Thanks to advertisements, the casual-dining chain is enjoying a wealth of frequency and market share and more attention from existing and lapsed customers. 

As it turns out, Chili’s was ready for its close-up. 

The chain launched a TV advertising campaign—its first in more than three years—at the end of February through all of March. The goal was to drive traffic through food spots that showcased Chili’s leading value platform. The brand emphasized its 3 for Me Oldtimer with Cheese $10.99 meal, which includes a nearly half-pound premium cheeseburger, endless chips and salsa, and a bottomless soft drink. 

“We believe that offers superior value, not just in full-service restaurants, but also versus fast casual and fast food,” Brinker CEO Kevin Hochman said during the brand’s Q3 earnings call. “The abundance and quality of that meal is unbeatable, but it had been a while since we told customers about it.”

During the campaign, Chili’s aired spots on prime-time TV, March Madness, and major streaming sites like Hulu and Paramount+. As Hochman explained, “Basically if you watched a screen, it would be hard to miss us.” Results were encouraging, the CEO added. The ads drove frequency with existing customers, brought in lapsed guests, significantly narrowed the traffic gap between Chili’s and its peers, and accelerated market share, which continued into April. 

“I mean that is a very, very high quality and abundant meal,” Hochman said. “And I think that’s why we saw significant market share acceleration when we turned that advertising on in late February throughout March and then even throughout April when we turned off the advertising, we saw repeat guests coming in for that offer. If you talk to our team members and what they were experiencing when we [turned on] the advertising—either guests that they hadn’t seen in a while or new guests—the comment that they’ve got frequently was like, ‘Wow, the food that you’re serving me, actually looks like the food in the advertising.’ And so, they’re having an amazing experience.”


Chili’s Has an Aggressive, Multi-Layered Plan to Build Margins

The CEO noted that Chili’s made major changes to its in-restaurant merchandising versus the previous time it ran national TV ads. To minimize trade down—a big goal of Hochman’s since he became chief executive—the brand didn’t plaster value deals everywhere in stores. Customers can easily find the $10.99 3 for Me platform if they come in after seeing the commercials, but the company isn’t “putting it on all the windows and all the table tents and shouting from the rafters,” Hochman said. 

Essentially, if customers want to buy more expensive items, then Chili’s will let them, and won’t do anything to convince them otherwise. At the same time, if guests intentionally come in for value, that’s okay too. 

“That’s really yielded a much better profitable result from the advertising and it’s really exceeded our expectations not just from top line, but also the bottom line,” Hochman said. 

When Hochman joined last year, Chili’s discounted items mixed 37 percent. By November, that decreased to 30 percent. Now the chain is around 29 percent. Before the TV ads, $10.99 accounted for one-third of 3 for Me orders compared to two-thirds for the $13.99 and $15.99 tiers. Post commercials, the $10.99 level rose from 33 percent to 38 percent. This movement was better than the company expected. 

“We got more traffic than we had banked on and we got less trade down than we had budgeted for, which means, more sales and more profits from being on TV,” Hochman said. 

Chili’s same-store sales increased 9.6 percent in Q3, lapping 10.3 percent growth in fiscal 2022. That figure comprised 9.8 percent pricing, 5.6 percent mix shift, and a 5.8 percent decline in traffic. Visits were hampered by discontinued promotional activity—i.e. freebies on the mobile app—and reduced reliance on virtual brands. Adapting to a post-COVID society, the company plans to discontinue ghost concept Maggiano’s Italian Classics by the end of fiscal 2023. This removal negatively impacted year-over-year traffic by approximately 60 basis points in the quarter. 

But make no mistake, Chili’s is moving according to plan. Dining room traffic was positive year-over-year throughout Q3. This is the company’s most profitable channel because it allows for a better menu strategy, check add-ons, and an improved customer experience. 

Because of TV’s success, Hochman expects more national advertising in the next fiscal year.

“So after the TV was over we continued to see that traffic gap versus the industry be where we want it to be, right?” Hochman said. “So when you put that kind of money into the market, we expect to see significant movement in both traffic and sales and we did, right? And so, the way to think about that for next fiscal [year]—we had one slug of a media campaign. Right now we’re planning between three and four next year. The exact timing, I can’t share with you because it’s competitive.”

Supplementing these national ad windows will be an effective CRM program and digital advertising that drives frequency through relevant messaging, Hochman said. The CEO wants more out of its CRM program, so he consolidated Chili’s social media, digital, and national marketing teams. All are now working together to drive traffic under the leadership of CMO George Felix. 

With TV pulling more guests inside, Chili’s is also ensuring its operations are strong enough to keep them coming back. The chain has spent months optimizing its labor model to enhance the guest and employee experience. Chili’s layered in some investments in December, like additional cook hours and a quality assurance role to make sure food is hot, fresh, and accurate. The menu is easier to handle as well. Q3 was the brand’s first full quarter after eliminating its lower-mixing original tempura batter on its Chicken Crisper menu. There were concerns that Chili’s may lose business from this change, but the opposite has happened, Hochman reported. Chicken Crispers now mix 3 percent higher. 

Simplifying the platform to one batter helps Chili’s move to a bulk breading procedure ahead of a new Chicken Crisper menu launch later in May. It will feature new sauces, mac and cheese, and four, five, and six count Crisper platters, which drove significant profit in tests. The menu will come with fewer SKUs and training. 

Hochman acknowledges there is still work left to do, but there have been notable improvements in satisfaction scores. Additionally, thanks to workers having more of a voice in decision-making, managerial turnover levels are lower than pre-COVID, and hourly team member turnover is trending in the right direction, too. 

“The progress we’re seeing today lets us know that our strategy is working,” Hochman said. “We believe that the hard work and investments we’re making to improve the team member and the guest experience will ultimately deliver higher traffic and guest frequency overtime.”

Chain Restaurants, Feature, Finance, Chili's