Chili's Virtual Wings Concept Entering a New Growth Phase

It's Just Wings is now in nine countries and 160 locations outside the U.S.

April 29, 2021 Ben Coley

In the past year, the market has been flooded with virtual concepts, many of them in the wing category. The competition has certainly elevated since Chili’s parent Brinker International launched It’s Just Wings in June 2020.

CEO Wyman Roberts said there’s two things around the boldness of a virtual brand strategy. The first is about scale and how many locations a brand can leverage. With 1,200 restaurants in the U.S., It’s Just Wings meets that criteria just fine.

Secondly, positioning a virtual brand isn’t easy. Roberts explained that “a lot of people can throw stuff out on the internet for a delivery company.” But how many can execute it correctly, price it, and have a compelling value proposition? Brinker has the power to do all of those things efficiently. It’s ability to buy and source product brings a definitive competitive advantage.

The CEO said there’ll be some winners and losers at the end of the day, and he's pretty confident about which side It's Just Wings will land. Q3 was the strongest quarter for the virtual brand as Brinker learned how to use it around major sporting events.

“And I think the thing that doesn't get talked about the most, it's probably the most important, is what's it doing to your base business?” Roberts said during Brinker's Q3 earnings call. “And are you able to pull this off? And I've seen examples of people growing maybe three or four virtual brands, and it's just very, very hard for me to imagine how that executes from an operational standpoint. And sometimes, as they talk about simplifying their menu and their base concept, they just don't kind of go together. So you have to be very diligent about all of that to make it work both from a brand standpoint and from a consumer perspective.”

CHILI'S COVID-19 ROAD SO FAR:

Chili's Virtual Wing Brand Adds Takeout with Google

Chili’s Virtual Wings Concept is Expanding Beyond Delivery

Chili’s Sees Dip in Sales as Pandemic Restrictions Tighten

Chili’s is Learning How to Unleash It’s Just Wings

Chili’s Virtual Wings Brand Takes Flight

CEO: Chili's Momentum Cannot Be Matched in its Category

Chili's Owner Launches Virtual Wings Concept

Chili’s Testing Exclusive 3 for $10 Menu for Loyalty Members

Chili’s is Outpacing its Casual-Dining Competitors

Chili’s is Coming Back to Life, and Culture is the Reason Why

Chili’s CEO: No One Will Get More Out of Half a Dining Room Than Us

After seeing same-store sales fall 6.7 percent in January and 8.8 percent in February, Chili’s grew 2 percent in March and 10.1 percent through April 21, compared to Q3 2019. That’s with average capacity in the upper 70s. Roughly three-fourths of Chili’s restaurants are generating meaningful positive results. Off-premises remains sticky with a mix in the mid-to-low 30s.

And it should be no surprise that It’s Just Wings has played an important role in that growth. The concept is still on pace to earn $150 million in annual sales, and its now in nine countries and 160 locations outside the U.S. It’s Just Wings began as a delivery-only brand exclusively through DoorDash. In March, the virtual concept integrated with Google to add a convenient takeout option. The next step in its evolution is a marketing push toward a broader base of consumers. Roberts said consumers won’t see a national campaign, or TV advertisements. Instead, the company will be “very targeted in our approach to knowing how to connect and talk to these consumers.”

Brinker International

It's Just Wings will soon begin a marketing push toward a broader base of consumers.

Roberts said the next phase will initiate in Q4 as Chili’s investigates the upside of pickup.

“We just know just in general, consumers take out more than they deliver,” Roberts said. “So we have to build the brand's awareness and that's going to take a little bit of work. But if you were to just kind of use historic ratios, you'd be pretty encouraged that, hey, a pickup business or a takeout business for this brand could do very well. And so we're excited. That will be the lessons that we learn here in the next couple of months as to how hard is that. how heavy a lift is that to get the brand awareness up and what kind of response do we get.”

Roberts noted that Brinker has experimented and tested several brands now, and they each have unique aspects. Other than It’s Just Wings, the company is also expanding the test of Maggiano’s Italian Classics, which features a variety of pastas, family meals, salads, and desserts.

As Brinker tacks on this second virtual brand, the question will be whether kitchens can handle the extra stress and if it will jeopardize the on-premises experience. Roberts said restaurants are in the process of answering that question right now. Stores are seeing busy, record-breaking nights while operating two virtual brands, and Brinker feels good about their performance.

Granted, there’s still some work to do, but the company is giving operators all the tools they need and putting the systems in place to execute. Roberts said the good news is that with higher volumes, there’s additional labor in the kitchen. If a restaurant is doing enough volume on a virtual brand, it will have a dedicated cook just focused on that.

“That's, again, the beauty of the scale, the beauty of the resources we have here, both supply chain and our culinary people and our op support people and the great operators we have,” Roberts said. “So it's not to be taken lightly and we don't take it lightly. And that's why sometimes, I think people wonder why we're just not rolling out the next virtual brand tomorrow. And it's like, oh, we want to make sure it's absolutely locked down and that we can support our operators.”

Labor Issues

The current labor environment is unprecedented, Roberts said.

He can’t remember this kind of robust economy with nine to 10 million people out of work and not looking for a job. It’s definitely a headwind, but the CEO doesn’t believe it’s a long-term situation. Brinker said the company is focused on leveraging its scale and systems to staff restaurants so that managers can keep stores open and maintain the guest experience.

The company is doing it in a way that doesn’t significantly impact cost structure, like using a little more overtime than it would historically use.

“And so there are some additional things we're doing to entice and to recruit,” Roberts said. “But for the most part, they're more variable and they’re incentives to get people to join and not so much about the long-term wage rate impact that we'll live with for a longer period of time. So we feel good about that.”

“We also feel good about the fact that we're just not out there as aggressively having to hire because we just didn't cut as many, and we didn't cut any managers,” he continued. “So those are things that are keeping us probably in a little bit of a better situation than maybe some that didn't kind of fair as well as we did through the pandemic. So again, more short-term impacts than longer term, and we'll continue to monitor this and see how it plays out over the next couple of months.”

Chili's

In response to labor pressures, Brinker hasn't priced at all. Instead, the company has focused on building traffic.

Despite labor costs running at the higher end of 3 to 5 percent and stimulus circulating the economy, Roberts doesn’t expect above-average menu pricing in the next year. As Roberts puts it, “if anyone’s got pricing powder, if you will, that’s kept dry, it’s us.”

He said Brinker hasn’t priced at all. Instead, the company has focused on building traffic. If it needs to be more aggressive on pricing, it has the ability to do so, but it’s a last option. Roberts also noted that consumers compromised on two main areas during the pandemic—menu selection and pricing. The same won’t be true as the economy continues to open.

“Consumers kind of understood it,” Roberts said. “There was a pandemic. But I think in the future, they're not going to carry those. Those are things I don't think they carry forward. I think they're going to want convenience and everything else, but I don't think they're going to just say, ‘Oh well, it's OK that you've overpriced and cut my selection.’ And we didn't do either of those things. So that's why we feel really good about where we're positioned.”

In other news, Brinker opened two Chili’s in Q3 and two more in April, bringing the total to 10 for the fiscal year. The company is working toward expanding new restaurant development to a range of 18 to 22 units annually. In fiscal 2021 Brinker will invest approximately $20 million to enhance digital guest connectivity, support virtual brand growth, and improve the in-restaurant dining experience.

Brinker ended Q3 with 1,235 Chili’s restaurants in the U.S. and 368 internationally. Maggiano’s finished the quarter with 54 domestic restaurants.

Same-store sales at company-owned Chili’s restaurants slid 5.3 percent compared to 2019. Those stores also saw pricing of 0.9 percent, a mix-shift of 0.3 percent, and a traffic decline of 6.5 percent.

Maggiano’s comps declined 9.9 percent in January, 38 percent in February, 29.5 percent in March, and 19.7 percent through April 21 compared to 2019. In Q3 overall, the chain saw pricing of 1.8 percent, a mix-shift decrease of 1.5 percent, and a traffic decline of 10.2 percent in comparison to 2019.

Restaurant operating margin in Q3 increased to 13.9 percent compared to 12.8 percent last year. Operating income lifted to $52.2 million as compared to $41.1 million in the prior year.