BJ’s Restaurants understands the impact consumers are feeling from inflation: In June, the price of full-service meals rose 8.9 percent, the second-highest yearly increase of 2022. The biggest was May, which saw a 9 percent bump.
In response, the casual-dining concept spent Q2 closely tracking underlying patterns of guests to proactively identify any notable shifts. The company measured overall sales and traffic trends and deeper layers like how often certain demographics visit and what is being ordered.
The research brought forth good news—to date through July, there hasn’t been any measurable changes and traffic patterns are actually following seasonality. Customers are ordering the usual number of appetizers, drinks, and desserts, and there hasn’t been a rush toward value-based offerings to save money.
With talks of consumers penny pinching and a looming recession, BJ’s earned a record $329.7 million in quarterly sales, surpassing the previous mark set in Q2 2019 by 9.5 percent. Same-store sales lifted 4.8 percent in Q2 versus three years ago, which is the best performance BJ’s has seen since the pandemic began. Average weekly sales per restaurant were more than $118,000, which equates to an annualized AUV of $6.1 million. Of that total, off-premises remained in the low $20,000 range and dine-in was $97,000, up $10,000 compared to Q1. The week of Mother’s Day, BJ’s earned $130,000 on average per unit, beating 2019’s record by $4,000.
“While we have seen new challenges emerge throughout the pandemic, we continue to meet these challenges head on, manage our business for both near- and long-term objectives and remain steadfast in our focus on providing our guests with the best experience which will allow us to continue delivering outsized growth in the years to come,” CFO Tom Houdek said during BJ’s Q2 earnings call.
The eye-popping numbers showcase BJ’s progress on sales drivers. The first is bolstering staffing levels, which the brand accomplished by hiring more than 6,000 workers in Q2. This boosted its roster size by more than 8 percent compared to the end of Q1. That means staffing is now near pre-COVID levels, aided by the implementation of DailyPay.
In terms of customer-facing technology, the company is piloting a digital order tracker and a waitlist solution that communicates table wait times through digital and automated voice channels. And to build its catering business—a channel that tends to have more recurring orders with higher check average—the chain is testing a more high-touch experience. In Q2, catering grew more than 70 percent versus 2021.
BJ’s is also moving forward with its remodeling initiative, which involves adding seating capacity. Four restaurants have finished the process thus far. The move doesn’t bring much cost; it’s essentially removing an obsolete bus station and converting the area to three booths that are eight-top tables. With that said, BJ’s is also taking employees into consideration and ensuring it maintains its server per table standard as best it can. So the remodel might not take shape the same way in all restaurants.
CEO Greg Levin said there’s as many as 70 restaurants that can undergo this transformation, and the incrementality is currently a better option than ramping up new store growth, with construction costs increasing by $1 million compared to pre-COVID. Over the long-term, this inflation doesn’t change BJ’s business profile, but in the short-term, it’s difficult to ignore the high ROI of the remodels in comparison.
For perspective, BJ’s plans to open as many as eight stores in 2022, and the near-term plan is to reach 5-7 percent annual unit growth. The brand currently operates 214 units in 29 states.
“As I think about 2023, and we haven’t finalized this, I don’t think there’s going to be a huge acceleration in new restaurant growth because I think we’d rather pivot and try and get into some of the high ROI remodels just from the very top line,” Levin said. “And we’re still putting together our pipeline for new restaurants next year. I don’t see it being reduced down to where we are today. I’m just not sure there’s going to be a large acceleration versus where we are today on that, knowing that we still got great opportunity.”
Alongside sales catalysts, BJ’s is working through margin expansion opportunities in light of record-high inflation. For example, to mitigate high food costs, the restaurant began changing pack sizes for some items, testing slow roasting its own chicken wings, and evaluating sizes and cuts of products like chicken breasts, salmon, and avocados. In Q2, food cost inflation was 10 percent higher year-over-year and 2 percent more than the first quarter. For operating and occupancy costs, BJ’s is determining the best way to buy chemicals, linen, glassware, and takeout packaging, among a host of other items.
Labor costs were 37.3 percent in Q2, an improvement from Q1, but unfavorable to the prior year. That’s because 25 percent BJ’s staff was hired in the past three months, and the labor figures reflect increased training costs and lower efficiency. But Levin said workers are getting more familiar with processes and that he expects a quick payback in the coming quarters.
Restaurant costs have grown faster than the 4.6 percent pricing BJ’s has implemented since November 2021. To help with the pressure, the company will take 2 percent in August after taking 1.4 percent in June—keeping in line with its strategy of taking conservative, frequent actions to limit guest impact and better assess where inflation is headed. Restaurant margin in Q2 was 11.9 percent, an improvement from 9.8 percent in the first quarter.
To enhance operating efficiencies even further, BJ’s will test a slightly smaller menu in the fall that focuses more on core favorites. But that doesn’t mean changes to portion sizes. To bring more value, the restaurant added 2 ounces of Alfredo sauce to its Grilled Chicken Alfredo, moved its Crispy Chicken Sandwich to 6 ounces, up from 4 ounces, and added more chips and black beans to its taco dishes.
“Now at the same time, we’ll continue to work on items that maybe blend itself more to lunch menu items,” Levin said. “So maybe some of the items we’ve created in our lunch items will be a smaller portion, specifically set for lunch and lunch only. And we’ll look at other menu items that might be new that have different sizes versus what we currently have. But we don’t think it’s the right strategy to all of a sudden go from 12 wings to 10 wings or in our case, we do a half a pound of boneless wings to all of a sudden, I guess, 1/3 pound of boneless wings.”
In Q3 thus far, comps to date in July are 4 percent better than 2019, and 4.5 percent higher when excluding the Free Pizookie Day promotion that ran three years ago. Historically, the third quarter is the lowest sales period of the year. For instance, in 2019, average weekly sales per restaurant dipped from $114,000 in Q2 to $104,000 in Q3. BJ’s anticipates a similar decline in 2022. Restaurant-level margins are projected to be in the 10 percent range, but improve as the year goes on.