Half rack ribs, two signature sides, and a Pizookie at BJ's Restaurants.
BJ's Restaurant & Brewhouse

Slow-roast items continue to provide a balance to BJ's daily deals and happy hour specials.

As Costs Rise, BJ’s Won’t Compromise What it Stands For

Despite labor and other pressures, the casual-dining chain won't save its way to success, the company says.

BJ’s Restaurants has never been shy about its ambitions. Spread to 400-plus restaurants (there are 207 today). And, along the way, become “the best casual-dining concept ever,” as chief executive officer Greg Trojan reiterated during the company’s October 24 third-quarter review.

The blueprint for BJ’s remains steadfast, too: Use a broad menu to attract customers to differentiated, center-of-the-plate offerings, while, at the same time, infuse value through lower price points via its Brewhouse specials and happy hour lineups. Deliver competitive value and drive check simultaneously. No easy feat, but something BJ’s has proven more adapt at than most in recent years.

Yet there’s another reality mixing in prominently today, and it sent BJ’s to its first negative same-store result in nearly two years in Q3. Trojan said the brand was unable to offset “arguably unprecedented cost pressures” in the period thanks to historic wage rate increases, higher food commodity costs, and other variable operating challenges.

BJ’s comps declined 0.3 percent in Q3, year-over-year. It snapped a positive run that stretched back to Q4 2017.

  • Q3 2019: –0.3 percent
  • Q2 2019: 2 percent
  • Q1 2019: 2 percent
  • Q4 2018: 4.5 percent
  • Q3 2018: 6.9 percent
  • Q2 2018: 5.6 percent
  • Q1 2018: 4.2 percent
  • Q4 2017: 1.6 percent
  • Q4 2017: –1.7 percent

Before BJ’s headed into the green to close fiscal 2017, it reported six straight quarters of negative gains. Measured against Q3 2018’s 6.9 percent result, this year’s comp is hardly proof of a slump or the start of a downturn, however. The brand is still beating casual competitors by 500 basis points on the top line, according to Black Box data. The industry as a whole absorbed a 125-basis point hit in the quarter versus the first half of the year. This widespread softness is something Olive Garden recently alluded to as well.

Where it really showed for BJ’s, though, was in regards to its restaurant-level cash flow margins, which dropped 190 basis points to 13.5 percent. The company’s net income also fell 56.5 percent to $3.7 million from last year’s $8.5 million. Total revenue upped 3.1 percent to $278.7 million.

Management said Hurricane Dorian impacted comps by roughly 20 basis points in Florida, where same-store sales plummeted double-digits during the first week of September.

But the broader hurdles for BJ’s aren’t so temporary. A clear indication being that the brand’s California restaurants, a state where wage rates continue to rise, were particularly challenged. Labor costs, as a percentage of sales, increased 80 basis points to 37.5 percent in Q3.

Trojan said BJ’s is “aggressively pursuing several initiatives,” to counter these trends and boost traffic. The chain is not going to get off track doing so.

“We will not succumb to the alternative of saving our way to success by making decisions which would reduce service and hospitality levels, compromise prudent maintenance in our restaurants or lower the quality of our menu offerings,” he said. “All of which would erode the trust we have built with our guests and team members.”

Trojan added later that BJ’s recent kitchen productivity enhancements, which it calls “Gold Standard Kitchen Systems,” are designed to help the brand become faster and more productive, not replace labor. “We've seen too many other companies that get on these calls, they talk about the fact that we're eliminating X, Y, and Z positions and all of the sudden they've got a big line at the front door because there's nobody taking care of the guests as they walk in,” he said. “They've got a server that is sweating because they've got 15 tables to take care of. We're not going to go down that path.”

So, what is BJ’s doing to stem the cost storm? It really comes down to diving deeper into what has worked over the past couple of years. And to do so in an even more differentiated and efficient way.

BJ's Restaurant & Brewhouse | Facebook

In the third quarter, BJ’s drove about 2.7 percent check growth.

Subscription beer, more deals, more to come

Perhaps the biggest carrot BJ’s tossed investors in the call was an upcoming paid beer subscription. The company expects to test the program across California in the first half of 2020, Trojan said. BJ’s, which has made its own beer for 20-plus years and has five operating breweries, wouldn’t provide too many details for competitive reasons. “I think collectively we’ve probably won more significant industry quality awards than certainly any chain restaurant out there,” Trojan said. “We think we can bring some pretty unique offerings and value to our beer-loving guests.”

The company hinted at canned and bottled distribution, and possibly having some “unique creative beers” available for subscription members.

In Q3, BJ’s drove about 2.7 percent check growth. It continued to see entrée mix primarily through the success of its slow-roast platform. One of the reasons BJ’s separated from its competitive set in recent months has to do with this high-low structure.

When slow-roasted ovens hit stores in Q2 2017, it gave BJ’s the chance to balance an indulgent tier (not commonly found in casual dining) with daily deals. It’s akin in some ways to how many quick-serves leverage a barbell menu approach to attract customers and then have them ladder up. Like a dollar menu with the hopes diners might add-on or come back to try premium offerings. Wendy’s is a major proponent of this.

BJ’s has accomplished it, however, with a significant customer service element thrown in and 140-plus items on the menu.

In Q3, the brand grew that entrée mix, Trojan said, while also increasing its Brewhouse specials and happy hour incidents close to 10 percent. “As a result, our value scores improved measurably versus last year and we achieved commensurate improvements in overall recommend scores as well,” he said. “Again, we believe our continued success with these metrics speaks to our competitive strength and near and long-term positioning relative to our peers.”

For perspective, in last year’s Q3, slow-roast items saw a 16 percent rise in orders, year-over-year.

The balance BJ’s seeks is straightforward: value and quality through execution—something Trojan said resonates in casual-dining’s saturated arena. Inspiring trial through value but still growing check to offset rising costs. “I think that’s really the key,” Trojan said, “is how can you keep driving great value and deliver the experience and drive some check to offset inflation. That’s really what we’re trying to do here.”

“We will not succumb to the alternative of saving our way to success by making decisions which would reduce service and hospitality levels, compromise prudent maintenance in our restaurants or lower the quality of our menu offerings. All of which would erode the trust we have built with our guests and team members.” — Greg Trojan, BJ's Restaurants CEO.

As is the case with BJ’s plan to bring proprietary beer to the forefront, the chain wants to accentuate its menu equities. BJ’s plans to expand value offerings during lunch and weekend dayparts, Trojan said. Historically, they’ve been more challenged occasions than midweek dinners and late night, shoulder periods. The company expects to test new Brewhouse special deals on the weekend, along with “additional compelling value lunch combinations.”

“We also plan to put in place a value-oriented takeout entrée offer only available with an in-restaurant dining visit beginning in November. This will provide an incremental check-build opportunity for us while delivering great value to our busy guests,” he said. Olive Garden and Maggiano’s have found success with similar in-store/take-out complements.

Additionally, BJ’s catering platform rolled earlier in 2019 and is generating about 25 percent growth, Trojan said, albeit on a small base. He called it a “large opportunity” across all markets, especially ahead of the holiday season.

BJ’s off-premises growth lagged in comparison to previous quarters as well. Trojan said you could credit the chain competing against its full rollout of third-party delivery. Notably, though, BJ’s pulled back on the level of third-party delivery promotions.

Trojan hinted at this shift in recent calls. He said third-party marketplaces have crowded with restaurant concepts, many of which are attempting to drive trial promotionally. As that’s unfolded, the productivity and economics of offers, like free delivery, “have diminished considerably.”

For BJ’s, it’s reduced the pace of delivery growth. That’s a tradeoff the brand is willing to take, Trojan said, to build a profitable foundation in the channel versus “buying unprofitable sales.”

Tech that could change the game

BJ’s is one of the prominent casual chains deploying handheld order devices to speed up service. Trojan said there remains opportunities to evolve the conversation further.

The company has begun testing the ability for dine-in guests to use their mobile phones and other devices to reorder drinks, place Pizookie [dessert] orders, and pay their checks from the table. And to do so without downloading BJ’s app, which is the key.

It’s also working on tech for customers to use those same devices (also without downloading BJ’s app) to order drinks, appetizers, and entire meals while they’re waiting to be seated in the lobby.

Essentially, although BJ’s wants to keep driving customers through its app, it recognized asking people to download was a barrier to greater adoption rates for less frequent guests.

“We're excited about the prospects for this new technology to solve the downloading an app issue for these guests as we provide them tech enabled convenience features to make their dining experiences at BJ's even better,” Trojan said.