Brinker International (EAT) the company that owns Chili's, Maggiano's Little Italy, and It's Just Wings, posted mixed second quarter results, with earnings topping estimates and revenue about in-line expectations.
Brinker International CEO Kevin Hochman joined Yahoo Finance Live to discuss the results and adapting to a value-focused consumer. Hochman says the company is getting "mixed signals" on spending habits, with some guests trading up while others are sticking to budget options.
Hochman explains how the company uses pictures on the menu to nudge certain purchases. However, when picturing wings drove guests to "trade down" from pricier entrees, they pivoted. Per Hochman, with "value-sensitive" consumers, Brinker offers deals like a $10.99 burger, fries, drink and chips/salsa combo since "you just can't beat that anywhere."
Brinker employs a "barbell strategy" spanning "entry-level" deals to attract budget-minded diners along with premium choices. As Hochman said, they provide "a great margarita" even for patrons unwilling to overspend. Adapting to a shifting landscape, Brinker strives to appeal to diners across the demand spectrum.
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Editor's note: This article was written by Angel Smith
Video Transcript
BRAD SMITH: Brinker International reporting earnings, and this week, the Chili's owner bringing the heat, raising its annual revenue and earnings guidance, but consumers are trading down from some menu options impacting the company's bottom line.
With us now, we've got Kevin Hochman, who is the Brinker International CEO. Yahoo Finance's executive editor Brian Sozzi also joins for the conversation here. Kevin, great to have you back on our airwaves here. First and foremost, got to know, What are some of the biggest shifts that you're seeing in this consumer right now?
KEVIN HOCHMAN: Yeah, we get mixed signals from the consumer. So we've got some guests that are continuing the exact same behaviors and purchasing patterns and trading up to more premium margaritas, bigger plates of food, more premium types of items. And then we've got a guest that we're winning traffic with right now with our 10.99 unbeatable value. So-- and those guests that come in, they don't have as much alcohol attachment, as much dessert attachment.
So we're really seeing-- a lot of people talk about it as there's one consumer. And they're either soft, or they're on fire. And the reality is, there's different consumers, and some are continuing to consume like we've seen in the last couple of years. And then some are looking for a better value. And we're going to be there for both. The guys that can win with the consumer are going to win market share overall. And that's what we're doing right now.
BRIAN SOZZI: And Kevin, Brian here. Always nice to see you. Let me-- I'm going to ask you two questions. One first is because the consumer is so-- is still pressured, that core consumer of yours, is that why you're taking images of wings off the new menu? I mean, is that the psychology behind buying things on the menu? And secondarily, do you think you have to discount more to get them through the door?
KEVIN HOCHMAN: Yeah, you know, number one, whatever you end up picturing on the menu is what guests typically will purchase. And so that was an example where we thought we could get incremental trade-up on wings and quesadilla by picturing them on the menu. What ended up happening was they were trading down for more expensive entrees. And so we quickly course corrected. The team did a great job of getting new menus out that don't feature those.
Now we will use leadership value to bring guests in. So what we've been doing is advertising our unbeatable 10.99 meal, which is a burger, fries. It's almost a half pound burger, unlimited chips and salsa, unlimited drink. And you just can't beat that anywhere, even in fast food now, where the combo meals are typically higher than that, and they don't come with all the other stuff that I just talked about.
So that's clearly why we're growing traffic share in the industry. It's clearly why our stock price has responded the way it has in the past week, based on that traffic gains. And that continue-- that will continue to win, just if the consumer continues to be really value sensitive, at least on that lower end.
BRIAN SOZZI: Last night, Kevin, I-- full disclosure, I went to a bar. I ordered a non top shelf whiskey, neat, nothing crazy-- $21. And at least where I live, in Long Island, New York, that seems to be the new normal price for an entry-level whiskey and hard spirits. Do you have any line of sight into when alcohol prices might be coming down? Because I imagine that is impacting your consumer, and maybe they're not buying that whiskey or extra beer with the menu.
KEVIN HOCHMAN: Yeah, we have what's called a barbell strategy, Brian, which means we offer entry-level price points for those that don't want to pay $20 for a drink. So, you know, I hate to do this, but I'm going to do it. I got our $6 StrawEddy Margarita of the Month that just launched in February, appropriate for Valentine's Day.
BRIAN SOZZI: Oh, that wasn't at my pub yesterday-- I'll tell you that right now.
KEVIN HOCHMAN: And you can have as many as you like, but make sure you take an Uber home. And but so you can get that, right? And that's our number one selling-- our Margarita of the Month at $6 is always our number one selling drink from a unit standpoint. But then we have-- we've launched these ultra premium margaritas, like the Casamigos Margarita and the Teremana Blanco Skinny. And we now have doubled the business that we do of $10 margaritas and up.
So when we are able to get profit and margins from high-end margaritas, it allows us to stay on $6 for that guest that is really price sensitive for their margaritas. And I think that plays into our hands, right? Because some guests come in and they want that premium stuff. And then other guests want to come in and just want to have a great margarita with great alcohol and do it at a sub $10-- in this case, a $6 price point.
