales. The growth has been highly incremental. Even more so than, say, if it was taking place at a chain starting from a point of 20–25 percent off-premises sales.
In that case, “you might end up having a little bit of cannibalization from takeout to delivery,” Levin said, “where I think where we’re starting from it’s a little bit more of an incremental growth aspect of it versus maybe a different type of concept.”
Trojan added that BJ’s remains underpenetrated compared to the industry in off-premises, even with the growth, particularly in large-party occasions. He said BJ’s would improve its large-party offerings in 2019 and enhance order technology.
Delivery and off-premises isn’t sagging four-wall business, either, Trojan said. He did address some of the concerns operators in the third-party space face. “In terms of profitability as we all, as an industry, talk a lot about, the marginal economics are less attractive than someone coming in and joining us in restaurant, but nonetheless, as long as we continue to be convinced—and I think we will continue to be convinced—that this is an incremental occasion, the marginal economics are still quite attractive,” Trojan said.
“At the end of the day, as we say internally here, we're counting dollars, not percentages and the incremental dollars help us leverage a lot of our fixed infrastructure costs already invested in the business and in our G&A here and we think it's a great way to keep growing our business,” he added.