This May marks a decade since Texas Roadhouse founder Kent Taylor spun-off a burger brand, dubbed Bubba’s 33 for his nickname, in Fayetteville, North Carolina. Bubba’s didn’t approach growth like your standard restaurant brand. But then again, either did the late Taylor’s burgeoning steakhouse.
Instead of clustering within the Tar Heel state and expanding outward; it spread across the map to see what each market would reveal.
This zig-zagging approach felt familiar for Texas Roadhouse’s early days, when there was a restaurant in Cincinnati; Sarasota and Clearwater, Florida, to join the original in Clarksville, Indiana. As the story famously goes, each handed out comment cards directing customers to a PO box in Dallas. The catch: Texas Roadhouse didn’t actually have any units in Texas. “I have no idea why I did that,” Taylor once joked.
Bubba’s, a sports-themed burger and pizza brand, found itself alone in many of the markets it operated in. Today, outside of Texas, that’s still relatively accurate.
- Texas: 18
- New Mexico: 2
- Colorado: 2
- Indiana: 5
- Florida: 3
- Georgia: 2
- Ohio: 2
- Virginia: 1
- North Carolina: 2
- Maryland: 1
- Michigan: 2
- Oklahoma: 2
- New Jersey: 2
- Arizona: 1
- Kansas: 1
The overall, and deliberate, path:
- 2015: 7
- 2016: 16
- 2017: 20
- 2018: 25
- 2019: 28
- 2020: 31
- 2021: 36
- 2022: 40
In Texas Roadhouse’s Q1 recap on Thursday, CEO Jerry Morgan said the company is “all in on Bubba’s” in terms of where this story goes next. In the last 18 months, Texas Roadhouse shifted leadership and strategy “of how we do that,” and it’s “really put the right people in place, first and foremost,” Morgan said of Bubba’s. “And we are seeing the fruits of that labor in the new store openings.”
While it may take 24–36 months, he added, the goal for Texas Roadhouse would be to open 10-plus Bubba’s per year.
“We have got great food there. We have got a great energy and environment and ambiance that really does fit with what we are trying to accomplish,” Morgan said. “We have got some cost out of the building. I think that will flow through eventually as some of the construction costs come down and we are holding—we have done some things on our end to bring that down.”
This past year, average weekly sales for Bubba’s 33 were $109,000, or $5.6 million on an annualized basis. That compares to $134,000 and nearly $7 million for Texas Roadhouse.
After calls with the brand, BTIG analyst Peter Saleh said management, through a third-party study of Bubba’s, noted customers picked the concept for its high-quality food, not the sports-viewing experience, as might have originally been intended. The company also noticed units near Texas Roadhouse locations did not cannibalize sales. In some cases, there are stores next door to each other. “So growth at once concept does not detract from the other,” Saleh said.
This talk of Bubba’s as Texas Roadhouse’s next great growth concept isn’t new. Back in 2019, executives told investors Texas Roadhouse was “dying” to scale the concept faster. Then-brand president Scott Colosi projected 2021 as a possible calendar to step on the gas. (Naturally, COVID cracked all crystal balls before the company could get there).
Why Texas Roadhouse paced Bubba’s along can be traced in history as well. Texas Roadhouse’s spread-out expansion eliminated cannibalization concerns from day one, but it also made it difficult to generate awareness. It took time for people to get to know Texas Roadhouse and for the brand to land on a real estate model that fit. In those origin years, Taylor and the chain targeted conversion buildings, including an old Western Sizzler. Three of the opening five failed. Sales at the first restaurant were just a touch over $2 million annually out of the gate. Many of the others averaged even less. It wasn’t until George Lask helped design a prototype in 1996 that momentum turned forward (the current restaurant, minus a bar remodel and kitchen upgrades, looks pretty much the same today).
In that 2019 recap, Colosi mentioned Bubba’s 33 restaurants weren’t getting out of the gate hot, either. In a two-year period, the company opened nine locations and a “number of those” hadn’t started out with robust sales, he said.
But that narrative has flipped. Same-store sales in 2022 lifted 10.5 percent and Bubba’s $5.62 million AUV was well above 2021’s $5.09 million.
More vitally—for restaurants less than six months old, Bubba’s stores generated $121,791 in average weekly sales. That was the most of the chain’s measured set ($108,132 for comparable restaurants, or 30 and 25 units, and $107,636 for average-unit volume restaurants, or four and five units).
So the family-friendly restaurant concept’s vibe, which features scratch-made food “with a little rock ‘n’ roll, ice cold beer, and signature drinks,” has clearly resonated, and management figured out how to get the word out. Yet to Morgan’s point, logistics are being sharpened. From a numbers perspective, it still costs about $500,000 more to open one than a Texas Roadhouse, and the AUV is lower.
The current prototypical Bubba’s 33 restaurant consists of a freestanding building with roughly 7,600 square feet with seating for 270 to 330 guests. Some locations include patio seating for 60 guests. Parking is targeted for 180 vehicles either on-site or in combination with some form of off-site cross parking arrangement.
Texas Roadhouse, meanwhile, is 7,600 to 8,400 square feet with seating for 270 to 325 guests and parking for 180 vehicles either on-site or in combination with some form of off-site cross parking arrangement.
For 2022 and 2021, average capital investment for Texas Roadhouse restaurants, which includes a 10x initial base rent factor in the event the land is leased, was $6.9 million and $5.7 million, respectively. The increase was primarily due to a larger building prototype and higher supply costs.
Bubba’s 33, which includes a 10x initial base rent factor in the event the land is leased, cost $7.8 million and $7.4 million, respectively.
What’s worth considering, however, is the rare air Texas Roadhouse lives in. Even in 2019, Colosi noted “some of that’s comparing to Roadhouse, which is just a whole another world. Compared to most sports restaurants or sports bars, the sales that we’re opening with are actually pretty darn good.”
And they’re better now. The brand wants to work on efficiencies and volumes closer to its own standard before dialing up expansion.
Speaking of that standard …
Texas Roadhouse reported another record-setting run in Q1. The chain’s same-store sales grew 12.9 percent at company units (564) and 13.3 percent at franchises (54). Although a somewhat difficult period to measure given the Omicron lap, average weekly sales clocked in at $148,437, of which 12.8 percent were to-go sales. This time last year, those figures were $132,263 and 14.8 percent.
The $148,000 was the highest result Texas Roadhouse has ever turned in, besting Q4’s $130,176 by a wide margin. Before COVID, Texas Roadhouse restaurants averaged about $118,000.
A seismic shift being to-go mixed $8,741 of the brand’s weekly sales leading up to the pandemic. Today, it’s closer to $19,000.
Still, the brand is witnessing record guest counts and growing across the board. Texas Roadhouse’s to-go, on a percentage basis, is down from last year, yet the dollars are only a “few hundred” lower, year-over-year, Michael Bailen, director of financial analysis, said.
“Probably some of those guests are now coming into the dining room and dining with us,” he said.
The 12.9 percent comp was driven by 7.6 percent traffic growth and a 5.3 percent jump in average check. By month, same-store sales lifted 20.1 (Omicron peak), 10.6, and 9.3 percent in January, February, and March, respectively.
Texas Roadhouse enjoyed growth seven days a week; early, late in the day, and throughout the entire week, Bailen added. “Maybe it’s a little bit stronger on weekends, on a percentage basis, but very pleased to see that it’s coming across the board, which I think that’s guests learning where there is opportunity to get into a Texas Roadhouse and managing their schedules there,” he said.
The company exited the quarter with revenue of $1.174 billion, 18.9 percent above last year’s $987,486.
Net income rose 14.9 percent to $86.39 million and income from operations climbed 12 percent to $100.9 million.
Restaurant margin dollars increased 15.2 percent to $185.7 million from $161.2 million in the prior year primarily due to higher sales. Per store week, Texas Roadhouse was up 8.7 percent and hit an all-time high of over $23,500.
The chain is off to a fast start in Q2, with weekly sales at $145,000 across its opening five weeks and comps growth of 8.6 percent.
Morgan was asked by investors where to credit Texas Roadhouse’s surge, whether to menu initiatives, focus points, or otherwise. He offered a very-Texas Roadhouse-like retort.
“I believe that our focus on executing a great shift will always be [the reason],” he said. “And as we have been able to hire and train and get staffed up, and more about the retention of our people as they get more experienced and more reps on running shifts and whether it be front of the house or back of the house, I just believe that really and truly it comes down to our ability to execute to get people in, get them the experience that they are looking for, and thank them for coming and joining our business that night is the real focus. We are very much on target for that.”
Technology continues to play a bigger role in achieving those base principles. “Roadhouse Pay,” the company’s pay-at-the-table tech with Ziosk, is now systemwide at corporate stores. In addition to offering guests convenience during the check and change period, Morgan said, it allows the brand to sell and redeem gift cards and promote sign-ups for its VIP loyalty club.
At the same time, the company’s is reporting success with its “Digital Kitchen” effort or new kitchen display system, which first went live at a store in Shakopee, Minnesota, and a conversion in Austin, Texas. There are four currently.
These stores are improving cook times and order accuracy, Morgan said. The majority of openings this year (25–30 total) will include the format. Some older units will convert as well. It should amount to about 20 new locations and 10 conversions.
“All the indicators right now … are that we are going to see our food hitting the window in a timely manner, which should save us time,” he said. “And it’s very early, but that should save us some minutes. And if we can do that, then that can really help us, and our power hours might even turn the restaurant another half the time to a whole time.”
In terms of the health of the guest, Bailen said alcohol mix has remained negative, as was the case in February and March. The same is true of entrees. This suggests some diners are managing checks due to inflation. However, as the brand noted in previous calls, there’s also been evidence of new guests coming into the system and starting lower on the value side of Texas Roadhouse’s menu. “Certainly, our guest’s volumes tell us that people still want to be at Roadhouse,” Bailen said. “But we’ve seen maybe a little bit of trade down. But I’ll end with a comment our mixing still extremely positive relative to pre pandemic levels.” For Q2, Texas Roadhouse will have 5.6 percent pricing on the menu. Q3 5.1 percent. And before the brand takes anything else in October, it would only have 2.9 percent in Q4.
“We are seeing a little bit of negative mix in the entree category, which I believe is showing that some guests are maybe trading into us who were not casual dining guests on a regular basis before and in are coming in at some of our value items,” Bailen added. “So I think we are continuing to gain new guests in this high-cost environment and our traffic trends are feeling the benefit of that.”