Bloomin' Brands, Inc. (BLMN) Earnings Call Transcript & Summary

This is John Glass from Morgan Stanley. I'm the restaurant analyst here. And it's my pleasure to welcome you to our day 2 of our global consumer conference, the virtual edition in 2020. Before getting into our next fireside chat with Bloomin' Brands, just a couple of housekeeping items. First, [Operator Instructions] And secondly, just from a disclosure standpoint, from my perspective, for important disclosures, please see our website, morganstanley.com/researchdisclosures, or if you have any questions, you may refer those to your Morgan Stanley sales representative. Well, with that out of the way, it's my pleasure to welcome Bloomin' Brands, a leader in the casual dining industry and owner of the Outback brand as well as Carrabba's, Bonefish Fleming's, both here and abroad. And with us from Bloomin' Brands, we have Dave Deno, the company's CEO; Chris Meyer is the CFO; and Mark Graff, who heads up Investor Relations. So gentlemen, thank you so much for your time this morning, and welcome.

Thank you.

Thank you, John. Appreciate it.

You bet. And so Dave, I think maybe just before we jump into the details of the business and where you are, maybe just reflecting back a little bit in terms of outlining what you've done the pre pandemic that should set you up for the kind of success you're seeing in the sales recapture that you are. What's the groundwork that you laid both from an operational standpoint, maybe even from an organizational standpoint that sort of gotten you to this moment in time?

Sure. Well, it's been quite -- almost a couple of years to be CEO. But we basically tried to -- and I've been associated with the company since 2012 when we went public. So we basically tried to capture the main things that we were working on and really leverage them going forward, and then accelerate some matters prior to the pandemic and during the pandemic, and I'm sure we'll get into that, John. But we made a big investment in the Outback business from enhancing service, enhancing food starting in 2016, and that set us up really well at Outback as far as food on the plate and quality and service and everything. So that's been a big key to their success. We also, in 2016, started a very intense effort up against delivery which -- and we've had a long -- has long had a carryout business. But we were early in the casual dining business on delivery. And as you can imagine, we were making gains there. But as the pandemic started, we've really been able to leverage that. And we think that, that's something that's going to take place in the years to come as customers look for convenience. That's the first thing. Second thing was that we very much want to pursue our margin story. And we felt our margin story was something that could be addressed specifically to start with overhead because our overhead costs were higher than they should have been, it should be. And we've addressed that. We've talked about $40 million over 2 years, et cetera, and we made a lot of those moves already. So we made some organizational effectiveness and efficiency moves prior to pandemic on overhead costs, and now we've moved into restaurant margin and things so we can help expand our margin. I'm sure we'll talk more about that. So that was the second thing that we did. The third thing that has set us up is we have a long history a very strong operations in our company. So as dining rooms closed, and then they reopen and safety needed to be in place and everything. We had that built within our company. And that's far predated me within our company. We've been able to capitalize on that, John, and giving customers the safety and security they need to come back to our restaurants, and we see that in our dining rooms. So it's the investments in our base business at Outback. And also Brazil, it's the work we've done on margins and also overhead. And then lastly, it's a strong operating culture we have in the company. Those will be the 3 things.

That's perfect. And I want to come back to some of those margin questions and delivery drivers in a moment. I want to just focus maybe first, so on sales, maybe just kind of bring us up to speed on where sales have been through the third quarter. So on the enterprise level, I think, as of June, you were down 24%. And then in September, you were down just 8%. And I think the Outback brand -- I know the Outback brand per your comments have outpaced that. So maybe can you just talk about what has been driving that relative reacceleration in the business, given all that's happened with in the world and full service restaurants, it's pretty remarkable. Can you just talk about the dynamic, and whether it's the carryout business, the delivery business, the dine-in, all the different sort of levers that you've had that you've seen that nice shape of recovery curve unfolding?

Well, 2 things, john. One, it's the off-premise business delivering carryout that we built, really has been performing very, very well, be it third-party delivery or our own delivery network. And that's been a big part of our sizable beat to the rest of the industry. The second piece is people love our brands. And when dining rooms reopened, we saw that pretty quickly. And we are teaching our people, making sure you treat your customers stay properly, but give them proper distance and everything else. We actually had the reverse problem with a problem of customers coming to our people. We missed you. We missed you. So when markets open back up, with the exception of some tourist markets, which Chris talked about on the third quarter earnings call, like Orlando, when markets opened back up, I mean we saw vibrant sales gains. So when you merge the in-restaurant dining trends along with the off-premise work that we did, we saw some really terrific moves up during the quarter.

Yes. Can you talk a little bit about the dine-in business? I want to come back to the to-go as well. But just for starting of the dine-in business. I think the vast, vast majority of dining rooms have reopened. Now maybe that's changed in the last few weeks. I don't know if there's any update in terms of dining room. But where are you from a capacity standpoint of dining rooms? Dividers, things that would allow you to inch back up because I think demand is clearly there, but the supply of seats, if you will, is maybe the limiting factor. Where you are on that?

Well, we've taken every opportunity within the rule of law and regulation, of course, to follow what we can do to grow our business. So dividers are up, the seat distancing is in place. Outdoor dining is in place, all carryout and delivery, like I mentioned, is in place. But in restaurant, we've taken all the measures and all the training and all the cleaning protocols and everything else to make sure our customers feel really great about it. And we don't like to spike the football after a touch down here at Bloomin' Brands, but during the third quarter, a few times, we were recognized in the industry, by industry players, not us, for offering some of the best service and most safe environments in all of restaurant land. So we are very happy to see that. So John, we're trying to take all the regulations and maximize them in a safe environment as much as possible. Now turning to recently, it's been patchy, right? I don't know if you have a map of the United States like we do that says this state looks like this and this state looks like that as far as dining room closures go and whatever. It's been patchy. And we've been -- we've moved accordingly, and we have to, to meet those regulations. And we do a lot of planning on there. It's nothing that we can't handle. We can handle it, but we do invest. We've had to invest the time to make sure that we meet the ever-changing regulatory landscape that exists in some of these states. Fortunately, our footprint is in the South and Southeast, and there hasn't been that much change in those markets.

And just on that topic, Dave, when you do see changes markets close back dining rooms, you must have some of those examples, do you see a pretty shift -- pretty quick shift back to the to-go business such that your sales aren't really impacted? Or is it an impact if you have to shut dining rooms down, you will see it in your sales results?

Yes. John, I really can't get into any kind of sales update because my General Counsel may be issuing an 8-K. So I can't do that. But we do move quickly to completely off-premise when that happens. We know how to do this. So states like Michigan; my home state in Minnesota; Illinois; Kentucky; California, where our franchisees are. I mean we know how to move, and we do that. Other states where we're open like in the past, we're continuing to offer in restaurant dining, but it varies in some of the states.

Okay. And then just staying on the near term just for one more moment. Chris, you had talked about some seasonality in the business as you go into the fourth quarter, particularly in the December period around the holidays, and that just makes volume tougher to lap. And I don't know if it's just a statement about December or if we have to think about this in early 2021 as well. But can you just remind us of kind of that dynamic that you face with the seasonally higher volumes and maybe more difficulty lapping that given capacity restrictions?

Yes. And I think the good news, John, is that we talked about -- even coming out of the third quarter, we talked about volumes on a weekly basis continuing to increase. But there's no question. Look, I think just the dynamic nature of casual dining is that those last 3 weeks and certainly heading into Q1. You do typically, in a non-COVID year, you face elevated levels of volume that you have to lap. And the good news is, is typically, you actually see seasonally an appreciation in those volumes as normal course of business. I think the uncertainty for us and the uncertainty for everyone to be candid in the industry is what kind of -- what does seasonality look like as you get through those holiday times and those busier times of the year? And I think that's the big uncertainty. What I can tell you, though, from our perspective is, is that we feel good about our ability to continue to gain share relative to the competitive set, which is something that we've been doing since the onset of the pandemic. And so irrespective of kind of what we're dealt with, I think, we feel good, whether it's states that have an off-premises-only model, states that are reopened, wherever sort of situation we're facing, we feel good about the ability to take share.

That's helpful. And then I do want to -- Dave, I want to come back to the to-go comments. I think one of the most interesting things and one of the key debates in casual dining is the retention of the to-go business. I think you've talked about retaining about 50% of those to-go sales, which your dining rooms have reopened. So first of all, maybe just -- if that's correct, just confirm that, that's sort of where you are still. And how do you -- the most important, I guess, question is, how do you retain those sales in 2021? Are there are there levers you intend to pull to retain those to-go sales? How do you do it? How do you think about bundling meals, for example? Is that an opportunity? How do you retain that new sales layer that you have now that maybe you didn't have at the same volumes you did prior to the pandemic?

Yes. John, as of the third quarter, we talked about 50% retention in our delivery carryout business. We're thrilled by that. We'll provide a more update, more fulsome update in our February call. I think the key for our delivery and carryout business is incrementality in meeting that customer demand. We believe that this will be a very big part of the casual dining business. And having spent Thanksgiving with 2 millennial couples in our house, you see what the behaviors are and where that customer is coming from. They're on the phone all the time ordering food. So it's going to be a big part of our business. Now how do you differentiate versus the restaurants? And John, you and I have known each other for a long time and know how that come out of the Pizza Hut delivery business. And we know how to -- we have people in our company know how to market, menu operationalize different channels. Failure for us is a delivery business and a carryout business. It looks exactly like the in-restaurant business. That's not what we're looking for. We're looking for bundles. We're looking for convenient meals. We're looking for family price points. We're looking for interesting menu items that maybe you can't get the restaurant. But we want to keep the restaurant experience unique as well with certain offerings or alcohol and things. So John, in answer to your question, it's going to be a completely different channel and menus that way on a menu, marketing and operation standpoint.

And if you've done that, is there anything that you can -- an example you can bring that to life now is things that you've already done like differentiated menu items or maybe a preview of anything you're kind of thinking about near term? Are these initiatives more on the come for '21?

No, the Carrabba's bundled meals are unbelievably popular. And Carrabba's has retained a large share of their delivery carryout business. And so those meal bundles that they're doing and how they're packaging them and everything else is really my head talk to that team. And we may have funnel a nugget here at Carrabba's Italian Grill that we can really leverage going forward. And they've done a great job on the menu and the packaging on this particular product.

And then you talked about -- you talk about sort of the to-go and delivery as one. Can you just disaggregate that for us for the benefit of those, maybe don't fall as closely? What those 2 different channels represent as a breakdown of those total off-premise sales? And where you're seeing the relative -- they're both growing faster than the underlying business, but what the relative pace of growth are?

Yes. We actually view it, John. I hope I didn't confuse anybody. Actually, view our business is into 3. So you got a carryout business that has a certain need to it. You've got a delivery business that has a certain need to it, then you've got the inter-restaurant experience. So we actually view it as three, but I'll turn it over to Chris to talk about the mix of the various businesses.

Yes. And it's been interesting to see how this has evolved as we've rolled out more channels. And as we've -- certainly during the pandemic, there's been a shift. And so if you looked at Q3, 39% of our U.S. revenues was off-premises. Now that broke down, though, still, most of our off-premises business is takeaway. So I think 22% in Q3 was takeaway, and then 17% was delivery. So delivery has actually grown to be a very large part of the overall mix. And what we're seeing is more than half of that delivery is now in third-party delivery, which is really interesting. That's been the segment of this whole pie that has grown the largest since the onset of the pandemic. And the good news for us, as it relates to the third party is just given the nature of when those occasions take place, the check size, data sharing that we're able to get with our third-party delivery companies, it gives us a lot of confidence that, that third-party occasion is highly incremental. In other words, they're not customers that typically would come into the Outback restaurant for an in-restaurant experience. Now obviously, it's our hope that we can migrate some of those guests to be in-restaurant customers because the margins are higher. But at the same time, we love the margin profile we're getting from our off-premises business, and we like the fact that we think that it's highly incremental, certainly in the third-party occasion.

And how do you -- did this experience at all change your view of your own self-delivery? You've -- you are pioneer in doing that in casual dining. You've got some experience, your experience from Pizza Hut. Does it change your view? Is it still as attractive as you thought it was? Or do you think that third party now is becoming so dominant? Maybe it's less necessary to have a self-delivery option.

Well, I think we are very pleased with the third-party relationships, first of all. Second of all, and this is my old operating background, coming back on delivery. But the the self-delivery is all dependent on driver utilization and driver activity. And in restaurants where we have strong driver utilization and driver activity, it's a very good economic transaction for us. So we will continue to pursue that as necessary in our own delivery business. Some of our customers, frankly, like that better. And the other thing it does, John, is it just kind of keeps our very good friends, in the third-party business, honest, in the sense that if they get a little too high on some of their pricing, which they certainly have not, our fees are very attractive, but they are charging us. But we can always go back to our own delivery platform, should something untoward happen.

And just on delivery. Finally, you mentioned information sharing. Do you have the ability of the tools to use through your third party so that you can get those customers to bounce back in dining? Do you know who they are specifically? Or do you just know who where they are by cohort? How do you get them to come back into the restaurant or -- and what vehicles do you use to do that?

Yes. There are some -- there's some mechanisms, and I can't get into too much of it just for competitive reasons and things like that. But look, I think that you're never going to get -- the best information you have is customers that you keep in your own "ecosystem", right? And so if you think about your own delivery network, if you can get them to sign up through Dine Rewards, et cetera, you get really robust information. You're not going to get that same level of information from third parties. But what I can tell you is that the third-party folks have been very eager to share information on customer profiles without getting too specific on the customers because I think that, that's something that goes a little far, but you are able to get enough information that you can do some targeting within the third-party universe to help you get better rates of return. But yes, there's definitely a difference in the different level of information you get. But you get more than you would think, I think, it's certainly more information than we thought when we entered into these relationships to begin with.

Yes. And Chris, you mentioned Dine Rewards program. So how has that gone during this period? In certain brands and certain subsegments, loyalty along the whole digital ecosystem has grown profoundly. How has that program grown during this period for you? And how have you been able to use the Dine Rewards program to help drive customer retention, future growth and whatnot?

Yes. We've actually seen growth in Dine Rewards in terms of the utilization of Dine Rewards amid the pandemic. And I don't think that should be surprising. I think the people certainly in economically difficult times. They want to have value as a central part of their -- sort of their everyday lives. And I think that they have utilized the Dine Rewards program to great effect. And I think that, that just reinforces why we went into this program to begin with and the importance of that program to our overall success. And I think we're going to continue, though. Now it'll continue to evolve. I think we'll continue to find ways to enhance the program. But I think that we're really excited about being in the program. In fact, if you -- we've talked a lot with folks like yourself, John, about like reducing the level of discounting. And I think that the idea that you can drive sales into the box without discounting is a big idea. But that doesn't change the fact that Dine Rewards is still a viable and a healthy part of our overall business model, and we want to continue to grow that.

I wanted to talk a little bit about the new menu. So I think you've relaunched or launched a new menu bigger portions, better value. Can you just talk about the history here, how important this relaunch of menu is? I know there's been an evolution in the menu and quality changes. But how important is this, in particular? And how did you achieve bigger portions, better value? And I think out impacting profitability was your comment.

Yes. It was Outback, especially starting in 2016-ish, we realized that we had some issues we need to address. And so we began at that time to reinvest in the business, enhance some of the quality of the cuts of the meat and to put, in some cases, more food on the plate. In this year, we basically finished that process. So every entree has 2 sides. The rack ribs is not really full rack ribs. It looks just great. And when we set out to do this, we paid for it via reducing costs in the restaurant. In other words, not needing a major traffic boost to get it. And so we took down the price of the Bloomin' Onion a couple of dollars, Aussie cheese fries, et cetera, to make those appetizers more attractive to consumers and paid for it via cost reductions in the restaurants or other parts of the menu. So basically, what we've seen is we've -- our guest check has stabilized or improved versus where we started. And what's happening is the attachments on the appetizers and desserts and the beer-liquor-wine mix is growing because people see that they kind of come in with an idea of how much to pay. And when they see it's less price, they end up getting more food, and that helps us a lot. And we think that over the long haul, this will be a long-term traffic driver for us, that, in sense, has already been paid for by cost reductions. And so we were right there now at fighting weight versus our competition on product value and everything else, which was something we need to work on a few years ago. So we're very pleased about how that has performed for us. It's about 3 months in now.

Yes. And are there actually fewer items on this new menu versus prior? Was it, in other words, a reduction in the SKU count? Or is this just more about value and rebalancing some of those value equations that you talked about?

We went from 110 to 55 to 85, something like that.

You had. You had. So there's been a bit of an evolution. It might make sense to give you a little perspective on that, John. So when we -- prior, you were -- the menu pre pandemic, you were talking about 100 or so menu items at Outback. During the pandemic, we cut down the menu significantly. You were down to, call it, 45 menu items. That actually gave us some confidence that you didn't have to go all the way back to 100 because there was some simplification benefit. There were some savings benefits in terms of just labor and prep labor and things. So we went back up to about 85. But here's the interesting thing about going back up to 85. A lot of that progression from that 45-item limited menu during the height of the pandemic to the 85 was reintroducing things that were combinations of items that were already on the menu. So for example, you had a steak and lobster that we would run kind of as an LTO. Well, what we did was, we said, "All right, we already have stake, and we already have lobster." We made that into a unique menu item that was priced appropriately. And that counts as a new menu item. So that in and of itself didn't introduce a lot of complexity. So you've seen a lot of examples of what our "new" menu items on this menu are nothing more than items that we were already doing, and we've just put them on the menu in a way that is attractive to guests, but also at a price point that reflects what they need to be to get a good return.

Interesting. I'm going to pivot now and talk a little bit about some new sales channels, and I want to start with the idea of virtual brands and Tender Shack. So it's in test. The first, how many restaurants has this been in test in? And as you think about expanding the test, what are the -- what are sort of the gate factors, if you will, that you are looking for to -- for a full rollout? Maybe you could explain to us just for those who don't know what Tender Shack is, what the menu items currently are. And maybe talk a little bit about your view on how it can get rolled out further.

Yes, I'll start, and I'll let Dave take over more of the strategy side of it. But we started out with the test just in the Tampa Bay Area, just to sort of get it -- figure out kind of what it is operationally. Let some folks around here, taste it and feel it. And then we started moving forward with a little more progressive test outside of our core geographies. We were -- we're in about 41 locations, right, and across some of the Midwestern states, college towns, et cetera, just to try to see kind of what we have here. And so look, I think that for us, the litmus test on expansion is really nothing more than making sure that from a financial lens standpoint, it makes sense. We've got the right economics from an operations lens. It's not introducing additional complexity. I think Dave will mention that it has not introduced additional complexity. And then from a customer satisfaction lens, do we have a compelling product that not only -- because the trick to this stuff, John, and Dave will expand on this, is that it's not getting customers to try at once because getting customers to try something new once is not easy. But nothing is easy. But it's easier than getting to try it twice. So we want to make sure we have the right product that something is compelling enough for repeat guests. So I'll turn it over to Dave to talk more strategy.

Yes, John, it's -- chicken, as you know, is a large category, growing rapidly. We've got over 1,000 units that could roll this out nationally. We've got 4 products, tenders, fries, drinking, a cookie, very easy operationally, no incremental equipment, very little incremental labor, flow-through is terrific. And Chris talked about the measures that we're looking at to see if and when we go forward. We like what we see. And on the February call, you'll hear more from us on Tender Shack.

Could it -- is it designed so that all of your concepts could execute this? If I got a Tender Shack order, could you just come from a Bonefish as an Outback? Or is it really designed around the kitchen equipment at one of the Outback brand, for example?

To get all of our brands, and we're looking at -- should we roll it out nationally, be more order gets will be based on market coverage. And so market coverage is the key thing to look at. So you might be in a market where 5 Carrabba's has it and 7 Outback have it, but the customer doesn't know. That's just how we covered the market from a delivery standpoint. But the great news is we've got 1,000 assets to do that with. So we have a chance here to leverage that.

And just a couple of more quick ones on this. Is this -- as your peers at Brinker have done, is it through one single source third-party delivery? Or is it through multiple? Or how do you think about that? And is there a different kind of information sharing such that if you want to make this into a curbside business over time, you can make it into a curbside business as well as a delivery business?

Yes. It's one third-party delivery vehicle that we're utilizing for this, and part of the relationship that you build with these folks is that they are really excited when you want to test something new like this. So you get great partnership with your third-party delivery companies. We're just using one for the Tender Shack idea. And I'll let Dave finish the thought in terms of other opportunities outside of it.

Yes. We want to plus our chicken. We don't want to go into Pizza Shack, Taco Shack, et cetera. This is a chicken idea. I've got a lot of friends in the chicken business, given my past background, and they're having a lot of fun. And so we want to enjoy some of the fun as well. And we will definitely do that.

Yes. And in terms of vehicles outside of this, we talked about it on our earnings call. It's not just about like the off premises opportunity with new vehicles. We're also -- we've talked about Aussie Grill as an opportunity for us, which is a fast casual, low cost of investment, high-quality products, kind of a way to address additional growth vehicles, again, very complementary to our existing brands. So look, I think we're trying different things to try to make sure that we can capture as much opportunity as we can. And we want to make sure that we're not only a story that can talk about how we can get margins up, but we also want to talk about what our growth opportunities are in the future. And certainly, these are areas where we're continuing to address.

All right. I want to turn now to international. Maybe before getting into where Brazil is today, and I think that's really the conversation around international has been Brazil. Maybe just remind us of your strategy of being a company-owned system in Brazil. And I know earlier on, there was a strategic process underway to reconsider whether the ownership of Brazil was still warranted. And maybe where are you on that process now? Is it still something you're considering? Or does this COVID change your view on ownership of Brazil?

Sure. John, stepping way back in the way back machine. So when we started blowing brands, we had a great business in Brazil as a joint venture, the opportunity to buyout our joint venture partner, which we did at a reasonable price for both parties. And we had hoped that we could build the Brazil business, John, similar to a business that you know, Yum! China into a really big business. And it is. It's a huge business, and we've done a fantastic job with it. It's only one problem. Their currency is not pegged like it is in China or it was, the currency went from 2 20 to 5 20. And so that's varied the financial benefit to the company on translation, but the number of restaurants, the volumes, the margins are all there. And I'm going to ask Mark Graff to spend a minute talking about the business after I finish. Just one more minute here. So after spending a lot of time on the business, we looked at potentially selling it to a franchisee, it's a different partner. And we're making a lot of progress on it, and the pandemic came and all parties decided to put down their pencils, frankly. So until the business stabilizes and starts growing again back to its past performance. Mark will talk about the Brazil business in just a minute, but should that happen, we will likely take a look at. And I'd appreciate if you wouldn't publish this, John, because I have a Brazil business to run. But we would likely take a look at, is that something we want to franchise once again. But that's for another day. So let me turn it over -- right now over to Mark about what -- how we're currently doing and -- through Q3, and what some of the initiatives are.

Sure. Thanks, Dave. Yes, John, you're right. That business recovered pretty rapidly, and we did talk about it being in the mid-single digits. I think as we kind of compare and contrast it to the U.S. business, we were lagged a little bit. That market was probably a couple of weeks behind the U.S. as their COVID cases peaked a little bit after us. But where I think we found some optimism is the delivery business there. That was a channel that never existed. And so I think we view that as being incremental as we exit the pandemic at some point. So I think that's a good incremental lever. But where -- again, I think, we see the strength of that business is really in the in-restaurant business, and it's really come back nicely. I think we've seen line start to form again. So I think that just goes to show the strength of the brand, and then folks are willing to come back out. Unfortunately, we're still kind of in this 50% capacity restrictions, I'd say, kind of on average across the country, which is kind of consistent with where we are in the states.

And it is remarkable. I mean, I think most of those locations are in malls in Brazil. Is that correct? And so getting third party or getting delivery out the door must be a challenge. You must have -- you obviously worked through that and figured out ways to do it, even though it's not as easy access as there is in the states.

Yes. That's absolutely true, John.

Yes. Let's talk about -- let's -- I want to finish up and talking about a couple of the -- some of the financial metrics around the business. Maybe just first start talking about margins. Would you just remind us, Dave and Chris, about the costs that have come out of the business so far? I think you talked about $20 million this year. I think that was sort of front-loaded at the beginning of the year. What part of the P&L that came out from one's benefit? As you think about 2021, I think there's another $20 million, if that's still the right number. What part of the P&L does that come out? And then I want to talk about maybe some longer-term goals, but if you could first just sketch out for where these cost reductions have really manifested themselves.

Yes. The good news is these cost reductions that we talked about are still in place, right? I think there was some concern that you get into the pandemic, does this stuff still manifest on the other side of the pandemic? And the answer is, yes, right? So we took $20 million out of the business this year. Obviously, when we laid this out in February, we had identified, hey, look, we expected to grow margins in 2020 by 70 to 80 basis points. And then the pandemic happened and that sort of changed the way you think about margins this year, in particular. But it doesn't change the reality of those cost savings, $20 million out of the business this year. Now this was primarily an operating margin. So it was in G&A, was the vast majority of the savings this year. As we pivoted towards 2021, and that incremental $20 million that we had identified, giving us $40 million in total, the 2021 dollars were more split. It was more 50-50 between G&A, and then there was a larger piece that this was going to hit restaurant margin, particularly in the labor line on the restaurant P&L. So look, I think that those $40 million on the other side of the pandemic are still -- it's still reasonable to expect that those dollars manifest. If you look at G&A, for example, I think we came into the year, and we were talking about our G&A on an adjusted basis being in that $240 million to $245 million range, which was a significant reduction from where it had been previously. And again, I think we would continue in an all-things-being-equal scenario to be -- to continue to make progress on G&A. The tricky part with the G&A story is that we've seen even further reductions in G&A this year as a result of the pandemic. In other words, we stopped traveling, we stopped training expenses. So we've actually had really outsized G&A performance. The reality is, though, is that some of that would come back into the P&L. Obviously, we want our area partners and our leadership to be traveling to the markets. We're a people-first business. And so that's a really important part of what we do. But I would -- so I would expect some of that to come back. But the $40 million just as a base scenario is absolutely dollars that we would expect to be out of the business once we get out of the -- on the other side of the pandemic.

Just think about this sort of near term, you didn't mention food cost or waste reduction, but that's a key initiative. Your food cost, I think, in the third quarter, ran as low as it's maybe ever been, but certainly in many years. How does that factor into this? Is that aside from the $40 million? Is that part of the $40 million? And maybe if you think about that food cost ratio ran the third quarter, is that really just a function of the fact that you had just such a limited menu and that -- maybe that's not the right way to think about food cost going forward as you start to build back the business?

Well, there's a couple of things. One, I'd say, without giving specifics, and I know we haven't given really any 2021 guidance, yet. I would say this about margins, and some of the things that you mentioned, waste reduction, reduction in prep hours. There's 2 elements to that: One, I would say we feel good, and we feel better about our ability to grow. Because a lot of the things I talked about in the $40 million, a lot of that wasn't necessarily impacting the restaurant level. So it was going to impact operating margins, which, again, we know we needed to improve operating margins. But there was less visibility, and we've been pretty clear with investors on this. There was less visibility into all the levers that you could pivot, you could charge sort of tap into to improve restaurant margins. What I can tell you, though, during the pandemic, we have learned more about what we can do from a simplification standpoint, from a labor standpoint, from a marketing standpoint that gives us more confidence now about our ability to grow restaurant margins on the other side of the pandemic than we had before the pandemic started. So that's all really positive news. The other thing I would tell you is some of these simplification efforts and these things that we've learned are what allow us to pay for the price reductions that we took on the new Outback menu. So in other words, the new Outback menu was never meant to be a margin-enhancing idea, but anytime you lower prices on certain items like we did with the Bloomin' Onion, you're going to have to pay for that somehow or else you're going to have margin pressure. Well, one of the ways we paid for that is through these cost reductions, these simplification efforts that we've seen. So again, I think in summary, we've been able to put in a new menu and not have it dilute your margins. And then the second thing we've seen is we've learned more through the pandemic that gives us more confidence that on the other side of this pandemic, not only could we improve operating margins, but we feel good now about our ability to at least leverage or improve operating -- restaurant-level margins to some degree as well.

And I want to come back to that long-term comment in a moment, but just thinking about other cost buckets that you may have learned something about during the pandemic. Marketing is a big one, right? And there was an article in the journal today talking about, I think, online advertising is now the single largest dollar spend across all industries. What have you learned about your marketing spend this year that you think you can carry forward? Are you less of a mass marketing brand going forward? And is that a spend reduction? Or is that just a reallocation? And you think you can get more for your money, but you don't spend less in the future, you just -- you spend it differently.

We're going to get more for our money. We've done a lot of work on this, and we believe that the effectiveness and efficiencies in the digital space are terrific. We'll still be a TV advertiser to Outback only. Certainly not to the extent that we once were. But we are a digital marketing company and have learned a lot and intend to take that forward. And we have a really good sense of what the return on investments are in various vehicles.

And Dave, by that comment, you say Outback only, you mean in -- the Outback brand is maybe the still the mass marketing or mass media brand and the others could be more of a digital-advertised brands? Is that what I take your comment?

Yes, there's the 3 smaller ones will be digital-only brands. They're not going to be TV or those kind of brands. Outback will have a far less reliance on broadcast TV than it did in the past, and be much more digital.

All right. And then just sort of zooming back out, I think you've talked about many times this 200 to 250 basis point total margin recapture, historically. And I assume that's still the goal post COVID. So just to be clear, what sales level are you assuming? Are you assuming that those -- that margin opportunity is when you get back to pre pandemic sales? Others in the industry have said, "Well, we can only -- we could do this if we just got back to 90% of our prior sales volumes." How do you think about -- I understand it's sales-driven, but what is the sales assumption underpinning that 200 to 250 basis point margin opportunity that you think you've got?

Yes. I think -- again, and I probably know that some folks have gone out with specific numbers, and we haven't really gone out there, yet, with that. But what I would tell you is that we feel good about our ability to drive more EBITDA on a lower level of sales, right? And we're not going to get any more specific than that, but I think we've learned enough to feel confident that we can make that statement. Now what I would tell you, though, is that sales and AUV improvement and all the things we talked about, whether it's Tender Shack, the new Outback menu driving traffic, all of that, we feel like there has -- that's to be part of the margin-enhancing equation, right? If you're driving sales via discounts or elevated levels of marketing to get those sales dollars, that's not necessarily winning formula. So -- but AUV growth over time has to be a part of the equation for margin expansion. But the good news is that we talked about 70 to 80 basis points of margin expansion this year that was mostly driven by the cost side. We talked about savings next year, 2021, mostly driven by the cost side. We're taking proactive steps to make sure that we can improve margins without the AUV growth. But obviously, to get to the 200 to 250 that we've talked about, there has to be AUV growth as well. And that's why we're focused so hard on these sales levers in conjunction with the cost savings opportunities.

I want to end with some comments just on the capital priorities for the business for '21. What -- how do you think about prioritizing use of cash flow in the big buckets around deleveraging while the milestones for returning the dividend? And maybe thoughts or at least high-level thoughts about how you think about CapEx going forward versus maybe how you thought about it prior?

Yes. So I'll start with CapEx. We're -- look, we are never going to return to the levels that we were a few years ago, we were spending $250 million a year in capital. That's just not going to happen. But at the same time, I think that -- don't read into that, that we're not going to be of an opportunistic mindset. If as a result of this pandemic, there are opportunistic real estate plays and things like that, we're not going to be afraid to go after those, especially if the returns are there. But we're definitely not going to spend back to the same level of capital that we did in the past. The other thing I would tell you is that the short-term priorities, and again, short term is largely determined by the length of the pandemic, is going to be focused strictly on debt paydown. I think we've talked about 3x net debt to adjusted EBITDAR. So a lease-adjusted basis as being kind of a long-term feels good scenario to get to so that we can reassess where we stand, but that does require us to focus on debt paydown. Again, assuming that your EBITDA gets back to a normalized level on the other side of the pandemic. That does require some level of debt paydown over the next year or so. So I think that, look, we're a little bit of ways before we can look investors in the eye and say we're going to restart the dividend program, restart the share repurchase program. I do think that we look at each other and say, longer term, our idea that we laid out in February about a larger dividend. That makes sense over the long term for us. But I think that in the short term, and certainly in 2021, I think, the emphasis has to be on debt paydown and making sure that we can get -- because, again, I think that we did have to take in additional financing during the pandemic just as security. We haven't increased our debt levels though. But there is going to be a little bit of a higher interest expense that we have to deal with next year. So debt paydown has to be a priority so that we can make sure that we can maintain the same cost structure moving forward.

And Chris, on the CapEx question, what is not -- what are you not spending money on there for, if you're going to reduce CapEx? Is this fewer relocations, for example, the remodels? What is the bucket that capital -- because unit growth hasn't really be a piece of it. So what is the piece of CapEx that you're not going to spend going forward?

We have 2 major priorities, John. One is Outback Steakhouse, and that would be new and relocations because we see a lot of opportunities for real estate, as you can imagine, and growth in that brand. And second would be to continue to upgrade and selectively build out Fleming's. So that will be the 2. And then Brazil is simple. It's -- you can spend out your cash flow. We're not going to send any dollars down there. You can spend out of your cash flow. So what's different? No Bonefish new. No Carrabba's new, not quite as much remodeling, that kind of stuff.

Yes. And then -- so we're almost out of time. I -- Dave, just on that question is, how do you think about these brands longer term? I'm talking about the enterprise now, unit growth. It hasn't been present in a number of years. Is that an aspiration, and a realistic near-term aspiration or I say, near term the next couple of years? Or is this really about rebuilding margins, rebuilding same-store sales and the unit growth piece of it's probably something that investors should not expect for the next couple of years?

We -- this is different than a guide, okay? Those are the goals.

Goals.

Goals. Not guide, goals. So we want you to grow, right? You grow, grow, grow. And so therefore, that's why the attention has been on Outback. Tender Shack, we announced it's not unit growth, per se, but that's business growth and Aussie Grill. And we want those 3 pieces of our portfolio to be a big part of our business as we go forward and grow while we are doing the thing you just mentioned, growing same-store sales, growing margins, managing cash flow. But Mark Graff has told me since the last 5 years, we need some unit growth. And so we need some unit growth. We think we have some tremendous opportunities in the base business. Don't get me wrong. I'm very bullish about that. But I'd like to put the cherry on top through Tender Shack, Aussie Grill and Outback and others to really grow this business.

And do you still -- in that equation, if you're not going to grow Bonefish and Carrabba's, do you still need them? Is that still an important part of this business, then?

Yes, it is. I mean it's -- they're great brands. We think we found a nugget here with off-premise and Carrabba's. We're not wedded to any one particular brand. And if somebody came to us and said, "Hey, here's a price for ticker business." And we said, "This looks great." We would obviously consider it. But we don't see that on the horizon. But they generate good cash flow. They're good businesses. They're not generating -- they're not requiring a lot of capital, and Carrabba's have an off-premises opportunity we didn't see before. So again, we'll always look at it. But we're not in a hurry.

Well, thank you. And with that, I think we'll call it a time. We're at the point in time. Dave, Chris and Mark, thank you so much for your time today. Have wonderful holiday season. Of course, be safe. And for all of you listening in, thank you for your time. And as always, you can reach us if you have any follow-up questions. Thank you all.

Thank you very much. Appreciate it.

Thank you.

You're welcome.