John Gordon's  Instablog

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We were able to get into a Chili's (EAT) test unit for lunch today, and there are some interesting menu items in the works. All are lower priced, menu adds or new platforms that may give Chili's some new news to talk about, particularly at lunch, or in conjunction with bar themes.

Chili's has redone its menu face and is featuring its burgers, ribs and fajitas heritage, while adding the triple dipper menu (preset items, $9.99). It's also featuring $4.99 Margaritas and happy hour begins at 300P in many units, as well.

The new items added are mostly lower than $10 and speak to a more lunch time, snack, sandwich focus:

4 new entree salads: Caribbean, Asian Noodle, BBQ Chicken, Chicken Caesar for $8.79 (most) to $11.29 (shrimp, salmon)

4 new sandwiches/wraps: Turkey, Carne Adada , BBQ Pulled Pork, Chicken Wrap: for $6.99 to $7.99

5 new taco items: chicken, shrimp, pulled pork, ground beef and combination, for about $8.99.

Store management indicated that while it was a test, the tacos and sandwiches were selling well and had largely favorable reaction. 
While we haven't seen all of the menu items, the percentage gross profit shouldn't be bad.

We all know it will take some promotional muscle to establish these new items in the marketplace. The market is so crowded, and messages get lost quickly. For
example, Macaroni Grill (former EAT, now privately held) began broadcast featuring its almost totally redone menu recently. 

The valuation is still cheap and has a run of upgrades since November, 2008.
Current year EPS estimate is $1.31, about a 13 multiple. We'll see how earnings go tomorrow. I've been in four Chili's in the last month and they look about steady to me.  

Disclosure: no positions




     

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The Burger King $1 doublecheeseburger campaign starts nationally on October 19. For Burger King, its high stakes. For the QSR sector, its a way to detect whether the $1 value focus will actually payoff.

In its August 25th earnings call, CEO John Chidsey indicated they were happy with the early $1 double results in about 40 markets. Earlier this year, Burger king and its franchisees failed twice to come to agreement to promote it, and these must be test markets or company markets.

Burger King noted the $1 double promotion narrowed the traffic losses it was realizing earlier, and market profitability outperformed the assumed gross profit dilution. The VP of Strategy said it was a superior sandwich at an exceptional value. And, they declined to provide actual traffic gains in these markets.

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