Chili's Reinvests Big in Operations and Labor
One of the biggest factors driving Chili’s recent traffic boom is refined operations. That was a key component of the Brinker chain’s decision to slash 40 percent of its menu about a year ago.
Guests recognize consistency and improvements. But how do you make sure those fixes are meaningful to customers?
Chili’s is seeing some of the best guest metrics the brand has ever seen, CEO Wyman Roberts said in a January 29 conference call. “Our guests are telling us our execution and quality are significantly better even with the higher volumes. Our operational momentum is bringing guests back into our restaurants.”
“We believe our ongoing commitment to keeping operations simple, and getting it right for every guest, will have long-term impact on bringing guests back,” he says,
Right out of the gate, Chili’s smaller menu allowed it to deliver food faster and hotter. Robert said last January that it cut the number of its longest ticket times by half. Turnover dropped. Employee engagement increased. Back- and front-of-the-house employees appreciated not having to memorize an encyclopedia of options. They preferred not preparing them either.
Reducing complexity has helped the bottom line as well.
“I think the biggest thing we're seeing, and we're already seeing it through the second quarter, is just the impact that simplification and focus has allowed our operators to deliver a stronger P&L,” Roberts says. “With the stability that we now have kind of engaging in the strategy for several quarters, it allows our operators to get their cadence right, to get their systems down even better, and we're starting to see much more consistent delivery of P&Ls throughout the quarters.”
“The biggest thing we can do is just give our operators the clear line of sight on what's coming so that they can operate and hold the business model intact with not a lot of changes.”
The labor issue has evolved, too. Although labor costs increased and hourly wage rates boosted 3 percent, the improved restaurant performance allowed Chili’s to reinvest into its employees. “This translated into higher manager bonuses that impacted margin by 30 basis points, a cost we are happy to pay,” Taylor said.
While a number wasn’t specified, the bonuses managers received were on the higher end of what the company has paid in the past several years. That caliber of payout is expected to continue consistently at that level, Taylor said.
“This quarter one of the challenges we faced on our labor line was that we paid much higher bonuses this year than last year,” Taylor said. “And that's a good thing. And now that's something that we fill that bucket up of manager bonus back to target, and that's something we won't have to deal with this much going forward.”
Chili’s management structure is shifting to positively impact the operations side of the business, while reducing some labor costs. Roberts said management is moving more hourly team members into management positions and, in turn, creating more certified shift leaders within the brand.
When asked about the labor challenges still ahead, Robert said the management changes represent a way for the company to add leadership positions at a lower cost. The certified shift leaders have years of experience in the front and back of the house and their comfort with Chili’s translates into employees who will stay longer.
“Turnover becomes even lower and our turnover has traditionally led the industry,” Roberts said. “So, there are a lot of benefits that come through that program. But not the least of which is lowering some of the cost on labor line.”
Another area of improvement where Chili’s is working to cut down labor costs centers on employee health insurance. Claims fluctuate quarter-to-quarter and in the second quarter increased $2 million compared to last year, which had an impact on operating margins. “But it's not something that is necessarily systemic to every quarter going forward,” Taylor said.
“We had a benefit from a year-over-year change in health claims experience last year, which exacerbated the difference this year,” Taylor added. “So, that actual claims experience, and particularly, if you get high dollar claims experience can have an impact on quarterly numbers, but it shouldn't be viewed as a run rate situation.”