BJ’s Restaurants isn’t growing like it used to.
The casual-dining chain opened a net of 10 restaurants in 2014, 15 restaurants in 2015, 16 restaurants in 2016, and 10 restaurants in 2017. The brand hasn’t seen double digits since then.
Below showcases BJ’s beginning unit count for the previous six years:
2023 – 216
2022 – 212
2021 – 209
2020 – 208
2019 – 202
2018 – 197
2017 – 187
2016 – 171
2015 – 156
2014 – 146
Granted, the units opened in 2022 and 2023 are doing “exceptionally well,” CEO Greg Levin said, with overall margins in the mid to upper teens and average weekly sales per unit exceeding $130,000 or $6.8 million in annualized AUV. That’s 10 percent higher than the system average. That includes a relocation in Chandler, Arizona, which is seeing 50 percent higher sales.
The pace isn’t enough for Levin. He’s told investors several times that BJ’s wants to reaccelerate restaurant expansion to 5 percent or more annually, which would mean a net gain of more than 10 locations. But the CEO wants to do it with the right quality and right investment cost to drive the best returns. That’s why the brand is ready to launch a prototype that will save about $1 million and provide an opportunity for labor optimization thanks to a more efficient layout.
“Reducing some of the square footage, the way we set up our bar statement allows us some efficiencies there and then some of the changes in the kitchen with team members,” said Levin during BJ’s Q3 earnings call. “So we always want to optimize it that way. The other side of it as well is we want to continue to understand how the consumer preferences are changing. Some of it comes down to off-premise and where we’re building our restaurants.”
“So if we’re building our restaurants in certain markets maybe in California, we might use a little bit of a larger format because we know the California brand awareness of the BJ’s concept,” he added. “Going into some of the different markets that might be a little bit smaller, having that smaller prototype is going to give us better efficiencies in those restaurants. So it’s a combination of both of those things.”
The savings are so significant that BJ’s resubmitted plans for most of its planned 2024 stores so that the prototype can roll out sooner. The development team is working with city planning commissions to get these updated plans approved quickly. But the assumption is this process will push some openings into later in the year and even 2025. So Levin expects the 2024 unit opening count to be similar to 2023, which is five locations. A jump is projected for 2025.
The existing footprint is getting an upgrade too. BJ’s is in the midst of a remodeling program that includes enhanced seating capacity, an improved bar area, new lighting, and redesigned booths and tables. The bar in particular features a new 130-inch TV. The brand is targeting between 35 and 40 remodels this year. At least 20 percent of the system should be remodeled by the end of 2023.
There are different levels to the program. Some are just adding more booths and doing a few touch-ups. This costs around $250,000 and leads to about $1,000 to 1,500 in additional sales per week per store and 20 percent or higher returns. The larger-scope ones—redoing the bars, painting on the outside, new murals, brightened dining room, reconfiguring booths. Those cost around $600,000 to $700,000 or even more. These are seeing the same type of return and a “multiple of that type of sales lift in these restaurants,” said CFO Tom Houdek.
Same-store sales in Q3 rose 0.4 percent, which the company attributed to trends returning to pre-COVID normality. Historically, BJ’s sees sales peak in May and June and then come down in July, August, and September. In 2023 specifically, the brand saw 4 percent growth in July, flat sales in August, and negative low-single-digit decreases in September. Positive low-single digits have returned in October.
Last year was more of an anomaly. In 2022, weekly sales average increased in August and experienced a smaller decrease in September because of consumers finally being free of COVID restrictions.
“I’ve been doing this a long time,” Levin said. “I don’t think I’ve ever seen an August weekly sales average above July, whether it was my days back in California Pizza Kitchen as a public company to BJ’s. You generally see a movement coming off of June into July, lower August and then a lower September. And as we were going through, it was just, I wouldn’t say odd. It’s just a trend we haven’t seen where August sales are higher than July sales.”
BJ’s expanded restaurant margins to 11.9 percent, a 160-basis-point increase from 2022. It also generated $20 million in adjusted EBITDA in Q3, good for a 29 percent increase year-over-year. In the first three quarters of 2023, the chain swung more than $76 million in adjusted EBITDA, which is roughly equal to all of 2022.
Additionally, the brand has unlocked more than $30 million in cost savings on an annualized basis thanks to a reduction in food, labor, and operating and occupancy costs. More savings are coming in the future.
“There’s still more that’s either waiting to be rolled out, or still in some form of vetting,” Houdek said. “So we don’t have that number to share in terms of what it could be in 2025, but that $30 million we’re at now is going to be higher. So we’re going to continue to keep rolling them out and we’ll keep everybody updated as we keep adding to it.”
BJ’s anticipates labor inflation growing to the mid- to upper-single digits due to California’s new fast-food wages law that will raise quick-service minimum wage to $20 per hour. The chain feels safe in terms of recruitment and retention; front-of-house workers take in tips that push their compensation above $20 per hour, and most of the kitchen staff is already close to that number, if not over it. Levin said the casual-dining industry could benefit from quick-service brands raising menu prices.
“You’re going to see fast food—which already is—and fast casual raising their prices and getting their prices closer to casual dining,” Levin said. “I still think that it’s a different experience at times in that regard, and we’re trying to drive guests into our restaurants that want that more experiential dining. … Utimately, what we’re trying to do is have a differentiated food profile, trying to make sure we’re driving guests that are wanting Brewhouse Theater, want that differentiation of a sit-down experience.”