Brinker's survival strategy focused on cost cutting

Last month, Brinker International restaurants ended an investor call with, “No real new news from us.” About two weeks later, it announced a change in CEOs, effective at the end of the year.

That’s a bombshell for most companies. Brinker could treat it as business as usual because it’s performing so well under longtime leader Doug Brooks. And designated successor Wyman Roberts has played a key role in the results.

Although the move was unexpected, one analyst wrote, the brand is in good hands.

That’s primarily Chili’s Grill & Bar, which began as a single restaurant on Greenville Avenue and now has 1,540 locations in 50 states and 32 countries. Chili’s accounted for 84 percent of Brinker’s $2.8 billion in revenue in fiscal 2012.

Chili’s has been reinvented a few times, as you’d expect from a restaurant that debuted in 1975 and was once run by a group of self-proclaimed hamburger hippies. The latest incarnation — the recession-survival model — is a far cry from the go-go years of the early 2000s. Brinker was then opening 100-plus restaurants a year, growing revenue by double digits, and expanding with names like Corner Bakery, On the Border and Romano’s Macaroni Grill.

Brinker has just two brands today, Chili’s and Maggiano’s Little Italy, and the new normal looks like so many aging businesses. There’s little revenue growth, a shrinking workforce, tepid capital spending — and striking gains in productivity and profit.

While revenue has declined by almost $1.6 billion since 2007, sales per employee are up 26 percent, to the highest level ever. Cash flow margins are almost as high as a decade ago, and investors have earned a 66 percent return in the past two years.

“The time is right for this change,” Brooks told shareholders this month.

He’s 60, with 35 years at the company, and leaves after having guided Brinker through the toughest times. The Great Recession led to a great contraction, and Brinker decided early to turn defensive — and inward.

“We are committed to driving growth inside the four walls of our existing restaurants,” Brinker said in a 10K filing in 2008.

The year before, Brinker opened 149 company-owned restaurants. In the last three years, it opened one, with none planned for 2013.

Brinker has opened more than 100 franchise locations, including international ventures. That business adds to the bottom line without the risk of full ownership — but without the same upside. While franchise royalties have grown, they accounted for about 3 percent of revenue in the latest quarter.

Strategy shift

Since the recession, Brinker has talked frequently about “four-wall profitability” and the need to make incremental, continuous improvements. Execution and grabbing market share became the goals. It invested in retrofitting kitchens to produce better food faster with less labor and waste.

Roberts, 53, joined Brinker seven years ago, after working at NBC’s Universal Parks & Resorts and Darden Restaurants. At Brinker, he has been chief marketing officer, president of Maggiano’s, and president of Chili’s since 2009. Brooks credited Roberts with “a dramatic re-energizing of almost every aspect of our flagship brand.”

Same-store sales have increased at Chili’s for six consecutive quarters, Roberts told analysts last month. Chili’s has a new ad campaign. It’s remodeling restaurants and expects to have 370 completed by next summer. All the new kitchens will soon be in place, delivering more efficiency and the ability to add items such as pizza.

Roberts said new restaurant openings may even come in fiscal 2014.

“We’re just sticking with our strategies,” Roberts told analysts.

There was a time that included acquiring and building outside brands, and the late Norman Brinker inspired an entrepreneurial zeal. Brooks became CEO in 2004, and the company later sold Corner Bakery, On the Border and Macaroni Grill. Some key competitors have a large portfolio of restaurants, including Darden (Olive Garden, Red Lobster) and Bloomin’ Brands (Outback Steakhouse, Carrabba’s).

Kitchen breakthroughs

“There’s no right or wrong way — it’s a philosophical choice,” said Malcolm Knapp, an industry consultant who created Knapp-Track, a monthly report on restaurant sales and traffic. “Brinker decided to maximize its efforts on two brands.”

Brinker has outperformed the industry for the last year, according to Knapp-Track, and the consultant cites breakthroughs in the kitchen. Higher sales, profits and market share are validating the approach.

“They went after the fundamentals of the business in a meaningful way,” Knapp said. “And their strategies are working.”