Outback Commits to Holding Margins Amid Inflation

Outback parent Bloomin’ Brands has not taken a material menu price increase since late 2019, but COVID has repeatedly proven that no restaurant is immune to cost pressures and inflation.

For Bloomin’, it meant a 3 percent rise in late November, and potentially more, if necessary.

“We take a look brand by brand-by-brand as to what we're going to do,” said CFO Chris Meyer, describing how Bloomin’ will implement the price hike. “And we made significant headway last year when we looked at how we went to market with Outback, both on products and pricing.”

“We do take where we stand in the value equation with our customer as we look at the various pricing opportunities that we have,” he continued. "Importantly, we haven't taken price since 2019. And so, I'm not saying that we've got all kinds of headroom and opportunity to take price, but we certainly are in a good position in the industry on the pricing front.”

The increase is part of an effort to mitigate inflation, including an expected 10 percent bump in commodities in 2022. Meyer said the market is experiencing elevated levels of inflation across all proteins due to higher consumer demand and product shortages caused by supply chain disruptions. Higher input costs of labor, fuel, freight, and packaging are also contributing to the inflation.

Additionally, Bloomin’ projected labor inflation to be in the mid-single digits in 2022 as restaurants continue to pay higher wages.

READ MORE: Inflationary Pressures Can't Stop Bloomin's Promising Sales and Profits

Despite these headwinds, the company is determined to maintain an 8 percent operating margin framework for the long-term, and Meyer essentially laid out how Bloomin’ can achieve this. He estimated that 10 percent commodity inflation would result in a $100 million cost next year, and that a mid-single digit increase in labor would be roughly $45 million.

For operational expenditures, there will be the typical inflation—potentially more than normal, Meyer said—resulting in another $25 million. Altogether, that’s $170 million worth of inflation that Bloomin’ would have to offset.

The CFO noted that pricing would cover $100 million of those headwinds, and the “significant recovery” of Brazil-based restaurants would make up for a decent portion, as well. For context, the Brazilian business made $30 million in 2019, and the group is expected to breakeven in 2021. They’ve added 15 restaurants in the past two years, as well. Outback restaurants in Brazil saw same-store sales drop 5.1 percent in Q3 compared to 2019, but have increased 7 percent in October.

In an effort to maintain margins, Bloomin’ has also reduced reliance on discounting and promotional LTOs, pivoted advertising spend toward digital initiatives, aggressively pursued efficiencies in food, labor, and overhead, and tested several pieces of technology and equipment.

“When you add all those levers up, there's a path to offsetting the inflation pressures that we could see next year and holding on to the 8 percent operating margins,” Meyer said during the brand’s Q3 earnings call. “ … There’s still a lot more to think about in terms of traffic and marketing ROI and how that comes back into the business."

“But we'll get more into that in February when we had a little better visibility once we get past the holiday season,” he added. “The important thing, I think, for you and for our investors is that we feel very good about our ability to manage the inflation pressures that we see in front of us.”