Smaller, more streamlined menus are coming to BJ’s Restaurants.
The casual-dining chain is experimenting with different strategies for reducing its menu item count without impacting sales. It plans to eliminate 10 percent of its current offerings when it rolls out a new menu this summer.
“It is much easier to grow sales when you are adding items versus growing sales when you take items away,” CEO Greg Levin said during the company’s Q4 and full-year earnings call. “So, we have been testing this smaller menu for a while… trying to see if we are losing anything on add-ons, or if we are losing on the entrée side, or how we can mix guests from one item to the next. Based on our current testing to date, it looks like we are able to pretty closely hold onto our current average checks with what we are removing from our restaurants.”
More menu items are likely to be removed later in the year as the company seeks to downsize menus without sacrificing its reputation for variety. It currently offers more than 145 menu items. That number will shrink in the year ahead, but BJ’s will continue offering a deeper menu than the typical mass-casual concept, something Levin sees as a competitive advantage and key differentiator for the brand.
“As much as we work this down, BJ’s is known for having a broad menu,” he said. “We aren’t looking over time to get down to 60 items or 70 items.”
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Efforts to reduce menu complexity and simplify kitchen operations are part of a broader strategy to improve margins. The company is targeting $25 million in annualized cost savings worth 200 basis points of margin improvement in 2023. It already is benefiting from an initial round of cost-saving initiatives, including the shift to roasting its own chicken wings, which is expected to save more than $4 million annually.
Other cost-saving initiatives include new leftover packaging containers and changing the frequency of certain maintenance programs. BJ’s also is testing an AI-powered sales forecasting tool that Levin said will help restaurant operators improve labor scheduling and kitchen prep efficiency.
The company reported total sales of $344.2 million in Q4, up 18 percent from the same period a year ago. An extra operating week contributed $26.5 million in sales. Excluding that extra week, sales were up 9 percent. Net income was $4 million, compared to a net loss of $4.7 million in Q4 2021. Same-store sales were up 6.6 percent for the quarter.
The comps improvement, combined with the initial round of cost-saving initiatives and the extra operating week, helped BJ’s improve margins in the quarter. Q4 restaurant margins improved year-over-year by 250 basis points to 12.1 percent, excluding benefits from changes in gift card breakage estimates and an employee retention tax credit. The company’s Q4 2021 restaurant-level cash flow margin was 9.6 percent when removing the employee retention tax credit benefit.
From a weekly sales perspective, BJ’s averaged more than $112,000 per restaurant in Q4, up $7,000 from the same period a year ago. It maintained its off-premise weekly sales average in the low $20,000 range while generating dine-in sales of more than $92,000.
Excluding the gift card breakage benefit, labor expenses were 37.1 percent of sales in the quarter, which was 140 basis points favorable compared to Q4 of 2021 after removing the employee retention tax credit benefit.
“We continued to improve our labor efficiency in the quarter, which is driven in part by improving labor retention in our restaurants, which was at its best level over the past two years in Q4,” CFO Thomas Houdek said. “Our overtime and training hours improved as well, which as a percentage of sales were 20 basis points better than Q4 of 2021 and within 20 basis points from pre-pandemic levels in Q4 of 2019.”
Excluding the gift card breakage benefit, BJ’s costs of sales were 27.1 percent, which was 20 basis points favorable compared to Q3 of 2022 and 30 basis points favorable compared to Q4 of 2021. While food costs remain elevated, year-over-year inflation moderated to the low-single digits in the final quarter of the year.
“The inflation figure would’ve been approximately two percentage points higher, if not for the first round of margin improvement changes we implemented across our food basket, including the new slow-roasted wings,” Houdek said. “We did not take any additional pricing in the fourth quarter, and our pricing carried was slightly less than 6 percent in both the quarter and the full-year compared to the year-ago levels.”
The company has taken a conservative approach to pricing, opting for smaller and more frequent actions to limit guest impact. With commodity and labor costs up approximately 30 percent from 2019, menu pricing will continue playing an important role in the brand’s margin growth going forward.
BJ’s took an additional 3.7 percent of pricing in January and is finalizing plans to take another 2 percent or more this spring. It will have another opportunity for additional pricing this fall. Adding that up, Levin said the company could be in the “8 percent-plus” range for the full year.
To date, BJ’s hasn’t seen any meaningful changes pointing to a slowdown in spending at its restaurants.
“Our check-driving incidents for add-ons such as appetizers, drinks, and of course, our Pizookies, remain above pre-COVID levels,” Levin said. “We are not seeing negative mix shifts toward lower-priced or discounted items.”
Along with cutting costs and raising prices, BJ’s is focused on growing margins by driving sales. To that end, the company is pivoting its capital allocation strategy toward high ROI initiatives, namely its remodel program.
BJ’s remodel initiative is centered around upgrading the bar area and expanding seating capacity with the addition of three booths. The company plans to expand the initiative to 30 restaurants, or approximately 15 percent of its restaurant base, in 2023. Those investments will be evenly split between the bar and the booths, with some restaurants overlapping and receiving both upgrades.
At $500,000 to $700,000 per store, redoing the bar carries a higher price tag but generates more sales than adding booths alone, Levin said.
“The three additional booths cost only about $150,000,” he said. “The amount of incremental sales there, while successful and high in the sense that it gets us a good return on investment, doesn’t drive the same type of return that redoing the bar does.”
BJ’s opened six new restaurants in 2022, including three in Q4. It ended the year with 216 restaurants, compared to 212 at the end of fiscal 2021.
Average weekly sales for the class of 2022 restaurants were 20 percent higher than the rest of the BJ’s system in January. While new stores are delivering strong results, the cost of construction has moved higher than the company expected coming out of the pandemic. Last year, the cost for new stores was in the mid $6 million range. Now, bids for new stores are coming in at around $7 million.
“We are trying our best to bring those costs down,” Levin said. “And while our sales-to-investment ratio is actually pretty good at one-to-one, because our new restaurants have opened up really well and we are really pleased with them, we felt that the investment cost for our new restaurants versus having these high ROI remodels, this year it made more sense to pivot.”
The company plans to build five new restaurants in 2023, including moving one store to a new location in the same trade area. It will close two older restaurants in the first half of the year.
Full-year revenues grew 18.1 percent to $1.3 billion in fiscal 2022. Excluding the extra operating week, revenues were up 15.7 percent. Net income was $4.1 million, compared to a net loss of $3.6 million in fiscal 2021. Same-store sales were up 14 percent for the year.
Comps already are accelerating for Q1, driven by growth in dining-room traffic and the additional 3.7 percent menu pricing. If year-to-date sales trends continue, Q1 comps should be in the high-single digits, Levin said.
