Restaurants Make Yuletide Push

Gerelyn is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Restaurants have only weeks left to finish 2012 on a high note for sales. The headwinds that restaurants face this year are fierce, considering the uncertain economic conditions compounded by agricultural inflation, also known as agflation, around the world. It comes down to sales, and some restaurants are doing a better job than others using promotions to capture consumers' attention and wallets.

Chili's Grill and Bar Restaurant, which is owned by Brinker International (NYSE: EAT), is rolling out new menu items and launching a marketing blitz that features those products, according to Nation's Restaurant News. In the spotlight is Chilis' new 'over the top' steaks, which are priced under $12 and come with a pair of side dishes. It's part of a broader Chili's overhaul for retro-fit restaurants, one that involves installing new ovens, conveyors, and possibly new pizza platforms, and which is complete in all company-owned stores.

The new television commercial ads are set to begin running this month, and are expected to be a hit. The ads are comparable to last year's marketing campaign, which featured dinner for two at $20. KeyBanc Capital Markets analyst Christopher O'Cull cited in NRN expects that this year's menu changes will result in better margins for Chilis, which in the U.S. has more than 800 company owned stores and 453 franchised locations. Brinker International's margins already improved by 1.5% at company-owned restaurants in the fiscal 1Q to 14.6%.

Chili's same store sales were easing in recent months, but according to O'Cull began strengthening once again in November to resemble 2%-3% growth achieved over the summer months. O'Cull is predicting fiscal 2Q same store sales growth of 1.5%, thanks in part to the latest promotion, according to NRN.

Orlando, Florida-based Darden Restaurants (NYSE: DRI)), the owner of Olive Garden, LongHorn Steakhouse, and Red Lobster, to name a few, is not as jolly as it hoped to be this holiday season.

Earlier this month, Darden lowered its full-year profit projections due in part to disappointing results from its restaurant promotions. The company was also hurt by a plan to reduce its 45,000 full-time workforce to avoid a forthcoming increase in health care costs, a plan that did not resonate with customers and that the company recently canceled. Much of Darden's employees are part-time workers.

Executive Shuffle

There has been some executive shuffling unfolding in the restaurant sector in recent weeks. Former Brinker International board member Michael J. Dixon has most recently been named the chief financial officer at Ignite Restaurant Group (NASDAQ: IRG). In doing so, Dixon is replacing Ignite's outgoing chief finance officer, Jeffrey Lager, and resigning from the Brinker board.

Ignite may be new to the public markets, but the owner of Joe's Crab Shack and Brick House Tavern + Tap is pulling out all the stops with its promotional efforts. The company signed the New York division of global advertising force McCann Erickson to spearhead its marketing efforts for the seafood brand.

Ignite's stock has faltered since the IPO, and is currently trading slightly below its offering price of $14. The company is probably expecting that the marketing muscle behind companies such as Coca-Cola, for which McCann Erickson created the "I'd like to buy the world a Coke" campaign, will do it some good. Investors and consumers alike will have to be patient, though. The new Joe's Crab Shack ad campaign won't surface before Spring 2013.

For its part, Brinker International has a new chief executive but is waiting until the holidays are over to make the switch. In the New Year, Wyman Roberts, who for seven years has served as president of Chili's Grill & Bar, will become Brinker's new CEO and retain his post at Chili's. He is replacing Doug Brooks, whose tenure with the company spans three and a half decades.

Miracle on 34th Street

The holiday season can be as busy for restaurants as it is for other retailers, as shoppers often take refuge in shopping mall and stand-alone dining locations after braving the store crowds. Restaurants are clearly competing with promotions and those that can do it most effectively -- without compromising margin growth -- are going to be the most successful. Others might need a miracle to turn things around this year.


GerelynT has no positions in the stocks mentioned above. The Motley Fool owns shares of Darden Restaurants. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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