Skip navigation
Retail Traffic

On The Brink?

Chili's Grill & Restaurant is hot. Other Brinker International Inc. chains are not.

So what is the No. 2 restaurant company doing to assure growth? Culling its portfolio of underperforming concepts to concentrate on more promising brands.

In October, for example, it sold Corner Bakery Cafe, which operates 92 casual eateries in the U.S., to Il Fornaio, an Italian restaurant and bakery company.

Over the past two years, the Dallas-based restaurateur has unloaded three other chains: Big Bowl Asian Kitchen, Cozymel's Coastal Grill and its stake in EatZi Market & Bakery.

By trial-and-error, Brinker hopes to find a chain that could replicate Chili's growth potential. After the pruning, four concepts remain: On the Border Mexican Grill & Cantina, Romano's Macaroni Grill, Maggiano's Little Italy and a 43 percent interest in Rockfish Seafood Grill.

Brinker, like other big chains such as Outback Steakhouse Inc. and Darden Restaurants Inc., is striving to develop new concepts to satisfy a wide variety of appetites and moving beyond it's one clear cut winner.

That's easier said than done. Building a truly successful secondary concept is challenging, says Morningstar Inc. analyst Lauren DeSanto. She points to Darden as the only restaurant company with more than one huge success. This may be because it started out earlier than its casual dining peers, establishing Red Lobster in the 1970s and the Olive Garden in the 1980s.

As a result, it had much of the nation mapped out before other chains entered the market in a big way. Chili's, too, got a head start, growing in the mid- to late-1980s after being acquired by Norman Brinker, which makes replication so difficult‥

“I think it would be extremely difficult to bring another concept to the same scale, efficiencies and returns as Chili's,” DeSanto says.

However Brinker, with 1,500 eateries, keeps trying. It hopes to carve out a bigger piece of the restaurant pie through a strategy that includes: partnering with large anchor tenants (Target would be a good fit, says Kim Williams, Brinker vice president of real estate and development), building its restaurants using an in-house construction team and conducting demographic surveys to find sites in good locations — 75 percent of which are leased and 25 percent of which it owns.

“We negotiate deals whatever way we have to,” says Williams. “As long as we are going to the right location.

Spicy Fajita

That real estate strategy seems to be working, even if Chili's still is the strongest concept. In the fiscal first quarter 2006 ended Sept. 30, profit more than doubled to $31.8 million from $13.9 million a year earlier as total sales rose 12 percent to $975.9 million.

Confirming the difficulty in breaking out a second powerhouse, the company said the growth was largely due to a 6.1 percent growth in Chili's comp-store sales (see table below). Chili's accounts for 68 percent of the company's locations and 74 percent of profit. Macaroni Grill and On The Border reported declines in same-store sales, while Maggiano's reported a 2.7 percent rise for the quarter.

Chili's, founded in 1975 by Larry Lavine, was a small chain until restaurant pioneer Norman Brinker bought the company in 1983. Brinker — who founded the Steak & Ale restaurant chain in 1966, took it public in 1971 and sold it to Pillsbury in 1976 — knew just what to do. Chili's held its initial public offering in 1984 and began a rapid expansion that continues to this day.

In 1989, Brinker acquired Macaroni Grill, a small Italian chain founded by Phil Romano. On the Border, a Dallas-based Mexican chain, was added in 1994 and Maggiano's and the Corner Bakery were purchased from Rick Melman's Chicago-based Lettuce Entertain You Enterprises in 1995.

Brinker plans to open another 160 restaurants by the end of 2006, including 100 Chili's. Ultimately, the company envisions as many as 4,900 restaurants among its four brands as it seeks to expand its international business, until it accounts for 20 percent of total sales from a small percentage today.

Deciding where to build restaurants has evolved into something of a science, says Williams. The company has long had a knack for marketing, taking in-store surveys, conducting on-the-ground research of traffic patterns, counting office buildings and sizing up neighborhoods to get a “gut feeling,” she says, of where new restaurants should go. But a new consumer insight group, organized in 2004 to handle all market research from guest satisfaction to consumer demographics, has streamlined the process.

“Now we know who our customer is,” Williams says. “So we'll start out at our desk, and take a market area, figure out how many of our customers live there, and we'll know exactly how much demand there is for our brand.”

And by relying on an in-house construction department, Brinker is assured of total control over quality, branding and costs, Williams says. Site work, which includes things like sidewalks and landscaping, is negotiated on a case-by-case basis.

Of Brinker's remaining businesses, analysts say Macaroni Grill has had the most difficulties. In the first quarter 2006, same-store sales dropped 1.6 percent. The, company has streamlined its menu in hopes of improving.

The concept that appears most ripe for expansion, analysts say, is On the Border, even though it showed a 0.7 percent drop in same-story sales during the third quarter, compared with a year earlier when sales grew 7.7 percent. Brinker has said it sees potential for development of at least 300 On the Border restaurants, more than double today's 140 sites. And with the industry expected to grow at a 5 percent to 7 percent annual clip in the near term, according to analysts, expansion makes sense. Meanwhile, it cut back the menu and managed to push through price hikes averaging 1.7 percent in the three-month period ended Sept. 30.

“The baby boomers like to eat out. And their children, well, people aren't as adept at cooking as they were 20 years ago,” says Michael Smith, an analyst with Oppenheimer & Co. “And in such a competitive restaurant market, the savings you might have from cooking at home aren't there either.”

Not surprisingly, Chili's remains the company's primary focus. In addition to expanding into smaller towns, Brinker is looking to further saturate big-city markets.

“With the site-modeling tools and technology available, we can evaluate risk early on, which opens up doors for us to go into smaller markets that might have been scary for us before,” Williams says. “We used to be afraid to put a restaurant three miles from an existing Chili's, but our research has shown us that if we don't, someone else will. So we're getting smarter.”



A portfolio restaurant company risks losing it focus by operating too many brands. But it also wants to grow beyond its mainstay.


Selling off the concepts that don't jibe helps Brinker zero in on its best ideas and maximize profits. Its flagship brand, Chili's, generates the biggest returns.


Chili's started out as a spicy idea, but Norman Brinker knew a big fajita when he saw one. The Steak & Ale founder took the southwestern chain public in 1984, snagged the ticker symbol EAT and started a portfolio of brands that includes Romano's Macaroni Grill, On the Border Mexican Grill and Maggiano's Little Italy.


Brinker operates more than 1,500 restaurants with plans to expand its universe to 4,900 internationally. By 2012, chairman Doug Brooks recently told investors, it would like 20 percent of its operating income to come from abroad.

Hot Chili's

Chili's leads the way in same-store sales; On The Border and Macaroni Grill report declines.

Name Q1 06* Comp-Store Sales% Q1 05 Comp-Store Sales% Q1 06* Price Increase%
Brinker International 3.7% 0.3% 2.8%
Chili's 6.1 (0.3) 3.3
Macaroni Grill (1.6) (2.4) 2.3
On The Border (0.7) 7.7 1.7
Maggiano's 2.7 0.4 1.5
*Q1 ended Sept. 30. Source: Company reports

À la Carte

Brinker: a mutual fund of dining.

Chili's has more than 1,100 restaurants, ranging in size from 3,900 square feet to just under 6,000 square feet, seating 150 to 220 people. Average check: $12.

Macaroni Grill: 235 locations; usually about 6,300 square feet. Average check: $12-$14.

On the Border: 140 units, ranging from about 5,200 square feet to 7,000 square feet; newer locations are smaller. Average check: $12.

Maggiano's: 35 restaurants, each a little different from the next; up to 15,500 square feet. Average check: $23.

TAGS: Retail
Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.