Chili’s CEO Breaks Down the Changes That Turned the Restaurant Around | WSJ

One of the ideas actually came from our culinary team. We had an executive leadership team having a meeting. They served all of us two identical old timers with cheese. That's our most popular burger, and they had us taste each one and then say, what was the difference? And one of the executives was like, the burger is different, and the other one was like, the cheese is different. Another one's like, the buns toasted differently. We all got it wrong. The pickles were different, right? That was the only thing that was different. And so they bring out the current pickle at the time and it was like a 5 gallon jug and it looked like a painter's jug and they had a special tool to pry open the pickles and then about a minute later you liberate the pickles because the thing flies off but then all the pickle juice spills over so you gotta clean up the pickle juice and the dill, and then he said, here's the other pickle that he didn't know the difference of. And they brought a jar out and they opened it up and they took two pickles out, right? They said, by the way, this is over $500 cheaper than the liberated pickles, right? And I remember one of the executives said we should test this. What is there to test? There's 200 years of experience in this room and none of us could pick which pickle it was, right?

So for example, on a burger and fries it sounds simple, right? A lot goes into that and the fries. What we found was one, they weren't as hot as they could be, and two, they weren't seasoned properly and you say, well why is that? It's not the cook's fault. It's not the restaurant team's fault. It was the home office's fault because we gave them 2 fries to make so we had a curly fry and a straight fries. So if you just have one fry, you can make it hotter and fresher, and then the seasoning process was almost impossible. So after the fries are cooked. They're put on what's called a save a week pan, and then they're supposed to take the shaker and do it 30 times. After 5 your arm just starts getting tired, so nobody's doing it 30 times and then we wonder why isn't the fries properly seasoned. So we used incredible innovation. We made a shaker with bigger holes. That more seasoning came out and now you put them in a bowl, you go shake, shake, shake, toss, toss, shake, shake, shake fries are properly seasoned. And they're hot and fresh every time.

Well, you could talk to guests, but you also talk to the team members. The team members would tell you that the food needed to be better. I do these listening sessions all around the country. I do about 16 a year. I'll have 15 to 20 area managers in a restaurant just like this before it opens. We spend 2 to 3 hours. I open my laptop up. I'm taking notes, and the main question I ask them is if you were the CEO, what would you change tomorrow? It's a very provocative question. Sometimes they're a little hesitant, I'll be like, when you're cursing under your breath that corporate made you do X, this is your chance. I'm the CEO I can make change. If you don't tell me now, you can't complain about it, right? And they get all fired up and they give me lots of good ideas.

Huge advantages come out of slimming down the menu or allows us to make the food better. For example, the chicken crispers, we used to have two chicken crispers. We had a tempura battered crisper called the original crisper. It's about 20% of the chicken crisper business, and then we had a conventional extra crispy, we call it a crispy crisper, it's 80% of the business, right? And when you go into the back of the restaurant in the heart of the house, they have very small little pans with which they can bread each of those flavors, right, because there's two flavors in this breading station that's about this big. When we got rid of the 20% variant, we could now have one big vat or we can make 24 at a time versus the old way you could make one or two at a time. So sometimes people say they love variety, and they do, but variety can sometimes get in the way of making things consistently really, really well, and that's a great example where today we only have one recipe. We sell 66% more sales in chicken crispers today than we did 3 years ago because we're doing it in a much more consistent manner. It's a better product.

So one of the things that our team saw a little longer than a year ago was on social media people were posting their fast food receipts and they were complaining about how expensive things were and so we came up with the idea of what if we made a burger that had a familiar taste profile of a famous fast food burger but done in the format of Chili's. Makes a quarter pound burger look tiny. And then go after this idea that fast food pricing is high, right? And we did that May of last year and the business was doing well before that. It just took off after that.

Well, we can. And we do, and I have shareholders and I owe it to them to continue to make money, right? So one of things we call is a barbell strategy. That means that most customers buy an affordable option like Chili's $6 base option margarita, but the chain also offers a premium option like a presidente margarita for the few who want to splurge. As long as we continue to play on both ends of the barbell, we're gonna be fine because it allows us to manage the value mix with more premium mix that we can also make money on.

I have a monthly meeting with our vice president of operations, so I asked them about a deal that was undercutting us by about 10%. On a similar value meal construct, and they all started laughing. I was like, why are you guys laughing? They said, we don't think this is going to dent us in the least because it's not just about the lowest price, it's also about what you get for that price. And we think that what we have is unbeatable. And if you look at the results for that quarter when that new competitive offer came out, we were up 31% in sales, plus 20% traffic growth, and that just tells you the guest isn't just buying the lowest price out there. It's going to be very difficult for our competitors to catch up because it could take years of what we've been doing and investments that we've been making to get to where we are.

Well, I think the first thing is the food is better and it's made more consistently. Second is our marketing teams are really focused on bringing this into social media. Triple dipper is a very consistent way a young person likes to eat, like to have lots of little things. It's experiential. You've got cheese pulls, you've got products that you can dip, and we started marketing on social media, and I think that showed a young generation like, this is something exciting. And then when they came into the restaurant and had a similar experience, they would start posting about it too, and that thing caught on fire.

We don't have access to anything different than other restaurant brands. To me, the biggest difference is the product's really good. When you see this cheese pull and it goes like this and you wanna go try that and then you come into Chili's and it works just like that and you think, this is what I saw on TV or this is what I saw on social. And then you tell your friends and it becomes a part of your rotation because you had such a good experience.

Well, our business is up about a little over 50% from 3 years ago, so some of that's triple dipper, right, 7 or 8%, but a lot of it's not the triple dipper too. The main reason why I think our business is doing a lot better today than it was 3 years ago is the fundamentals of casual dining, which is the food's better, the service is a lot better, and it's in a fun friendly atmosphere. We've seen when new guests come in, the time it takes them to come back to the restaurant is compressed. It's compressed because they're having a good experience and they're coming back sooner, right? So that's the big difference is that we've done a really good job with the experience.

The way we're going to keep growing the business is don't get bored of the fundamentals. And fortunately for us because we're delivering a good experience for these new guests that are coming in, we become a part of that consideration.

Well, I hope it's a lot bigger. We want to have restaurants that are even more productive, better for all economics, better sales. Good things happen when you grow sales of existing restaurants. Restaurants become a lot easier to run. You can afford more labor. Food's out fresher and hotter and more delicious, so that's number one is we got to continue to grow the business through the fundamentals of casual dining. I think we can start building Chili's again. There are parts of this country where there are no Chili's. There's no Chili's in Oregon. We don't have as many Chili's in California in some states that traditionally we thought were more expensive to operate in. But now that we're a much healthier concept with better for economics, we can operate in those states now. So there's a lot more runway ahead of us on this brand than there is behind us, and we're still probably early to mid innings of our turnaround, so there's so much more runway to grow restaurant volumes as well as build new restaurants.