FDD Talk: Chili’s Grill & Bar Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

In this FDD Talk post, you’ll learn the following:

• Section I – Background information on the Chili’s Grill & Bar franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Chili’s Grill & Bar franchise, based on Item 7 of the company’s 2018 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Chili’s Grill & Bar franchise, based on Items 5 and 6 of the company’s 2018 FDD

• Section IV – Number of franchised and company-owned Chili’s Grill & Bar outlets at the start of the year and the end of the year for 2016, 2017, and 2018, based on Item 20 of the company’s 2018 FDD

• Section V – Presentation and analysis of Chili’s Grill & Bar’s financial performance representations, based on Item 19 of the company’s 2018 FDD, including information on the:

• 2017 average and median reported net sales for the 910 company-operated Chili’s Restaurants that were open for at least 30 months before June 27, 2018

• 2017 average and median gross sales for the 285 franchised Chili’s Restaurants that were open for at least 30 months before June 27, 2018

Section I – Background Information

12 Things You Need to Know About the Chili’s Grill & Bar Franchise

Launched One Day Online Pop-Up Retail Store

1.  On November 26, 2018, Cyber Monday, Chili’s Grill & Bar launched its first ever online retail store to sell one-of-a-kind Chili’s merchandise. Chili’s said that there was one catch to the store, it was a one day only event and there were only limited quantities of each item. Before the official store launch, the #ChilisLove crew surprised some of the brand’s most loyal fans with the custom gear. Chili’s provided sneak peeks of the merchandise on its social media channels.

2.  The items featured in the pop-up shop included:

• “I Feel God in This Chili’s Tonight” t-shirt, which was based on the episode of The Office that featured Chili’s;
• Skillet Queso bomber jacket, which was inspired by an article titled “15 Tweets You’ll Only Understand If You’re Completely Obsessed with Chili’s Queso”;
• “Hi, Welcome to Chili’s” swimsuit, which Chili’s initially made for a fan who wanted to surprise her best friend, who loves Chili’s, for her birthday;
• Burger, Rib, Fajita, and Margarita cufflink set, which initially debuted during the royal wedding between Prince Harry and Meghan Markle.

Launched New Loyalty Rewards Program

3.  In mid-March 2018, Chili’s Grill & Bar updated its loyalty program with the new My Chili’s Rewards. With the new My Chili’s Rewards, members will get their choice of chips and salsa or a non-alcoholic beverage during every visit to Chili’s. Steve Provost, chief marketing and innovation officer of Chili’s, said, “It’s raining chips, hallelujah, it’s raining chips! Well, and free non-alcoholic beverages!”

4.  According to Chili’s, the brand decided to revamp its loyalty program after listening to feedback from its customers. Chili’s said that many customers felt that loyalty programs were too complicated, so Chili’s decided to keep things simple. Chili’s tested the new loyalty program in select markets starting in August 2017 and was met with positive results. Provost added, “The reality is a loyalty program is a way of saying ‘thank you’ to our Guests for being one of their top dining options and we weren’t doing a good job of that until now.”

President and CEO Steps Down

5.  In early September 2018, Chili’s Grill & Bar announced that Kelli Valade was leaving her leadership position as president. Valade stepped down to join TDn2K, parent company of People Report, Black Box Intelligence, and White Box Social Intelligence, as president and CEO. In the interim, Wyman Roberts once again stepped in as president of Chili’s.

6.  Prior to Valade, Roberts served as president of Chili’s for more than seven years. His extensive experience running both the Maggiano’s and Chili’s brands, coupled with the strong leadership team in place at Chili’s, ensures the brand will continue to deliver notable results. Roberts said, “I’m not sure I can find the words to express how extremely proud I am of Kelli and all that she’s accomplished. I’ve seen firsthand the impact she’s made at Brinker and Chili’s and now she will help impact the entire industry.”

7.  In her 22 years with Brinker International, parent company of Chili’s Grill & Bar, Valade’s leadership helped shift the culture, initiate the Women Take the Lead program, and impact positive results for Chili’s. Valade said, “This was an incredibly tough decision to leave a brand that I absolutely love and taught me the power of making people feel special. I’ve been honored to be a part of the amazing momentum the ChiliHeads have created and can’t wait to see what’s next for the team.”

Company History

8.  Chili’s Grill & Bar was founded in 1975 by Larry Lavine in the Victory Meadows area of Dallas, Texas. About a decade earlier, Lavine entered the inaugural Terlingua Chili Cook-off and fell in love with cooking for friends and family. Lavine’s concept was to create an informal, full-service dining restaurant with a menu featuring different types of hamburgers offered at an affordable price. The original menu also had traditional Texas red chili as well as tacos and beer. Following the success of the first Chili’s, Lavine opened a second location in Houston a year later.

9.  Over the next few years, Chili’s grew to about 28 locations and in 1983 Lavine decided to sell the company to restaurant executive Norman E. Brinker, formerly of the Pillsbury restaurant group that owned Bennigan’s. Brinker International still owns Chili’s, as well as Maggiano’s Little Italy, to this day.

10.  After taking over the company, Brinker started franchising the Chili’s concept and pushed national expansion. Also during the 1980s, Chili’s introduced two of the brand’s signature dishes, Fajitas and Baby Back Ribs. Chili’s famous Baby Back Ribs jingle also debuted at this time.

11.  Chili’s continued to grow in the 1990s and also opened its first international locations in Canada, Mexico, East Asia, the Middle East, and South Korea. In the late 1990s, Chili’s added its signature Big Mouth Burgers to its menu. Since then, Chili’s has continued to grow around the world and refreshed its brand to keep up with current consumer trends.

Entrepreneur’s Franchise 500

12.  Chili’s Grill & Bar did not rank on Entrepreneur’s 2018 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Chili’s Grill & Bar franchise costs, based on Item 7 of the company’s 2018 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on Chili’s Grill & Bar’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2018 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2016

• Outlets at the Start of the Year:  433
• Outlets at the End of the Year:  322
• Net Change:  -111

2017

• Outlets at the Start of the Year:  322
• Outlets at the End of the Year:  315
• Net Change:  -7

2018

• Outlets at the Start of the Year:  315
• Outlets at the End of the Year:  311
• Net Change:  -4

Company-Owned

2016

• Outlets at the Start of the Year:  826
• Outlets at the End of the Year:  937
• Net Change:  +111

2017

• Outlets at the Start of the Year:  937
• Outlets at the End of the Year:  937
• Net Change:  0

2018

• Outlets at the Start of the Year:  937
• Outlets at the End of the Year:  940
• Net Change:  +3

Section V – Financial Performance Representations (Item 19, 2018 FDD) and Analysis

Part 1 – Average and Median Gross Sales of the Company-Owned Chili’s Restaurants for the 52 Weeks Ended June 27, 2018

• Part 1 of this Financial Performance Representation provides the actual average and median Reported Net Sales of certain company-operated Chili’s Restaurants.

• Reported Net Sales are Gross Sales (as defined in the Franchise Agreement) less the value of complimentary products provided by the Restaurants to customers and employees.

• This sales information is based on the operating results for the 12 periods ended June 27, 2018 of the 910 company-operated Chili’s Restaurants that were open for at least 30 months before June 27, 2018 (“Company-Owned Restaurants”).

• Data represented in Item 19 reflects a 52-week fiscal year that ended June 27, 2018.

• Chili’s permanently closed 5 company-owned Chili’s Restaurants during its 2018 fiscal year. These 5 closed restaurants were located in California, Florida, Massachusetts (2), and Utah. This sales information excludes the 5 restaurants since Chili’s did not operate these restaurants for the full year.

• Chili’s temporarily closed 7 locations for 17 weeks due to hurricane damage in Texas during Chili’s 2018 fiscal year. An additional location was closed in Colorado for 4 weeks. Since Chili’s did not operate these locations for the full year, they too are not included in this information.

• The 910 Company-Owned Restaurants represent 96.8% of the 940 total company-operated Chili’s Restaurants in the United States open as of the end of the reporting period. Information for company-operated Chili’s Restaurants outside of the 50 United States is not included in this Item 19.

• The average length of time the 910 Company-Owned Restaurants have been open is 15.9 years.

• Typically, company-operated Chili’s Restaurants are located in large, metropolitan areas. The location of a restaurant (whether company-operated or franchised) and the demographics of the geographic area can have a material impact on sales and expenses.

• The Company-Owned Restaurants offer substantially the same products and services to the public that franchised Chili’s Restaurants are expected to offer.

• Chili’s company-operated Chili’s Restaurants use a uniform accounting system, and the sales data pertaining to the Company-Owned Restaurants was prepared by Chili’s in-house accountants on a basis consistent with generally accepted accounting principles during the period covered. This sales information has not been audited.