Why BJ’s Restaurants put a margin improvement team into place

Greg Levin was named CEO of BJ’s Restaurants in the summer of 2021 during perhaps the most disruptive time for the casual dining segment in its history.

Those uncertainties have only grown since, given inflationary and supply chain challenges, as well as a predicted recession on the horizon. Still, BJ’s system sales and comp sales exceeded pre-pandemic levels in Q3. Though margins remain pressured (BJ’s is not anomalous here), Levin and his team have put several initiatives into place to maintain the 214-unit chain’s momentum – uncertainties be damned. Take, for example, the company’s recently-created margin improvement team featuring representation across several functions to actively identify and implement cost savings opportunities, some of which are low-hanging fruit and others that have long-term implications. The team focuses on four areas specifically – cost of sales, labor, operating occupancy and G&A. The ultimate goal is to bring margins back into the mid-to-upper teens, while maintaining quality and portion sizes.

“Most companies came out of Covid thinking inflation would be more transitory but the fact is labor inflation has come in and there are higher input costs than three years ago,” Levin said during a recent interview. “As we looked at margins, we felt it was important to look for areas to improve.”

As an example, when BJ’s chicken wing supplier experienced a labor shortage that significantly increased costs, the chain began testing chicken thighs.

“We have slow-roast ovens, which are unique to BJ’s, so we were able to take those items and put them into these ovens – almost like a crockpot,” Levin said.

The thighs are no longer on the menu, but the experience allowed BJ’s to consider new supply opportunities; in this case, raw jumbo wings that can be cooked in those ovens and then fried when ordered.

“We were able to bring in a commodity wing and cook it better than the rest of the industry. And because of that commodity wing, we are able to save a certain amount of dollars per pound,” Levin said. “The thighs didn’t work out but they made us realize we could introduce more of a commodity product and put our unique spin on it. We had a failure that led to a success down the road.”

Levin estimates this change saves the company about $3 million annually based on current prices. The margin improvement team also looked at ways to trim its fresh salmon differently to yield more product, versus sourcing a cheaper frozen salmon.

“So, again, we’re going to a commodity-type of product and that is giving us savings. These are the types of things we’re doing at the cost of sales – looking at what the commodity products are out there that maintain quality either by slow roasting or adding our sauces or something along those lines,” Levin said. “This initiative is directly reducing pricing required to offset inflation.”

BJ’s is also testing smaller menus and will examine those results in the next few months to understand the cost savings versus customer satisfaction balance. Levin said if the test was successful, a smaller menu could be introduced around June 2023.

“We are mostly looking at things that may not be necessary. We have eight salads, for example. I’m not sure we need eight salads. But we will see where the guest is and what is selling and what is not,” Levin said. “We don’t want to take away the top selling items that our guests want, even if it is complex.”

In addition to the menu, BJ’s is also looking at labor efficiencies for cost savings. Labor is a critical piece for the company’s momentum, as higher staffed restaurants generate stronger topline sales and save on overall costs. Currently, the system is staffed above 90%.

“When we looked at our numbers this year, we were spending a lot of money on overtime and training. We’ve been able to reduce those as we’ve staffed up more, so that has been a big priority,” Levin said. “Also, now that we’ve got this base of people maturing and getting their sea legs under them in the restaurants, we can go back to the traditional labor metrics we’ve had in the past. That’s the switch where we’re getting some efficiencies from because we’re able to understand how to better allocate people in certain timeframes.”

Labor allocation, he notes, has changed with the elevated off-premises business. Pre-pandemic, for instance, about $10,000 of weekly sales came outside of the dining room. That mix has since doubled. To maintain the momentum on labor, BJ’s recently hired its first chief people officer to emphasize culture, which has helped reduce turnover.

Of course, technology is also playing a part in finding efficiencies. To achieve this goal, BJ’s has put an innovation team into a place that maps the guest journey. The team, for example, found that restaurant phone lines were busy both managing waitlist requests and takeout orders, so the company has implemented artificial intelligence to determine and communicate accurate wait times. The technology will be rolled out systemwide by the end of this quarter. BJ’s has also introduced an order tracker so guests know when their food will be ready. Over 75% of online orders use this feature and it has led to an uptick in digital curbside usage. The company is also in the process of revamping its e-commerce presence, including a new website and an app launching next year.

“We are going for more personalization so we understand our customers more and can use that to upsell when appropriate,” Levin said. “We think modernizing digital ordering will deliver a strong payback from more digital orders.”

All told, there are several efforts underway at BJ’s, each with the goal of finding efficiencies and improving topline sales. Levin, for one, is optimistic about where this work will lead.

“All of us in this business today are facing interesting times, but I do believe we will continue to improve and normalize,” Levin said. “I am excited about this concept going forward.”

Contact Alicia Kelso at [email protected]