The last 3 years have been tough
for Brinker as less and less consumers are choosing popular fast/casual options
for dinning. Brinker has been slipping in revenue and gross profit since
February 2015 when their stock was at an all time high of $62. The company now
sits at $36 dollars for failing to foresee the shifting customer desires for a
casual meal out. Because of this failure net income for Brinker has dropped by
25% since 2015. The following are key company moves which have been implemented
to right the ship-
Announced in the 2017 annual report, Brinker
announced they will be offering the CEO, Brinker Roberts, more performance
based stock to align the performance of Brinker with the performance of the CEO.
The restructuring grants 500,000 shares of “performance based stock options”.
One half of these shares will vest in 2021 fiscal year if the Earnings Per
Share is over $4.41 and another half of the shares will vest if the EPS is over
$5.00 by 2022. This is a 38% percent increase in EPS compared to their current
level of $3.20 in 2017. I believe these EPS figures are attainable in the 4
year time period. This move is an intelligent way to push more innovative and
drastic changes at Brinker to turn their sales around. Incentivizing top level
management will have trickle down effects to the rest of the company.
To cut down on the bottom line, Brinker has
trimmed the fat of their Chili’s restaurants by cutting restaurant operations
and corporate headquarter staffing. This saved them $5 million in the last
quarter of 2017 and will save them $12 million in pre-tax savings in 2018. This
trimming shows the rest of Brinker employees that the company is struggling and
a reinvention is absolutely necessary. Overall worker productivity should increase
because of these staff cuts.
To fit the preferences with the younger
generation, Chili’s has done a few things in their restaurants to boost traffic
and fit consumer needs. (1) Introducing a quick and high value burger on the
menu, dubbed the “Old Timer”, this burger will cost just $6.99 and they hope it
will boost lunch time traffic and offer a similar price/value proposition to
other fast casual chains such as McDonalds or Whataburger. This burger is
available at this low cost by a new “Smash” burger cooking procedure that
allows the burger to be cooked juicy yet twice as fast as the prior method. (2)
They are finally joining the craft beer revolution by supplying craft beers on
tap which are highly regional and which rotate on a consistent basis. (3) Chili’s
has also reduced their overall menu by 40% to cut their bottom line down and
focus on items that really score well with customers such as fajitas, ribs, and
healthier chicken based items. This will cause less confusion when ordering and
will decrease service times for the quick lunch crowd.
From a marketing standpoint, Brinker is
relaunching a popular branding campaign and bringing back the popular “Baby
back, Baby back” commercials to remind people that Chili’s is back and offering
better than ever food quality, service, and environment. From a brand awareness
standpoint, Chili’s can take advantage of the memorable commercials that
boosted their brand to new levels in the late 90’s.