Bravo Brio Restaurant (NASDAQ:BBRG), the owner-operator of two distinct Italian restaurant brands, BRAVO! Cucina Italiana ("BRAVO!") and BRIO Tuscan Grille ("BRIO"), delivered a lackluster set of results for full year 2013. Its revenues increased by a mere 0.5%, while total comparable restaurant revenues fell by 2.8% over the same period. Furthermore, Bravo Brio Restaurant saw its operating profit decline by 7.3% from $74.3 million to $68.9 million.
Bad weather was a key contributing factor to its unsatisfactory financial performance. In 2013, there were in excess of 100 restaurant days where Bravo Brio Restaurant had to close a restaurant due to bad weather. This is because close to 60% of its restaurants are located in the Midwest and North Mid-Atlantic regions, which have been hit by harsh winter conditions.
Long-term investors should look beyond the short term uncertainty and focus on Bravo Brio Restaurant's fundamentals. Bravo Brio Restaurant's portfolio of complementary Italian brands and its flexibility in adapting to customers' needs are positive factors that will work in its favor in the mid-to-long term.
Both BRAVO! and BRIO offer upscale affordable Italian food to customers. The two brands complement each other and result in improved cost efficiency and a wider customer reach. In terms of cost efficiency, Bravo Brio Restaurant enjoys strong economies of scale by spreading the purchasing costs and back office expenses over the combined revenue base of the two brands BRAVO! and BRIO.
Most of the ingredients that BRAVO! and BRIO source are similar, and best practices in food preparation and customer service are also shared across both brands. Similarly, the same purchasing managers, information technology infrastructure and accounting staff can serve both BRAVO! and BRIO.
With respect to reaching out to more customers, Bravo Brio Restaurant has cleverly broadened its guest appeal by having offerings for BRAVO! and BRIO selling at different price points. In 2013, the average check per guest for BRAVO! was $20.45, compared with that of $25.05 for BRIO. Diners looking for a more affordable Italian dining experience with higher mix of pasta dishes can turn to BRAVO!, while BRIO is the choice for those preferring chicken, beef, and seafood items and who don't mind paying slightly more.
As a group with the two flagship brands, Bravo Brio Restaurant has generally broad appeal to a good mix of diners. About two-thirds of Bravo Brio Restaurant's customers are female, while its guests belong to a wide range of age groups including a majority being either aged between 30 and 49 or aged above 50, and more than 10% of them below the age of 29.
More importantly, Bravo Brio Restaurant hasn't focused on customer growth at the expense of profitability. For the past six years (since 2008), Bravo Brio Restaurant has delivered consistent gross margins within a narrow 16%-18% range.
Another restaurant company that has leveraged on its multi-brand portfolio is Ignite Restaurant Group (NASDAQ:IRG). It has three key restaurant brands: Joe's Crab Shack, Brick House Tavern + Tap and Macaroni Grill. Besides the typical cost synergies associated with a multi-brand restaurant group, Ignite intelligently exploits the real estate portfolio for all its three branded restaurants to benefit the entire group as a whole.
Since 2011, three Joe's restaurants to Brick House restaurants, while two Joe's restaurants were opened on the old locations for Brick House restaurants. This serves two key benefits. Firstly, in any location where the existing concept doesn't work, Ignite has the option of substituting it for an alternative brand. Secondly, "new" restaurants can be started with significantly less capital.
The health & wellness trend is one of the biggest forces impacting the foodservice industry in recent years. It has become a must for restaurants to offer healthier options for diners. In this aspect, Bravo Brio Restaurant shares many similarities with Noodles & Company (NASDAQ:NDLS), a chain of fast-casual restaurants serving noodles and pasta.
The first relates to low calorie options. Noodles & Company offers a variety of menu combinations where guests can start with small entrée and add a soup, salad, or protein dish and still end up consuming less than 500 calories. Bravo Brio Restaurant also sets aside a part of its menus with appetizers, side and entrée salads and a selection of entrées which it aptly names as "The Lighter Side." This offers food items 550 calories and below.
The second relates to gluten-free diets. It is estimated that 18 million Americans have suffer from non-celiac gluten sensitivity and will have to consume gluten-free diets to avoid symptoms such as joint pains, headaches, and numbness in the limbs. Bravo Brio offers gluten-free menu at both its BRAVO! and BRIO brands. Similarly, Noodles & Company can prepare dishes with gluten-free ingredients at the request of its diners.
Bravo Brio Restaurant's Chief Operating Officer calls its low-calorie offerings "one of the most successful initiatives for both brands." The results speak for themselves. 19% and 15% of the dinner guests for BRIO and BRAVO!, respectively, order items from The New Lighter Side menu, reflecting the positive customer acceptance.
Foolish final thoughts
Notwithstanding the uncertainty of weather conditions, Bravo Brio Restaurant is well-positioned to grow as more diners look for a combination of good food, a positive dining experience, and customer service in choosing the restaurant of their choice. Its two separate offerings appeal to customer segments of varying price sensitivity, while its low-calorie offerings are gaining resonance with its guests.