Back in 2018, the restaurant industry was already charting into new territory. Store and bar revenue topped $600 billion in the U.S., yet overall growth had slowed, year-over-year. The main culprit was in-store traffic. Coming into COVID-19, off-premises sales increased nearly four times faster than dine-in business, accounting for about 80 percent of domestic dollar sales growth over the last three years, according to financial services company Rabobank.
While that’s a routine point by now, where catering fit was less well-known: It represented, at the time, a $60 billion market growing at 6 percent annually, 50 percent ahead of industry rates. Pre-COVID, 90 percent of restaurant leaders, as reported by ezCater, said catering was strategically important to their business and 91 percent of brands who were growing the channel year-over-year were actively investing in the program.
It fast became one of the sharpest-struck corners of the pandemic era, though. Offices and events went dark. Consumers wanted individually packed, non-communal options. Simply, gatherings took a dive as crowd avoidance became the new social standard.
However, just as dine-in has come back, catering has begun to re-emerge, too. Bloomin’ Brands is banking on it.
The Outback parent company’s CEO, David Deno, called catering a “virtually negligent” part of Bloomin’s business pre-virus. CFO Chris Meyer, when asked what percentage of sales it represented in 2019, replied, “tiny.”
“We built it during the pandemic,” Deno said during a conference call.
Now, Bloomin’ is “aggressively” pursuing the channel, he added, as return to work increases. Carrabba’s saw 46 percent growth in catering sales last year versus 2019.
In many ways, the company’s off-premises pivots supported the channel’s potential. “We offer significant value through our bundles platforms and are expanding relationships to increase market awareness and drive penetration,” Deno said.
Carrabba’s off-premises (carryout and delivery) mix is now 37 percent of sales. It’s a “whole new business” the company has never had before, Deno said. And in that pool of transactions, catering is “way up.”
“It’s a big channel for us,” Deno said. “Carrabba’s is nailing it and Outback is moving in aggressively. So that will be something that we’re going to be doing as well.”
In 2019, Bloomin’ laid out a plan to become a stronger, leaner, operation-centric company. Naturally, the $450 million-plus blueprint didn’t gameplan for a global crisis. Yet Bloomin’ transformed nonetheless, Deno said. In 2021, the company earned $2.70 a share versus $1.54 in 2019, or two-year growth of 75 percent on an adjusted basis. U.S. comp sales finished the calendar up 4.5 percent on a two-year view (30.5 percent against the COVID-strapped 2020). Adjusted operating margins closed at 9.1 percent versus 4.8 percent.
Additionally, Bloomin’ paid down about $300 million of debt last year and posted Q4 revenue of $1.05 billion, well ahead of year-ago figures of $812.51 million.
Much of what defined the brand’s 2019 plan was rooted in guest experience, especially at Outback—$30 million went into food quality, portions, and reduced complexity during a four-year stretch, while $20 million headed to service training. Another $400 million pushed into remodels.
Regarding the latter, Deno said remodels and relocations are providing outsized sales lifts and volumes exceeding $4.5 million.
But the true COVID trigger, unsurprisingly, concerns off-premises sales. U.S. business outside the four walls at Bloomin’ accounted for more than $1 billion in 2021, up 147 percent compared to 2019. Deno said carryout and delivery channels gained throughout, and profit margins are approaching that of in-restaurant transactions.
In 2021, roughly 70 percent of Bloomin’s total domestic off-premises sales flowed through digital channels. Digital sales were $750 million, or 268 percent higher than 2019.
The company implemented a new online ordering system and mobile app and worked to bring as much native business to life as possible. The new app has more than 1.4 million downloads. (More on the app and its features here).
Off-premises revenues were 29 percent of sales at Outback in Q4 and 36 percent for Carrabba’s, as noted. This channel continues to be sticky, Meyer said, and both of these results were flat versus Q3. Overall, off-premises was 26 percent of U.S. volume in Q4. Third-party delivery was 11 percent of U.S. revenues in Q4 versus 10 percent in Q3.
Deno said delivery, generally, welcomes a younger crowd to Outback during different times of the day. Carryout and in-restaurant dining often switch back-and-forth as customers trade off occasions.
The digital growth, however, helped Bloomin’ accelerate other pre-COVID aims. Namely, to cut reliance on deep discounting and promotional LTOs as the No. 1 means to generate new news. Collecting consumer information via digital is moving Bloomin’ away from mass marketing in favor of tailored communications. Or as Deno called it, “advertising spend toward more targeted, higher-ROI digital measures.”
“We have a really good understanding of our customers,” he said. “We’ve gone to that [digital] channel hard. We’re now a multi-channel environment where we’ve got delivery [and] carryout that’s very digital-heavy along with our in-restaurant dining.”
Bloomin’ has no plans to layer deep discounting back into restaurants. “It’s around ideas—product ideas and marketing ideas,” Deno said of the new message.
Meanwhile, Bloomin’ continues to pursue efficiency. It’s planning to roll new cooking technology, including advanced grills and ovens, as well as kitchen display systems for meal pacing, and handheld technology for servers.
Bloomin’ will spend $225 million–$240 million this year, driven by about 30 gross openings (half of which are international) and a $70 million investment for restaurant technology.
The new tools will launch individually, Deno said. The KDS is expected to expand first (within the year), and then the handhelds, depending on availability, should arrive in the coming four to six quarters, Deno said. The grills and ovens, “over the next couple of years.”
Bloomin’ expects at least a 20 percent ROI on the equipment.
“The productivity initiatives that we have on deck for 2022 and then into 2023 are highly enabled by these technology investments,” Meyer said. “So if you think about the $30 million or so that we would like to get this year in overall productivity, it is fueled by these initiatives and then there will be a tail into next year as we roll out and deploy additional units.”
Cost-saving efforts in recent quarters, including a new menu that cuts down on waste with a more focused lineup, helped drive G&A expense down $4.3 million in Q4 from 2019. Marketing expenses were also down $23 million.
Efficiency has taken on elevated urgency of late. Bloomin’ grabbed additional pricing in November and December to offset higher inflation—a common restaurant storyline as 2021 marches on.
Bloomin’ projects the first half of 2022 to have higher inflation than the second. Commodities ran 1 percent deflationary over the first stretch of 2021 and were roughly 2.5 percent inflationary across the back half. Labor inflation, Meyer said, should track in the high single-digital range thanks to wage legislation and a tight labor market.
And so, the company raised prices. With a Q4 bump and an expected increase later this quarter, Bloomin’s total effective pricing will be 5 percent. “It became clear that the 3 percent pricing we previously discussed would not be enough to offset the increased inflationary pressures our industry is facing,” Meyer said. “Given that we had not taken a material menu price increase since 2019, we are confident that 5 percent is appropriate.”
The formula going forward: Pricing plus productivity to offset inflation, Deno explained.
“And we tried to be as modest as possible on pricing because we want to be a great value equation for our consumers, and that’s extremely important,” he said. “And we work very hard to try and protect that.”
Omicron’s surge, plus some weather setbacks, impacted Bloomin’s business by about $29 million–$30 million.
Deno referred to January’s hiring climate as “rugged.” Employees didn’t leave the company necessarily, but they were out sick at a much higher clip than usual. “We had to supplement that a little bit,” he said. “… The staffing for us, the first part of the quarter, was probably the most difficult as far as staffing availability, but that’s getting better.”
“As I talk to our operators and our leaders in the restaurants, it’s still a very frothy market in a market that it’s a war for talent, and you see the impact on inflation,” Deno added.
Overall, Meyer said, the rest of 2021 carries plenty of unknown for restaurants. Bloomin’ will try to control what it can, but the “real wildcard,” he said, will be check average. “Where does that flesh out, and then mix,” he said. “The good news is for us is check average, to this point, early in Q1 has held on really strong.”
In other terms, it’s still difficult trying to predict spending patterns, mobility, and where transactions will actually take shape. Bloomin’, even to its work on improving profitability with off-premises, misses the add-ons and high-margin world of dine-in, like drink orders. As do all full-serves.
Particularly, Outback’s new menu is something it would like to continue building on. Drink attachments are up. People are trading to higher, or larger, cuts of steak, Deno said. It’s allowed Outback to no longer pursue value initiatives.
“And also, the other thing that they did that was really smart was, the combos that they add to the menu have really been great,” he said. “And it’s a prominent part of our menu and the team has done a great job. Obviously, we constructed our price increase at Outback, we had all that in mind. We wanted to preserve that as much as possible because it’s been a nice advantage for us.”