What is changing?
As Bloomin’ noted in recent reviews, the company poured a lot of capital into the business over the past four years. It spent $50 million on food and service enhancements ($20 million of service training, $30 million food quality, portions, and reduced complexity) and another $400 million on remodels “to contemporize our brand and improve curb appeal,” Deno said.
To put that into perspective, Outback hired 2,600 people, including 1,400 bussers, and added 950,000 support hours. It dedicated 360,000 labor hours to core execution, 46,000 to retraining staff (30,000 employees); recalibrated 610 grills; and added 461 small grills for non-steak items.
Meanwhile, Bloomin’ was aggressively pulling three sales levers—off-premises expansion, loyalty, and international growth. Deno said the changes are, despite the stock price, providing results. Through October year to date, Bloomin’ has outperformed the casual-dining industry on sales and traffic by 100 and 130 basis points, respectively. The third quarter marked the fourth straight period of at least 60 basis points of adjusted operating margin expansion.
Since 2015, Bloomin’ returned more than $1.1 billion to shareholders in the form of dividends and share repurchases.
Let’s break some of that down.
Outback plans to remodel 300 additional restaurants in the next three years to support takeout. The company said 74 percent of its customers prefer direct delivery, which is something Outback has built out to join its DoorDash launch.
Delivery returns checks of $44 and is 70 percent incremental.
As for loyalty, Dine Rewards had just 400,000 members in Q2 2016. There are now 9.7 million signed up.
Just looking at Q3, Bloomin’s diluted earnings per share of 10 cents represented an increase of 25 percent on a comparable adjusted year-over-year basis. Blended U.S. comps were flat with traffic beating industry norms, Deno said. The company posted total revenues of $967.14 million compared to the year-ago figure of $965.02 million.
What makes that traffic note impressive is that Bloomin’ stayed ahead of its peers (mostly) despite internally moderating average guest check to strengthen relative value, which is something few brands are trying. In Q3, traffic outperformed the industry by 210 basis points, with average check rising a measly 80 basis points.
The theory there is that Bloomin’ won’t lose guests later when discounts and promotions pulse out, as it might if it were going deal heavy. The opposite will happen.
As competitors take price to boost check and guard top-line performance, Bloomin’ will be in a position of strength from a value perspective. The near-term effect, however, is a slowdown in traffic compared to what it might have gained through a more incentive-forward calendar. But the fact that hasn’t produced a major drop is a promising sign for Outback.
The chain, for instance, cut its discounting 11 percent in Q3 versus last year, and is down 17 percent year-to-date.
Yet the traffic line over the past two years isn’t that alarming:
- Q1 2017: -2.1 percent
- Q2 2017: -0.8 percent
- Q3 2017: 0.1 percent
- Q4 2017: 4.3 percent
- Q1 2018: 2.2 percent
- Q2 2018: 0.6 percent
- Q3 2018: 0.9 percent
- Q4 2019: 0.9 percent
- Q1 2019: -0.5 percent
- Q2 2019: -1.5 percent
- Q3 2019: –1.1 percent
Here’s a look at average check trends across Bloomin’ in Q3. It looks very different than what you see in most corners of the full-service industry.
At Outback, Carrabba’s, Bonefish, and Fleming’s, they rose 1.3 percent, fell 0.4 percent, climbed 0.7 percent, and upped 0.7 percent, respectively.
Just last year it tracked as follows: 3.7 percent, 2.3 percent, 4.5 percent, and 4.7 percent. As a company, Bloomin’ is at 0.8 percent on top of 3.4 percent in 2018. The change has been swift.
“You’ll see continued healthy traffic growth as we continue to mitigate our discounting. And that allows us to be careful on price increases as we go forward in this value environment,” Deno said.
It's a conscious decision to pivot toward a more temperate pricing approach.
“Over time, as we reduce our reliance on pricing, it will further enhance our value equation relative to peers,” Deno said.
In just October, Bloomin’s same-store sales rose 3.6 percent, with traffic up 2.1 percent. For Q3, Outback’s comps lifted 0.2 percent against last year's impressive 4.6 percent boost, marking its 11th consecutive period of positive gains.
It's clear Outback has progressed ahead of Bloomin's other chains on a two-year stack.
Carrabba’s, which closed a restaurant and now has 226 units (205 corporate), saw its Q3 comps inch 0.1 percent versus a 0.6 percent decline in Q3 2018. Traffic rose 0.5 percent after falling 2.9 percent in the year-ago period.
Carrabba's is putting guest experience first in evolution
Fleming's looks to seize the fine-dining chance
Bonefish’s same-store sales dropped 2.2 percent compared to a 1.8 percent uptick in Q3 2018. Traffic fell 2.9 percent at the 197-unit brand, building a negative 5.6 percent two-year transactions picture.
Fleming’s comps increased 0.4 percent as traffic slipped 0.3 percent on top of last year’s 4.2 percent fall. Bloomin’s fine-dining brand had 69 stores at quarter’s end.
The DoorDash deal
In September, Outback announced a third-party partnership with DoorDash. Delivery through the aggregator is now live in more than 550 restaurants, Deno said.
What made this setup unique, in the casual-dining space especially, was that it complements Outback’s existing in-house delivery program it spent years building. Outback’s $400 million remodel program includes, in most cases, an expanded off-premises room for added order volumes.
Deno said in-house research shows the DoorDash customer is a different type of delivery guest, with distinct purchasing patterns. They come later in the day. Generate a smaller check.
And despite the rollout, Outback’s direct delivery sales have remained strong, “with little to no cannibalization. This future validates our omni-channel approach,” he said.
Delivery is mixing about 200 basis point of Outback’s comp sales currently.
Deno said having the in-house program actually helped since it was embedded into their operating culture already. “We weren't starting from ground zero. That was really important as we rolled it out during September,” he said.