Chili's 'Kitchen Of The Future' Retrofit Drives Menu Changes, Sales

More than 100 Chili's Grill & Bar restaurants have undergone what chain parent Brinker International Inc. calls the "kitchen of the future" retrofit, installing new equipment that helps reduce labor costs and pave the way for menu expansion and increased sales.

Dallas-based Brinker's 1,534-unit Chili's division expects the kitchen retrofits to be a key driver in its guidance of a 400-basis-point, or 4 percent, improvement in net margins. The accompanying front-of-the-house reimaging program is expected to continue a 3-percent to 4-percent sales lift that Brinker has seen in completed units.

A Brinker spokeswoman said Chili's was "installing them at a pretty fast clip."

Two restaurant securities analysts, who recently toured a fully retrofitted Chili's unit in Raleigh, N.C., said the kitchen equipment will cut energy costs and allow for more menu innovation. The equipment include in the first phase a new combination convention-steam oven and a new food warmer, and in a second phase a conveyor oven and an infrared oven.

Barclays Capital analyst Jeffrey A. Bernstein said in research note that the new equipment provides easier preparation of such dishes as pasta, seafood and flatbread items.

"Management is currently experimenting with a couple of these new items (with bolder taste profiles), including salmon, baked pasta, cheesesteak sandwiches and flatbread offerings, and such could result in new future menu platforms for the brand," Bernstein said. "Overall, the company aims to use its product pipeline to focus a little less on shorter-term promotions, and more on longer-term menu innovation."

Brad Ludington of KeyBanc Capital Markets Inc. said the centerpiece of the kitchen initiative is an oven that uses convection, steam and a combination of the two to replace both a smoker and a tilt skillet that previously were used to prepare products such as ribs, mashed potatoes and pasta.

"The combi oven provides a higher quality product at a more consistent pace by cutting much of the human error that previously resulted from preparing multiple products at multiple stations," Ludington wrote.

The second major piece of equipment in the first phase is a rethermalizer food warmer, the KeyBanc report said, "which is essentially a large fryer that uses water to more evenly heat products such as soups. This took the place of up to six microwave ovens per unit and allows prep cooks to focus on other tasks vs. having to manage the microwaves."

Bernstein said Chili's has divided tasks between prep and portioning cooks and more experienced cooks who work the line, requiring less multi-tasking.

According to the analyst reports, Chili's management said unit-level labor cost savings since the first phase kitchen retrofit was completed in the second quarter have totaled between 50 and 60 basis points, or between 0.5 and 0.6 percent. The savings, which total as much as $300 per week per unit, were gained through the combination of paying a lower effective wage to prep cooks and reducing prep hours by about 10 hours per week.

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The second phase of the kitchen retrofit is now in 10 Chili's units and should be completely rolled out to the system by the end of 2012, analysts said.

"The main change in this phase is the replacement of the grill station with two pieces of equipment: an Impinger Conveyor oven and a CTX infrared oven," Ludington wrote. "These two pieces of equipment cook proteins and products such as quesadillas at a higher and more consistent quality and at a faster pace to help increase throughput. Chili's is also adding a crisper and 'quads' to hold fried and other hot items during peak traffic times. These two stations should lead to five- to seven-minute wait times for items such as the Triple Dipper entrée vs. the roughly 15 minutes it currently takes."

This second phase equipment is expected to let Chili's cross-train line cooks and cut daily staffing requirements by one person, saving 30-50 hours per week, Ludington said.

Bernstein added that "conveyer-ized technology" in the second phase automates some of the cooking. "The CTX allows cooks to set the exact cooking time and temperature required (requiring less constant attention versus a grill)," he wrote.

While Brinker management did not reveal the cost of individual pieces of equipment, Bernstein said, both stages of the kitchen retrofit cost about $90,000 per restaurant.

Along with the kitchen retrofits, Chili's executives also disclosed plans for reimaging the exterior and front-of-the-house.

Outside, the logo features more contemporary lettering, awnings and paints. Inside, the units use contemporary chandeliers and dividers with more glass than wood. Costs for this reimaging range from $225,000 to $250,000 per unit, Bernstein said, which is lower than Brinker's earlier estimate of $300,000. About 70 restaurants have been reimaged so far, and 200 are expected to be completed by the end of fiscal 2012.

"Management has revamped the design of the bar area and included more TV screens (while also balancing the availability of video/TV in the main seating area to appeal to customers looking for a more family-oriented atmosphere)," Bernstein said. "These changes should draw more traffic to the bar and to Chili's improved beer and margarita offerings."

Ludington of KeyBanc added that Brinker management said wood tables "are arranged in a more conducive way to accommodate larger parties than the nearly all-booth format of the remodel's predecessor."

With the number and size of televisions increased, Ludington added, "We feel that this has much greater potential to drive off-peak daypart traffic for times such as happy hour and both college and professional sports games."

Contact Ron Ruggless at ronald.ruggless@penton.com.
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