John Ivankoe: Kevin, did I catch an illusion that ’25 kind of goes up as a percentage of sales again over ’24. And I guess, just maybe like the max limit, I would have to go back and look four years ago. I don’t think many casual diners have ever spent above 4%, at least not materially more. Would that be kind of like the maximum of the spend that you would imagine the brand getting to?
Kevin Hochman: Yes. I don’t think we’re close to that level. I mean, we are not even focused on a ceiling. We are just focused on making sure the next dollar that we deploy has the return that we have seen in the previous dollars or better. So, right now, from the returns that we’ve been seeing in the traffic gains, and then more importantly that the traffic gains are more sustainable given the experience improvements, gives us confidence to continue to lean forward and invest. So the answer would be, we would expect this to invest more in ‘25. And what the ceiling is, I don’t know, I don’t think it’s the number that you threw out there. I think it’s probably less than that. But we’ll continue to focus on are we getting the returns that we want from the deployed spend.
John Ivankoe: And in terms of who was actually brought in, what was it a customer that was coming to Chili’s during COVID or slightly after COVID and just not as often, and was it a completely lapsed customer? Was it a new customer or did you, I may have missed this. Do you have that level of intelligence in terms of who you’re actually bringing into the door?
Kevin Hochman: We don’t yet. I mean, we have our data now tokenized, which we talked about. We were working on the last call. It’s going to take another quarter to officially deploy that. And they have be able to have better answers to what you just asked. And we know in general there, it’s a generally a younger customers responding to the advertising. But we don’t have the granularity that you just asked for of like how long, where they were elapsed and when was the last time they ever visited a Chili’s. So, hopefully, we’ll have more information on that as we continue to build our CRM capability. And then going forward, we’ll just be building out those profiles more and more. We have now 18 months of prior data that’s been tokenized, and then as we put that into the restaurants, we’ll be able to start building out the profiles of all these guests to be able to answer your question with a lot more granularity.
Operator: Your next question for today is coming from David Palmer with Evercore ISI.
David Palmer : You talked about the menu shifts that you made with featuring wings and quesadillas more, and that caused some trade down and you noticed some lower trade up from the 3 for Me consumer. I think, you talked about a new menu launch today that would, I’m curious, what would that feature, what sort of changes and are there any other adjustments you’re contemplating for some of these consumer realities you’re talking about?
Kevin Hochman: Let me start with the menu merchandising changes, and then I’ll talk about how we’re thinking about adjusting to the kind of where the customers right now. So from a menu standpoint, we’re rolling back. So we had really blown out the picturing of wings on the menu with the thought that we were going to bring the virtual brand into Chili’s. And the thought there was we were going to drive more wing attachment to alcohol only guests as well as drive trade up for those guests that are coming in for dinner, for appetizer. So when you picture something the guests will order more of it, right? Just that simple. And that’s exactly what happened. Unfortunately, many of those guests are trading down from entrees versus either that incremental add-on to a bar tab or an incremental trade up on an appetizer.
We’ve removed the pictures of wings off the menu, it’s back to being line listed, and we expect that mix will come down on wings because of that move, and that will reduce the amount of trade down that we’re seeing from entrees into wings. We’ve done the same thing on quesadillas. So the thought process there was quesadillas a very expensive appetizer, but it’s a very cheap entree. And so we were not listing it as an appetizer. So we had put it in the appetizers, we had pictured it, and in fact it drove more trade down in entree. So we again removed that. Picturing we’ve line listed KCD is only in the entree section and we’ve completely removed it from appetizers. So we believe those two moves will help us reverse some of the mix hertz that we’ve seen.
The second thing that we’re doing is we’re getting more aggressive about merchandising, at least in the feature card, some of our more premium items. So what you will see if you go into a Chili’s today is a new feature card, which is basically a full color gigantic insert that goes into the menu, that drives and typically, whatever we feature on that, that will drive mix of it. And so we are featuring our fajita trio, which is our highest priced fajita, offering the Triple Dipper, which is by far our best appetizer from a PPA in a profit standpoint and we are featuring the classic sirloin. And then the other side of the feature card, so these are all three significant trade-offs for both dollar ring a profit. And then on the other side of the feature card, we are featuring all of our premium margaritas, so El Nino, Casamigos and Spicedarita, which all are at $10 or higher, right?
And that’s been one of the things that really has helped us in mix over the last four quarters is we continue to have the $6 market of the month for that price sensitive guest that they come in for that right? But we have been able to more than double our ultra-premium margarita mix, I’m talking about margaritas sold at $10 and above, by focusing the menu merchandising on those things. That’s allowed us to keep our aggressive pricing at the $6 level, but still continue to expand margins through expanding the high-end of the barbell on premium. That’s the menu merchandising stuff that we are working that is being deployed as of yesterday. As far as anything else that we are doing to respond to a more price sensitive guess, so we will continue to focus on 3 for Me in the advertising.
We are, as I said in the prepared comments, testing some new angles as well as bringing some news to 3 for Me that you will see in the coming quarter. We are excited about that. The second thing that we are doing is we are making sure that we have the heroes at the bar, where we know that can drive trips in a price-sensitive environment really rounded out. Previously, we had $3 and $4 Modelo, Negros and Bud Lights. We have added chain wide, Coors Light and Miller Lite. So now we have the top four beers for happy hour at a very attractive price point that we can still make money on, but is attractive enough that’s going to bring that guest in. We are going to continue to focus on how do we continue to push the envelope on value but continue to expand margins.
I hope that answers your question, but that is what we are focused on, David, in terms of the change in consumer.
David Palmer: Just one follow-up and that is, you talked about sort of build on John’s question about the increased advertising and keeping that going into fiscal ’25. Do you envision maybe funding that differently now that you are seeing this consumer reality that you are seeing? Do you still have the same sort of pricing power and mix that check driving capabilities through the menu? And if not, if that is slowing or diminishing in some way, can you maybe click in with some of the other stuff you would have been a contemplating at one point, smart cooking grills and other sort of cost-driving, productivity-driving stuff that might cost you on the CapEx, but that could get you some margin to fund what you want to get done on the advertising?
Kevin Hochman: Yes. Let me answer with you how we are thinking about how to finance the advertising and build plans that we are confident will continue to expand margins. And then if you guys want to chime in with any kind of detail on that, that’s great. We are going to continue to focus on simplification. We didn’t talk about it in the prepared comments, but we have got several initiatives that will be coming to market that will help us ease the load on labor, as well as help us with some SKU productivity. Like you guys see a big COGS number and it looks like it’s very deflationary, most of that is from commodities, but there is also some embedded simplification in those things that it’s hard to tease out. For example, what’s coming forward is, we are eliminating our we have a smaller burger SKU that we use at lunch.
