Restaurants and Railroads: Chili’s Triple Dip Boom

Once I’m cast off from show business perhaps I’ll start a newsletter called Restaurants and Railroads. This will analyze those two types of businesses, specifically publicly traded companies. Hedge funds as well as passionate hobbyists will subscribe. They’ll invite me to their conferences, to which I’ll travel in style, by rail when possible. I’ll sample the various restaurants as I go, Tijuana Flats for example, and Pizza Inn which I’ve never tried. In a world of niche media I wonder if I could make that work.

You might not think restaurants and railroads are a natural combination. Fred Harvey might disagree, but I’ll concede they’re very different businesses. The railroads have no new competition, no one is building a new railroad. Only a handful of companies control all the track. Two railroads serve the port of LA: one is BSNF, owned by Berkshire Hathaway, and one is Union Pacific. A duopoly.

The restaurants on the other hand are in frantic, constant competition. They must capture taste and vibe. Tastes change, vibes shift. Plus your customer could always just make a sandwich. How restaurants stay profitable? How do they maintain quality, especially at scale?

These two differing business categories are the two I’m excited to read about when I get an issue of ValueLine. Consumer Staples, Metals & Mining, etc, these lose our interest. But take a look at a personality like Kent Taylor’s or a real railroader like Hunter Harrison (or Casey Jones) and the mind comes to life, it’s hard to get bored.

In the publicly traded restaurant space, a big story this year has been Chili’s:

Chili’s may have just pulled off one of the greatest comebacks in restaurant history.

Same-store sales at the bar and grill chain surged more than 31% from October to December, marking its best quarter since the period just after COVID and accelerating a streak of double-digit same-store sales increases that began last April. 

The growth once again was driven by a mix of social media buzz, value-based advertising and a renewed focus on restaurant operations and atmosphere that seemed to snowball as the year progressed. 

source.

Just to put this into context, these numbers are comparable to when Popeye’s went off with their spicy chicken sandwich. CEO Kevin Hochman points to TikTok:

About halfway through last year, its Triple Dipper appetizer platter, a staple on the chain’s menu for years, went viral on TikTok, where young customers showed off their “cheese pulls” with the Triple Dipper’s fried mozzarella sticks. …

“What’s happening is that young people are coming in after they’ve seen us on TikTok, and they’re like, ‘Wow, this experience is really good,’ and it becomes a part of the rotation,” Hochman told analysts during an earnings call Wednesday. “I think that’s why you’ve seen the longevity in the results and the acceleration, not just kind of a boom-splat that you typically would see without the operational investments that we’ve made in the business.”

Kevin Hochman seems like a brand guy: while at P&G he worked on Old Spice. $EAT stock has indeed thrived:

On an episode of A Deeper Dive, a quick service restaurant business podcast, the host and guest discussed Chili’s phenomenal success, and possible reasons for it. The fast food competitive price with the sit down experience came up, as did the mix and match. But in the end they agreed people just kinda like it.

It does seem like Chili’s is doing something right: