Labor, prices, and systems to balance the battle
Labor cost as a percentage of revenue jumped about 80 basis points to 37.2 percent this past quarter for Chuy’s. That sounds pretty familiar for anybody entrenched in the full-service world. Also like many of its peers, Chuy’s found it needed to take price to protect margins and combat industry-wide labor pressures.
In Q4, Chuy’s effective pricing was about 1.5–2 percent. Historically, the chain takes just one price increase per year. But this is a different kind of beast. Chuy’s rolled over that increase in late January and replaced it with an increase of about 2.75–3 percent, which is marginally larger than its typical average.
The price lift stretched pretty much across the board for Chuy’s. It doesn’t have a barbell menu approach, and sits instead in the $8.50–$14 range throughout. The price was taken more in food than alcohol, however, and upped about 20–30 cents on all items.
There’s more to Chuy’s labor initiatives than price. The chain spoke in recent quarters about an upcoming integration of a labor management tool and scheduling module within its POS system. Expected to finish in Q2 of 2019, this will help Chuy’s mitigate ongoing labor pressures by optimizing labor productivity, as well as enhancing sales projections, Hislop said.
In 2018, he added, staffing levels represented a challenging dynamic. As of Q4, though, “we’re better staffed now than we’ve been in the previous two years,” Hislop said.
“That’s really the internal rock that we’ve worked on the hardest,” he added.
Chuy’s can’t achieve the flow-through and operational efficiency it wants if it’s understaff in the front of the house. Over the last three quarters, Chuy’s witnessed turnover rates of roughly 26 percent in management and 105–106 percent on hourly.
Marketing and markets
A top-of-mind goal for Chuy’s is to improve brand awareness and value messaging as it grows. It tried a digital campaign test in Q4, Hislop said, which returned positive results and define the brand’s 2019 digital marketing strategy. Paid search, paid social, and location-based mobile advertising will remain consistent throughout the first half of 2019, he added.
As a result of a successful media test in Chicago and Washington, D.C., during Q4, Chuy’s continued to focus in these markets for the five weeks leading up to National Margarita Day. Tactics include: promotional radio, posters in public transportation, and advertising on digital platforms like Hulu and Spotify. Moving forward, Q2 campaigns will push brand awareness in Chicago and frequency-driving initiatives in Houston, where Chuy’s appreciates more brand affinity and can home in on traffic instead.
Additionally, Chuy’s said it identified certain test markets where separate and specific local-based plans were more effective. These “out-of-the-box local-store marketing ideas,” and specific day-of-the-week specials are driving transactions, Hislop said. And in response, Chuy’s is increasing its advertising spend about $1.35 million in 2019.
The chain wants to focus on these brand equity opportunities in 2019 over sheer growth. It’s scaling back to five to seven new restaurants and opening only in areas with proven high average-unit volumes.
Chuy’s shut two locations—one in Georgia outside of Atlanta and one in Miami—subsequent to the end of Q4. The closures happened quickly and provided a hard-earned lesson for future development. They opened slow and didn’t show any signs of moving. Both were near malls and one was “one of the lower stores that we’ve ever opened,” Hislop said. Chuy’s went out and partnered with eSite Analytics to make sure it was targeting the right real estate and finding psychographics that fit the profile of an ideal Chuy's customer. Chicago, Miami, Denver, and D.C. are areas Chuy’s expects to grow as awareness builds.
Hislop said Chuy’s would halt growth in new markets until the eSite tool is developed and tested, which will be some time during 2020
