BLMN - Bloomin': Despite Being Close To Fair Value There Are Still Many Challenges Ahead

2024-05-25 08:47:58 ET

Summary

• Expansion and flexibility of operating hours, such as Saturday brunches at Bonefish and Italian sandwiches at Carrabba's, aiming to attract different customer segments and increase revenue.
• Increases in menu prices to compensate for declining traffic are common, but the aggressive promotion strategy is more prevalent in QSRs and fast casuals than in casual dining.
• New models of more economical and lean units, such as the "Joey" model in Outback, optimize return on investment and reduce maintenance costs, following post-pandemic trends.
• Despite improvements in operational efficiency, labor costs and wage inflation remain challenges. The company's debt does not represent an imminent economic risk, and the financial cycles are well formatted.
• Profitability is still a weak point, with a continuous need for investments and financing that reduces free cash flow. Remodeling and closing unprofitable units are positive steps, but results will take time.

Corporate Overview

Bloomin' Brands (BLMN) is a company that has operated and franchised restaurants in various segments for 36 years. Bloomin' Brands works with different restaurant concepts and different segments. That is, although the company is known for operating brands that stand out in the casual dining segment, it has brands that intersect fine dining and fast casual. Currently, most of the restaurants under Bloomin' are directly controlled by the company. That is, around 80% of its units are operated by Bloomin', while 20% of them are franchises.

As we will see in more detail when I dissect Bloomin' operations, the company operates in two distinct operating segments, but not all of its brands cover each operating segment. In the United States segment, which accounts for 86% of the company's revenue, all brands are covered. Meanwhile, in the International segment, Bloomin' only expanded the Outback Steakhouse and Carrabba's Italian Grill brands (only in Brazil, better known as Abbraccio).

Let's remember what the concepts of each brand are and the functions of each one in Bloomin' value proposition? Initially I would like to remind you what a concept is when we talk about restaurants. A concept is an amalgam of signs that make up the definition of an establishment. These signs range from the type of cuisine, service, decoration, philosophy, etc. In a marketing scope, we can infer that a well-defined concept helps a restaurant in several ways.

We can say that a well-defined concept would help a restaurant to segment its customers without the counterpart of a considerable amount of capital invested in advertising. A well-defined concept builds customer loyalty and creates added value to the experience in trial products, serving as a platform for differentiation actions and quality cues. In other words, it is the basis of everything when it comes to restaurants. I often say that a well-defined concept is not more important than a good meal, but it can certainly have a greater impact when the customer is not aware of the brand.

1. Outback Steakhouse : Casual steakhouse with a steak focus and Australian decor. Wide menu (despite the post-2020 reduction), full bar service and special snacks. Outback is Bloomin' main brand in terms of volume and growth potential. Wide appeal mainly in the Brazilian and American market. It is the focus of the company's improvement actions;
2. Carrabba's Italian Grill : Italian decor and food, casual and family atmosphere. Designed based on exhibition kitchen design, offering an interactive and transparent experience. The dishes are more focused on different pastas, but the meat dishes also shine. Besides Outback, this is the only brand exported by Bloomin'. Known in Brazil as Abbraccio;
3. Bonefish Grill : Specialized in fish of all types. Valuing fresh food and seasonal dishes. Large wine list and elaborate alcoholic and non-alcoholic drinks;
4. Fleming's Prime Steakhouse & Wine Bar: Contemporary interpretation of the American steakhouse. Premium ingredients and more elaborate dishes. Focus on the gastronomic experience, award-winning wines and recognized and award-winning chefs;
5. Aussie Grill : Fast casual focused on serving tasty and elaborate dishes (for fast casual) in less than four minutes. Targeted for younger guests and families seeking practicality and convenience.

Note that Bloomin’ multi-brand strategy allows the company to segment different audiences, with different promotional, pricing, targeted marketing and distribution strategies, and thus achieve greater effectiveness in each of these areas within these different operations.

Remember Deming's quote "Good quality means a predictable degree of uniformity and reliability with a quality standard appropriate to the customer". Or even what Crosby said "Quality is the consonance with requirements". Therefore, Bloomin' multi-brand strategy, by segmenting customers based on predefined concepts that appeal to different guests, adapts, through its value proposition, the intrinsic quality according to the needs of each segmented audience. This is the consonance of intrinsic quality with perceived quality, and only the latter generates the materialization of customer loyalty. What good is a high intrinsic quality if it is not perceived? This is the magic of market segmentation....

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