Brinker International, Inc. (EAT) Earnings Call Transcript & Summary

All right. Good morning, everyone. I want to welcome you to Brinker International's 2021 Investor Day. I want to say a special thanks to everyone in the room that traveled all the way to Dallas to join us live. And I want to welcome all the people joining us virtually. Just in case, I think I know almost everyone, but my name is Mika Ware. I am the Vice President of Finance and Investor Relations. And I think we have a really good day set up for you today. So as you know, we released our Q1 numbers yesterday afternoon. So we're going to start the day discussing those results. And then we're going to jump quickly into the long term and talk about the long-term strategy and share some of our insights and expectations moving forward. Let's see. So we're also going to have a lot of time for Q&A. So I know that's very important. And to do that, I have some key Brinker leaders in the room that I'd like to introduce you to. So we're going to start right here with Wyman Roberts. He is our Chief Executive Officer and President of Brinker. I got to get my glasses here to read so I don't forget anyone. We have Joe Taylor. Everyone, I think, knows Joe, our Chief Financial Officer. We have Wade Allen. He's joining us. He is our Senior Vice President of Innovation. He's going to talk to us today about our virtual brands. We have Doug Comings in the room. He is our Co-Chief Operating Officer of Chili's, along with Aaron White. She is our other Co-Chief Operating Officer of Chili's. We have Steve Provost in the room. He is our President of Maggiano's. We have Larry Konecny in the room. He is our Chief Operating Officer of Maggiano's. We have Rick Badgley in the room. Rick is our Chief People Officer. We have Charlie Lousignont. He is our Chief Supply Chain Officer. And finally, we have Dan Fuller. He is our General Counsel and Secretary. Thank you, Dan, for joining us. And so since this is a hybrid meeting, we're going to have a mix of, obviously, virtual and live people here. We're going to have some live speakers along with some videos in the restaurant, so we can take you there, if not live, virtually. And not to make our virtual guests jealous, but at the end, we are going to have some delicious food. We're going to serve you lunch. We'll have It's Just Wings and Maggiano's Italian Classics. Okay. And the last thing that I need to do which is always my job, you guys hear me do it every quarter, is remind you of the safe harbor statement. And Dan is not going to make me read the whole thing, but I do have to read the beginning. Again, I need my glasses to do that. During these presentations and in response to your questions, certain items may be discussed, which are not based entirely on historical facts. Any such items should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended. So please take some time to read the rest of the statement on the screen. Okay. And with that, let's get started, and let's welcome Joe. There you go, Joe. Thank you.

Thank you, Mika, and good morning, everybody. It's nice to see people back in the office and thank you for joining us here in person at the RSC. Also good morning to the folks that are watching virtually. We do like the fact that we're able to have live meetings again, and we look forward to continuing that as we kind of go forward. Want to start the day before we get into the longer term and the strategic thought processes, talking a little bit about the first quarter results that we reported yesterday evening. In conjunction with this, we put out certain operational aspects of the first quarter for your review. I'm going to make a few comments, give you some perspective on that, and then we're going to get quickly into Q&A. As it relates to the first quarter, we'll have opportunity to Q&A on the longer term as we get farther into that. The basic perspective, again, it was a quarter with mixed sentiment from our side, very strong top line. We're very pleased with the continuation of the recovery curve on the top line. We had $136 million increase in total revenues, $90 million over the comparable pre-COVID quarter of F '20. So continuing to do a good job on the top line, lots of consumer demand out there. Obviously, the issue was in the middle of the P&L with the compressed restaurant operating margin as we worked our way down the P&L, eventually getting to a $0.34 EPS versus the $0.28 the last year. So we're comfortable and confident in our ability to drive the top line. We're disappointed for this quarter in the ability to flow as much of that through as we anticipated. But we're working diligently, and we have a good line of sight on how to continue to improve that as we work our way through, really, the turbulence that is going on right now, lots of discussion out there about labor and supply chain. We are experiencing that, but we're also coming at it from a perspective of strong top line, which is really when you think about working your way through this environment and getting back into a more normalized situation, the strength of that top line is going to be important to make it an effective move as we go forward. From a top line perspective, again, we have focused significant time and attention on driving traffic, and we continue to perform well on the traffic side of the equation. We think that is a linchpin for long-term success for the company, a 9% gap to the industry again in that first quarter. So that's a continuation of a theme you've heard us talk about now for really a couple of years. And it does resonate, I think, well with our operators and how we continue to see more foot traffic into the restaurants and continuing to build that base of folks that are coming into the Chili's and the Maggiano's side of the equation. Chili's, as you can see, the entire quarter working above pre-Covid levels. Again, once they moved out of that last winter's pandemic phase, you saw a nice move above pre-COVID levels and continuing to maintain that. And it's great to see their improvement in the recovery that Maggiano's is making on the top line, too, working their way back. Obviously, a little dip in August through the COVID surge piece of the equation, but getting back by the end of the quarter to parity with what they were doing pre-COVID. And that's a nice move in recovery on the Maggiano's side. You'll hear Steve talk a lot later about the improvements they've made in the business and the advancements they're making from a recovery standpoint. So we're really pleased to see the direction of that brand. I want to show you the average weekly sales, so you kind of understand what -- some of the nuances that went on within the quarter itself. Because you remember us talking in August that we had had a really solid, nice July top to bottom. So that environment was working well. And then we got to really kind of mid-August through September. And you saw a little difference in the top line that worked its way down through the P&L, also with some other headwinds coming in from other aspects of the cost side of the equation. When you look at the gold bars, that's the F '19 -- well, let's say, calendar '19 monthly average weekly sales, the blue is the F '21 occurrence. So you can kind of see, again, how we outperformed pre-COVID, all the way up through really getting into those summer months. But one thing to point out, when you typically look at July and August, those are typically parity months from an average weekly sales standpoint, running roughly the same throughout those 2 summer periods. But as you can see, with the COVID surge that started really impacting in August, a marked decrease in average weekly sales, July to August. That would typically be an anomaly for how our sales flow throughout the year and then an incremental step-down in the September. So from 58% down to 54% in September. That's an opportunity for us because, again, as pleased as we are with our ability to drive top line, we're still leaving sales on the table. We still have restaurants that have not been able to fully open, staffing issues are forcing some restaurants into limited hours, inability to open fully, particularly when you think about Fridays and Saturdays, where you really get those volumes running through the system and still constrained. And looking at the numbers, we think we left somewhere in the 3% to 4% comp range on the table through the short-term constraints that are still working their way through the system. And particularly, when I look at markets like the Midwest, California, as it started its recovery curve in that July, August time frame, more constraints going through those systems that frankly, we look at as opportunity. So again, we're going to continue to drive the top line as we get those restaurants fully open and back online. We think there's another step up from a top line perspective that we can gain as we kind of go forward. The good news is we're starting to see that as we move into October. So the first 2 weeks of October, we have now started to see that step up again in average weekly sales coming up now to $55,000 per restaurant per week. So it's good to start to see traction coming back into the system. Our intent, obviously, is to continue to grow that number as we move forward, both from a recovery standpoint and also from the initiatives we're going to be talking about as we move forward today. Let's get to the middle of the P&L because I know there's probably a lot of questions and comments you want to hear from us on that. Clearly, a compressed restaurant operating margin of 10.4%, and then led by labor. Labor had 150 basis points delta between the current fiscal year and the prior fiscal year. But we had impacts across all 3 of the major components of restaurant operating margin. And let me unpack that a little bit for you. So from a food cost perspective, it was critical in this environment to maintain access to product and getting that product in a timely manner to the restaurants to meet the demand because again, part of this is being driven by great consumer demand that we're seeing out in the restaurants. Yeoman work done by our supply chain team in making that happen, working pretty much around the clock with our distributors and our vendor partners to make sure that, that access was maintained, and they did a great job with that. It did come at a price. So in the quarter, we saw about 100 basis points of commodity inflation work its way into the system. We did have to go outside of some contracts to source product in the short run, and we had to restructure a couple of contracts to make them realistic to where the markets were going to assure that we had that product access. So there's also some impact from the turnover that you're going to hear us talk a lot about in a more inexperienced staffing levels that we are working our way through because, again, embedded in that 100 basis points is probably 10, 15 basis points of increased AvT beyond what we would typically see. And that's a matter of getting new team members up to speed on how to run the systems and making sure that we're managing effectively things like waste because that does impact these numbers as we kind of move forward. So we'll work through that issue. But the key is ability to continue to maintain supply and meet the demand as it's coming into the restaurants. Labor. So again, the heart of the issue here was the outsized year-over-year impact in this quarter from a labor perspective. And I want to break that into 2 categories. There's both transitory from our perspective and structural changes going on in the labor market. And I've kind of laid those out for you in this bridge. 130 basis points of that impact in that quarter, we feel is very much in the transitory category, and we will deal with that as we go forward. 50 basis points of training, 40 basis points of less productivity, again, a new workforce coming through the restaurants that need training, need to become more adept and get that muscle memory going of the systems in how we approach things. And we'll accomplish that and get those costs out of the system as we move forward in this year. And then some structural changes. Wage rates did increase in that 5% to 6% range that we had talked about before. So they are behaving kind of as anticipated. And then some leverage working its way and as we continue to drive the top line side of the equation. So where do we go from here on a labor margin standpoint? As we work our way through the rest of the fiscal year, as we move pricing actions, we took a price action yesterday, as a matter of fact. So we're -- and we have a line of sight of incremental pricing as we kind of move forward. As we take advantage of seasonal revenue flows that we will start to see in our higher quarters as we move through the rest of the fiscal year, and as you see these initiatives we're going to talk about today, continue to build the top line, we will impact favorably that number that you saw for this quarter. I would anticipate that as we move farther into the fiscal year, you'll see this number down in the mid 34s. And I -- we're -- we will make headway as it relates to improving the labor side of the equation. And then restaurant expense. Obviously, this is the area you would anticipate we would make sales leverage as you add that top line in. You're going to see most of the sales leverage hit in this area since a lot of fixed costs. Now there are costs in this quarter that are associated with having restaurants open at a much higher rate than we did a year ago. So when you see the R&M and utilities and some of those expenses, that's bringing restaurants back online. And again, I think as we unlock the incremental sales opportunities that we can see, the leverage opportunities here within restaurant expense should flow through. So where we are right now is, yes, from a bottom line standpoint, flow-through standpoint, disappointing quarter for us. But we have really good line of sight from our perspective on driving top line and margin recovery as we move through the rest of the fiscal year. There are expenses in here that are not going to remain and not become structural as we move forward. We will get those out of the systems as we continue to work to normalize the staffing levels, get the training where it needs to be and get that muscle memory moving on utilizing our systems that we know are very effective in driving restaurants. And we're stepping up to the plate to take more pricing actions as well as, obviously, driving top line growth through the initiatives we've laid out. So that gives you kind of a little bit of an overview of our perspective on the quarter. We, obviously, have a quarterly call, also scheduled for November 3, which we'll have even more discussion and opportunity around these numbers, but wanted to make sure that we had an opportunity to at least dig into it in the short term and answer some questions. Wyman, why don't you join me up here, and we'll do about a 15-minute Q&A for the first quarter side of the equation. I'm going to look to the audience here to kind of be the proxy. Mika is also going to be monitoring online questions coming in, and we'll just kind of go back and forth between 2. Nick? And I'm going to ask you to -- so that people on the virtual can hear, we have mics that will be running around and that'll allow them.

I guess is there a way to go back and say if we had taken the pricing that we're taking now and that gets you to sort of 3% to 3.5% for the year. If that pricing was flowing through in Q1, what would the margin have been? Is there a way to quantify it?

Well, in the first quarter, we're only recognizing about what 0.6% of price in the first quarter. So if you think about another 150 or 200 basis points of price on that, it would have had a significant impact on the margin hit. So I don't know.

Yes. Our expectations for the quarter would have been for margins to be in that mid-11% range. So when we're looking at our plan, that was our thought process and I did not include 3% pricing in those numbers. So again, pricing is one action, but also improving the utilization of the systems getting those transitory cost is probably going to be as big of an opportunity as we move forward. But we underperformed by about 1% in the quarter when I think about the ROM side of the equation.

And let me just ask a second question, if I may. The volatility month-to-month in terms of sales, I mean, is there a way to quantify how much that impacted labor productivity efficiencies? You can't maybe staff effectively because you didn't have the visibility month-to-month. What kind of an effect was that?

I think the volatility, it has -- I mean when we -- obviously, when we run higher volumes, we're more efficient. So what really -- so when you think about that July to August drop that was really primarily COVID-related, we lose some efficiency there. And in the midst of all that, you've got this turnover. The good news is the spike in turnover is kind of past us now. So we saw a dramatic increase in turnover, both labor, hourly labor and management labor early summer. So April, really May, June, July. And we were dealing with that when we talked to you in August, and it looked like -- but then the impact of that into the restaurant through the P&L was kind of what happened once -- especially once you started to lose some leverage with sales. So that combination of what was going on in the restaurant with regard to staffing and being able to staff and have restaurants open, whether it was because of just not finding bodies or whether it was because of COVID exclusions, coupled with a deceleration of sales due to the COVID restrictions kind of brought more pressure to the P&L than we had anticipated. A lot of that stuff now. Turnover is now moving in the right direction. It's stabilizing. It's getting much closer or moving back towards the trends we're used to seeing. And these aren't even restaurant industry trends, right? I mean 20 million people left their jobs between April and August of this year across the country, a record 60% more than last year at this time. It was a Wall Street Journal article that was just written this weekend. And obviously, in our industry, those numbers are probably bigger because we have a more transient industry, well above the pre-pandemic level. So you had a lot of people moving in this environment jobs. And you could speculate why, but that's -- that was just happening out there, and that created a lot of -- it made us less efficient, frankly. We're all about running systems, whether it's with our hourly team members or our management staff. And you have to know those systems, you have to be trained on them, become proficient at them, and that takes time and takes some experience. And so with all of that going on and a deceleration, we just became less efficient. And Brinker is known for efficiency. I mean that's 1 of the things we pride ourselves on across the P&L, you'll rarely find somebody that runs restaurants as well as we do from an efficiency perspective, and it just got a little bit tougher to do in that environment. Good news is staffing levels are moving back to where they need to be. We're seeing the slowdown -- a significant slowdown in turnover and getting back to those kind of levels. And so we're confident that we'll get back to running kind of restaurant systems that we need to deliver margins.

David?

He's right there. Clark.

Question on delivery and pricing strategy there. Basically, a big picture thing because obviously, you're going to keep on pushing on the off-premise as a growth lever. So we want to know what we're getting into. If you look at fiscal '21, it looks like your delivery fees and paper would be somewhere up in the low 200s as a percent of sales versus '19. So sort of this journey is costing you that. And if you think about your incremental off-premise business, it feels like back of the envelope that this is an incremental margin that's not as good as we probably would like it long term for that off-premise business. Obviously, some of your major competitors aren't really even doing delivery. So your competition is less, you're seeing Chipotle taking up pricing 17% on delivery. So I guess, I wanted to get your sense about what you're thinking about pricing, pricing power on the off-premise business and how you're thinking about what you're going to be doing taking other steps here?

Well, I think, first, let's just talk about our overall strategy with regard to price. We're probably going to be a little more conservative and a little more deliberate than most, especially with the Chili's brand. This is a brand that's got a foot -- and I'll share some of this with you when we talk strategy. It's got a foothold and affordability. It's got a broad-based consumer demographic, a lot of family, a lot of kind of budget eaters. It's why we have the footprint we have and the demographics we have coming to us. So we price very thoughtfully. So that's why we're a little late, frankly, in this quarter. We wanted to understand structural versus transitory. Structural, we kind of got transitory's a little ahead of us. We'll get the pricing right for the structural piece. We're committed to running a great business model but we don't want to get ahead of ourselves and start to chase consumers off in the long run. And that's why we're focused on traffic as well. So what is that? How does that relate to the takeout and delivery side of the business? Similar, but we feel there's more elasticity there. We've already priced more aggressively in those channels. And we'll continue to kind of push that model until we start to feel some negative trade-offs. And again, we're all about trying to keep traffic into the restaurants. The strength of the brand, I think, is how many bodies you have coming in, long-term strength. I mean you can buy a quarter with a big price increase, but are you going to be around for another 47 years. That's the question. And that's why we really take pricing very seriously. And we may get behind in a quarter or 2, but we'll be there in the long run. And we'll push that channel a little further because it does have elasticity. Now are we going to go 17%? I'm not sure. I doubt. I doubt we'll go all that way, but we know there's room there. There's -- those consumers tend to be a little less elastic and willing to pay a little more. So we'll continue to push.

Yes. And you'll see later today, Wade's going to walk you through some of the virtual brand what that model and P&L looks like. And there's: one, it is good margins for the incremental business that it's generating, and it has flexibility in it. So how we think about pricing, how we think about advertising, things of those nature within the context of those virtual brands, we have good optionality there. But there are also new brands. So we want to make sure that we continue to build the awareness and the receptivity from a consumer standpoint as we move forward. So how you think about price for that generation of brands versus 47 years or whatever years from some of the other competition is a little bit different.

It's John Ivankoe. Two questions, I guess, on the transitory side, if I can. Firstly, can you elaborate on the 140 basis points increase in repair and maintenance? I mean, I think that's versus calendar '19. I mean that's a very big increase relative to what I think a normal R&M budget is. So was there talk about fiscal '20 in terms of -- I mean, what was the level of R&M spending? Were you underspending for that given quarter that just -- that we missed? Was there some type of a difference in allocation between CapEx and OpEx that either will continue going forward or won't continue going forward?

Yes. I think you're seeing a high watermark there. Again, there was an ongoing level of R&M spend as you look back over the last year. And again, from a quarter-to-quarter, first quarter to first quarter last year where you had significantly lower number of reopened restaurants, you're going to see a bigger delta, I think, in these quarters. That's going to normalize as you move forward and we get into second, third and fourth quarters, where the operating perspective of the brand starts to be same over, same over. So I think that's the high watermark. And we need to make sure we have the right disciplines and governance in place, which I think we do -- so I don't anticipate seeing that kind of delta going forward anymore.

I may have missed that and I apologize.

It was '20 to '21.

Okay. So as -- so that was September -- the September '20 quarter to September '21 quarter.

Correct, exactly.

Do you remember what that was versus -- Can you remember what that was versus '19? I mean was that a normal R&M spend versus '19 at least...

It's a little elevated but not that much.

It's a little higher than a per restaurant basis but not terribly.

Because you can imagine, that's the first quarter, really, really the first big quarter after the pandemic, a lot of -- everybody. This is when everybody was saying, we found all these margin savings and we were saying like, no, you haven't. I mean you just aren't -- you got nobody in your restaurant. Of course, you're not having to repair a lot of stuff. There's nobody in your restaurant. So we knew that was going to come back. Now has it come back a little heavier than we thought, yes, probably a little delay there in some pickup. There's also some issues happening with regard to supply chain. So we have equipment now that we would like to replace because it's -- just life's over. We can't get it. And so we're having to repair it. And so our R&M expense is going up a little bit. So they're just -- these are the -- without trying to complicate the story and to keep it focused. There are things happening every day in the restaurants still around supply chain and distribution, especially, that aren't as surprised. I mean all those boats sitting out in Long Beach, they impact us as well. I mean there's stuff on those boats. There's stuff in other countries that we need to get here that will eventually start to move through that doesn't get the same kind of exposure as your Christmas present. But it impacts our restaurants and one of them is just getting refrigeration units, getting air conditioning units, so that we can open our building. So we've got a -- getting these restaurants, we got a great pipeline of new restaurant openings, and just making sure we have all the parts necessary to open the restaurant now is a little bit of a challenge. We're getting through it, and we're going to work through it and we're committing to it, but it's not easy. It's not as easy as it used to be, as you would expect in these kind of times. But that's probably a smaller piece of it, but it's in the margin.

And I think historically, there are 2 leading indicators of turnover, especially as it relates to retaining employees and also running good restaurants. I mean one is general manager turnover, so comment what you're seeing in that. And I don't know if you look at 60-day or 90-day turnover of new employees. Can you comment very real time in terms of what's happening in both of those important factors?

So as I mentioned, they're getting better. So we saw significant increase in both hourly and management turnover, primarily the turnover number was driven by early tenured managers, right?

As GM, newest employee.

Right. GM has always been a team number, low turnover number for us. It jumped from where its base has been, we've always said, and I'll show you some numbers here in my presentation later. I mean, we have a very tenured GM staff. The average GM is over 10 years with us. So we have a very tenured GM staff. We did lose some, and that's important, but we have even a better metric. We ask our team members twice a year, how you feel. And we asked them that in March, and the number wasn't great. It was -- and we didn't expect it to be great. Nobody was feeling great in March. And that's the better indicator of what -- are they going to stay? Or are they going to leave? And we ask -- we were asking them that same question and surveys out there today, and we'll have a better insight. So we keep track by restaurant of what the -- how do our team members feel, both managers and hourly, on an ongoing basis. Twice a year, we take a pulse of "Hey, how is it going?" And that's actually the better indicator. And in March, we got an indication that, hey, we could see some turnover and it wasn't so much about what was going on in our restaurants, but the overall environment and having to work in a restaurant through a COVID experience for the last year was weighing on people. And the #1 reason we're seeing for turnover is really about quality of life. And it's like, hey, this has been a very difficult time period for the industry, and some people are kind of making decisions. And the good news is most of those decisions are behind us, and we're starting to see people kind of normalize back into the organization. And we're dealing with these issues that make it easier to work in this business.

And I think as of today, too, we're feeling pretty confident and comfortable with where we are from a GM perspective and the normal turnover rates that we would expect to see there. We've seen improvement on the manager side of the equation and a lot more stability as we work through both the heart of the house and the front of the house. Again, Midwest is probably our most challenged area right now and a lot of time and effort going in to improving that. California is probably the second piece of the equation there. When I talk about the constraints that we are seeing on revenues from a labor kind of standpoint, those were the 2 hot spots that we're looking at very closely. That probably represents 1/3 of what we thought we left on the table. So the great news there, if you want to say great news, but the news there is we have good line of sight, and it's not system-wide. It is very defined into certain markets. So it's that 80-20 rule. It's very much in play, and we can move the ball on that.

Yes, which again, gives us a lot of comfort that, hey, we know once we put out some of these fires, that there's a lot of restaurants running very well right now and delivering great results.

I think, Jared, you had...

Jared Garber from Goldman. I have 2 questions, one on the top line and then one on margins. On the top line, you gave some nice color on the outperformance versus the industry. It looks like that shrank in August. Obviously, we all know the industry shrank as well in August. But anything that you think drove that deceleration from sort of a low single-digit outperformance to I think it was 20 basis points or so in August there? Is that geographically driven? Is there something there that you think drove that?

Yes. I think geographic -- geography played a lot into that. When you really saw the greater impact of a surge, we're seeing a lot of the southern tier markets. We over-index in those markets relative to the industry. So I think that was -- that's on...

The other big thing though is if you look at the traffic, it didn't drop. So it's really pricing. So other -- again, other folks price more aggressively early on. The gap between those 2 is really differential in price mix, right? So we're almost double digits or high single digits in traffic. And now we're running kind of low single digits on sales. So there's that price gap that we're, again, being more deliberate about crossing. And we'll take traffic and a line of sight to a great P&L and future business than just going full throttle right now on pricing.

That's definitely helpful. And then my second question is just on both COGS and labor. Inflation expectations for the rest of the year on COGS, how are you thinking about that? And then in terms of labor costs, obviously, you gave some good color on what we think are transitory headwinds. But as it relates to sort of average weekly cost in the labor line, how should we think about the pace of that going forward? Are we at a place now where that number is generally going to be stable going forward? There's probably some puts and takes to the number here. Is that how we should be thinking about it for the balance of the year?

Yes. Again, taking major environmental changes out of the equation because that can obviously have an impact. We think there'll be definitely much more stability in the equation. From a COGS standpoint, again, that range we had given you, I think, is still applicable, that mid-single digits. It's probably ticked up a little bit before we talked about the lower end of the mid-single digits. It's probably a little bit more centered to that piece of the equation. And from a wage standpoint, very similar. I think it's going to be, again, that mid-single digits at the higher end of that range as we kind of continue to work our way through. But I think more stability. And again, we'll take those transitory costs off the table as we move forward too. Mika, do we have anything online?

There are a lot of the same questions, a lot about pricing, about commodities and labors, what the inflation numbers are, how they're going to work through the P&L. So I think we're covering them. You may want to throw in a little bit about staffing levels, where we are today.

Sure. Do you want to talk about staff?

Yes. So let me hit staffing. Again, trends are much better. We're basically staffed to pre-COVID levels on average. So when you look at a typical Chili's, the number of front of the house, servers and hard house cooks and prep people, we're about almost exactly where we were pre-COVID on a per restaurant basis, so that's good. As Joe mentioned, we've got some spots, some hotspots. Regionally, it's probably -- the Midwest is the biggest regional. And then every town -- we've had dozens of restaurants in Dallas. There are a couple here that are struggling to fill a position or two. I remind our operators, pre-pandemic, our biggest issue was staffing. So this is -- there's always a staffing issue in the casual dining restaurant industry. We're always kind of dealing with that. We're -- I'd say past as a company, it's kind of the -- we call it 911. Hey, this is something we got to really get focused on. It's more of an emergency. We're past that as a system, but we're still dealing with it kind of from a regional standpoint, probably the Midwest the only region, I'd say, hey, it's big enough there. We still need to support them. And it's mostly front of the house there, interestingly enough. And then it's spot. It's spot. And I think you hear that from most operators nowadays. So we feel good about where we're at. The turnover, as I've mentioned, I think this is the third or fourth time, is coming down, starting to move itself back towards that direction management turnover, especially at the GM level back way off from what we saw that little spike earlier in the summer, back down to kind of more traditional levels. So we love the trend -- and we love the trajectory. The issue that we're dealing with, and we're getting through it is when you lose a manager, it's a 10-week training period. I mean it takes us a while to get a manager ready to go. So -- and we always have an inventory of managers available, but we just didn't anticipate having this many needs. So we're getting that pipeline filled. And while you're doing that, you see things like the transitory costs around training, even those that are team members, the transitory costs around training managers is, "Oh, well, they may not know how to run A versus T and ways in the production system as well. They may not understand how to schedule quite as well. So they're not as efficient on running the labor model." And those are things that we're working with them to tighten up. And again, our history is we run a pretty tight ship. We just have to have everybody trained and ready to go before we can hold them accountable. We owe them this whole idea of, hey, you got to invest in them to help them understand how to run these systems that are world-class and best-in-class and then you get to hold them accountable to running them and we're in that process and moving towards that accountability phase, but it's taking a little bit longer and had a little bit more impact than we would ever have expected.

Alec Estrada, Stifel. I mean you talked about some of these issues that make working in the restaurant more challenging. Obviously, there are some elements that you can't change, but what have you been doing to kind of take some of the stress out of the job for employees?

It's a great question. So the question is -- there are a lot of things that we're having to deal with. We talk about this strategically too. This is where scale really helps. So this issue of training. Typically, we have virtual training and modules. And it's part of the really -- part of the manager's job to make sure everybody is trained and to train other managers. One of the things we're kicking off now is to put a great program in place. We'll start it here soon, is in this building, we will now offer classes live that -- we will live train different managers across different aspects of the business, labor model, the production model, A versus T, your own well-being. And we'll have experts in this building doing this exact same thing we're doing with you to our managers. What that does is, first, it gets them trained from the experts firsthand better than just going to a model or a module. And it takes that burden off the managers in the restaurants. They don't have to worry about training. They just have to give them the hour and tell them to go sign up and the classes are available at convenient times, multiple times a week. Those are things where -- we've accelerated and we're testing, and I think, again, kind of industry-leading in terms of how we're embracing, how do we make the managers' jobs easier and make that team more effective and get these systems that we've kind of taken for granted because we haven't seen this kind of a spike in turnover that everybody knows. What are we doing to own, making sure they understand it so we can get back to kind of running restaurants as efficiently, as effectively as we have in the past. So that's one example. It goes -- there are a lot of others. I will tell you not too many -- not too long ago, we had an issue with a distributor here locally who just basically came to us and said, "Hey, well, we're going to cut your case rate. We don't have drivers." We're in Dallas. You get 80% or 90% of your cases delivered. So you have 2 choices. Do 10% less business or figure it out. So we had trucks coming into the parking lot here. We rented U-Haul trucks. This team broke them down -- broke the semis down, loaded the U-Hauls and drove to restaurants for a couple of weeks until the supply chain team found an alternative distribution method. And that's what we did to make sure that the managers are supplied and supported. And we got restaurants done. Now is there a cost of that? Is there -- is that an efficient way to be doing it? No. But does that what scale allows you to do? And when you have teams and the ingenuity, while the supply chain team then figures out how to use a different distribution method to get some products to the restaurants. So we don't have to say, "Okay, we're cutting -- now we're cutting sales because we can't get product. So -- or were disappointing guests because they don't have their favorite item.

And I think one of the things in late August that I think really started to move the ball forward too on improvement is we were able to host a GM conference here in Dallas. We brought all of our GMs, fully vaccinated, into -- to Dallas for a 2.5-day conference. And where those conferences are often focused on systems and training and things of that nature, it was focused on wellness. Again, so we've recognized the issue. We lean into the issue from a support team, and we brought them, I think, very effective programming. It was great to have them. We hadn't had them in one place in a while. And just the act of getting together again as a team and recognizing the issues that are going on there and dealing with it and helping to provide them tools and methodologies, I think was a big step forward on the feedback. I think coming out of it, very favorable from how the GMs were feeling.

Yes. Again, we're getting a little bit ahead into the presentation, but well-being and the importance of our managers and our team members' well-being is we think critical to retention. And one -- that's a great example that Joe just shared from what we did at our conference. It wasn't about -- we didn't train them on any new systems. We basically embraced them, thanked them, recognized them, and talked about how they could be better supported financially, emotionally, physically. What can we do to make their lives better so they feel good about working for us. And then it goes to pay off and that's part of the cultural stuff we're doing to help.

We actually need to keep the schedule going. If there's anything...

We'll have another Q&A.

And we'll have another Q&A. We can always pick it back up. And obviously, Mika, Clark, myself are available as we -- if you get a chance to dig through the numbers, but here's the clicker. And I'll turn it over to you for the beginning of the presentations.

All right. So -- and I know, it's hard to separate kind of the short term kind of what we just announced and especially with questions as to what the implications are with the longer-term strategies, but we really want to spend time talking about the longer term strategies. We're very optimistic about where we're going as a company. I'm going to spend a little bit of time talking to you about some of the strategies. You'll hear some, see some videos as well. Wade Allen is going to follow and really dig deeper into virtual brands, it's an important part of our strategy, and then Joe will come back up at the end and kind of tie it all together with what's that mean from a business model perspective? How do we see capital? What do we think about margins as we think forward the next 3 to 5 years. So -- and again, some of this is going to be very familiar for some of you. Some of you are relatively new. So I'm not going to dwell on it, but I do think it's important to talk to that the foundation of our strategy and business is some amazingly strong brands. And when we talk about strength of brands, when you think about the bar and grill category and all the turmoil that's gone through bar and grill over -- I mean -- how many of you were born in 1975? Yes. Unfortunately, there's a few of us. But most of you, not. Some of these, John -- yes, yes, that's what I mean. You, John and I, and this side of the room, mostly not. Chili's is a 47-year-old brand. It's got an amazing -- 100% basically brand awareness, if you don't know Chili's, you've been living under a rock, it's -- and it's survived and thrived in a category that's seen a lot of turmoil over that time period. When you think about bar and grill 50 years ago, who was leading it and where they're at today, and how Chili's is navigating and continues to lead the category and being an amazingly strong brand, it's very impressive. Maggiano's has a similar story, 30-year-old brand that really almost any time you ask a consumer that experiences that brand, obviously, not quite the breadth of awareness and experiences with 52 -- 54 restaurants as Chili's, but boy does it have an affinity with its guests. And it almost wins every guest-based contest with regard to best brand in the class or favorite restaurants. So 2 really powerful brands that have got a lot of history and connectivity with their guests. And then we just added to what is now kind of turning into a little bit of a portfolio to virtual brands that we're very, very excited about their future. And obviously, the wings -- and we'll talk about the positioning of that more in the future here, and you got a Maggiano's kind of hybrid brand that leverages a lot of the attributes that Maggiano's brings to the table across a very compelling segment. When we think about our desire and our commitment to run restaurants, we're committed to that. We think ownership is important in the casual dining space. And then -- you could debate that, but that's our belief, and that's our business model and our strategy is that if you run casual dining restaurants, you get a scale and a familiarity with the P&L up and down that you are able to do the things necessary to keep brands around and healthy for a long period of time. And again, we could just look back at history and see casual dining brands that have struggled as they've not been run well. And so we like owning restaurants and running them well. We're 90% owned in the domestic market here in the U.S., that's the model we will lean into. We'll always have a few franchisees in the U.S. because we like being in airports and places we won't be able to own a restaurant, but for the most part, we're very -- we have a high preference to owning. And we like -- but we do like to be international, and we're in 29 countries and 2 territories with the Chili's brand. All of that -- all of those 362 restaurants are run by really strong local franchisees in those markets. They continue to look to grow the brand and the business where we've opened a restaurant in China. Rick's heading up the International piece for us now, and it's done extremely in Shanghai. We're looking to open another one here in the not-too-distant future. So we're consistently out there looking for partners and suppliers, supporting our partners in ways that they appreciate. So that's kind of the foundation. We've talked a lot about COVID over the last 18 months, but I just want to remind you of kind of how we performed during COVID, and I think it's best-in-class. When you think about our ability to shift to an all takeout strategy really almost instantaneously, we were able to do that because we had invested -- first, we believed in the consumer proposition that convenience was going to be a driver. So we were ahead of the curve there. We invested in technology really better than anyone else in our class. And so when it became necessary, it wasn't that hard. We just shifted over. And then as we were able to open restaurants back up, we just were able to migrate through and navigate that and manage the cost and can take -- and significantly outperformed the category and take a significant amount of share. And oh, by the way, in the middle of that, we introduced a virtual brand to over 1,000 restaurants overnight. All of that happens because of commitment in -- and the strategic kind of development that was done prior to that. I mean that didn't happen. We didn't think of It's Just Wings or all the technology necessary to do that in March or April. It had been done years before on the technology front, and we've been talking about virtual brands for months and testing them prior to that. So all these things are already in place when the pandemic happened and really through the pandemic, we actually strengthened our financial position. So last 18 months have been challenging, but also rewarding for this team because they really outperformed. But let's talk about the future. So we continue to think our strategies are aligned. You'll see a couple of tweaks for those of you that have seen our strategic presentations in the past. They don't change dramatically. And I think our strategies have proven to be kind of successful. So we're modifying them slightly, but moving forward, a big part of that is virtual brands. They're here to stay. We're committed to them. These are not transitory nor are we -- do we take them lightly. We invest in these brands, and we think they have a long-term track, and we're looking to kind of continue to grow that. And we do expect more normalcy back into the business, and the things that we've been known for in the past, we will continue to be known for, and that's really running great restaurant operations and a tight P&L and delivering great guest experiences. So Joe showed you the 1-year Chili's and Maggiano's sales and traffic charts. But the story really goes further than that. So this is a 2-year trend. And you can see the big differences that we experienced when COVID hit, right? But if you took this back, Chili's is on its 15th quarter of comp sales or comp traffic outperformance of the category and 13th quarter of sales outperformance of the category. So this is a multiyear into our fourth year of outperforming the category at Chili's. So strategically, it's been working. This is not something that just happened because we came up with a virtual brand strategy in the middle of the night last June. This has been something that the foundation of Chili's is strong. It's been working and now we're augmenting it with some additional strategies that will continue to help us grow, but the strategies have been working. And again, where they've really been working is on traffic. And that we're running significantly higher traffic and positive traffic to the pre-COVID levels is important to us. So what are we leveraging to kind of make that stuff happen? Well, we'll talk about these 4 things. Again, first, it goes back. It always starts and ends with the brands. So with Chili's, you've got those 47 years in the casual dining, probably the toughest category in casual dining that we've been able to navigate, got a strong value proposition. Maggiano's, again, very much ingrained in its consumer positioning around authentic, Italian-American cuisine, quality product and affordable prices and then these new virtual brands that are just establishing themselves, but we're very excited and we're going to walk you through a little bit more of the details on how they're positioned and what they're doing to get us excited about their future opportunities and how we can grow them going forward. You'll hear us talk a lot about scale. It comes across. It's critical to some of the other things that we think are important. With scale, we're able to invest more in technology. So -- and technology is going to be talked about a lot today in terms of how we see ourselves, not only navigating to a better consumer proposition, but becoming more efficient. And if we're going to become more productive, how do we do that in a way that still deliver the great guest experience, but also works for us from a business perspective and scale allows us to do that. We've got an amazing -- anyone who want to take a tour of our fourth floor, I'll take you up to our data center. It's world-class, got one of the best views in the country for a data center. I'm not sure why we put it on the fourth floor overlooking the lake, but our computer guys appreciate it a lot. And we've just made that investment and we continue to put capital into the technology side of the business and supporting our operators and our team members. We've talked about some examples of how scale helps us from a supply chain standpoint and the quality of that team and how they bring to market. And for the first time in my history, we've actually had to go outside contracts where we've made -- we negotiated some of the best deals in the industry because of our scale. And in this weird environment, we've actually had the suppliers coming to us and say, hey, we just can't meet that number now. I mean it's just not possible. And we've said, hey, we're in this for the long haul, we'll adjust. We'll have to pay you a little more, we get it. But overall, that just -- the supply chain and our scale just comes to bear on the cost of sales part of the equation in spades. And then things like development, having the capital available and the resources to go out and find these sites that are now better -- more abundant for us now because we've opened up bigger trade areas and because the P&L is working harder for us. That's where scale kind of comes in. And I've talked about it really playing a role in technology. The scale allows us to then unlock our strategic point of differentiation around embracing technology. And this is just an example of where all these systems on the left are things we've implemented, systems we've implemented that are technology driven, that have done things like take our digital sales footprint from really nothing 6 years ago at 2.9% to over 34%. Now some of that is driven obviously by the pandemic and more people not coming into the restaurant, but it's not -- it's going to stay in that high 30 -- low -- mid- to high 30% range in the future. We don't anticipate this is going to come down. So that's what technology has allowed us to do, and that's why, again, especially during the pandemic we were so much quicker and more able to address and interact with consumers. And then it's positioning the brand. Having a brand that's got great awareness is one thing, but having a strong positioning, especially around understanding your value proposition. Again, these are things all tied to why we're a little more deliberate with price and understanding it because we understand the importance of having an affordable concept or affordability and a strong value proposition for a brand like Chili's. And so this is just some consumer research we do and we track on an ongoing basis to understand, hey, how is our affordability rating? What's happening? How does it relate to some other key competitors that we're looking at? And then just -- we just threw on the other axis, this whole idea of, okay, well, if you say technology is a strategic advantage for you and you want to be consumer-facing. How does the consumer tell you? How do they feel about your technology? And do they like it? And you can see on both affordability and the use of technology enable the consumer experience to be better, we're best-in-class with the Chili's brand. And so those are things that we -- so we monitor these strategies to make sure that the consumer is playing back for us what we would expect them to, if we say this is how we're going to win in the marketplace. So let's talk about the strategy itself. And I'll focus on Chili's. We've got Steve going to share some video in restaurant. We really wish more people were here, and we would have taken you to a restaurant. And the -- over the years that have been with us in restaurants, we know that's really the best way to talk about this business. But unfortunately, we'll have to do it a little more virtually this year. So these are strategic pillars. These are the 6 pillars that we use to drive initiatives -- to kind of frame initiatives that are going to drive our business going forward. So I'll walk you through those fairly quickly here. So the first is best-in-class operations, and we've talked about this through the Q&A. So all this stuff should be tying. It really is about a systems-driven model. Our whole idea is scale and systems to support operators to be able to run a fairly complex casual dining model, not overly complex but fairly complex, because we're offering consumers a variety and choice in a way that allows them to be successful, both with their guests, their team members and the P&L. Those systems are what we lean into and that's why when they're not trained on those systems, they can get a little wobbly. We got to tighten that up and get those systems back in place. I can spend all day talking to you about each one of these, the Manager Timeline, KitchenSYNC, Quality Line Check, all of these systems, but we won't do that to you. We'll focus more on where we're headed and where we've been focusing a little more recently. So obviously, with the increase in takeout and delivery, a lot of emphasis on our -- out the side door, we call it system. So curbside to go. Aaron is going to talk to you a little bit about that in the future -- in a few minutes. But what we're in the middle of right now today is rolling out TSE, Team Service Evolution. So John has heard me talk about this for as long as he's been tracking it. So we implemented a team service evolution model 3 or 4 years ago in California. It works -- the model works great. The technology didn't. And what I mean by that was, it would break on a Saturday night in the middle of volume. It just couldn't handle capacity. And so we've had to over the years, basically, build it ourselves. We were using third party. We used our guys upstairs to rewrite the program, to integrate it with different hardware and now we've got it, and we're in the process. Rather than me walk you through it, Doug has done a nice job in restaurants. So let's go to that video and have him kind of walk you through TSE. [Presentation]

All right. So TSE, it's out. It's about half the system has it actually running today, it will be done by December. So by the end of this calendar year, everyone will be on this system. And as Doug's mentioned because the server stay out on the floor, they can take a bigger section. That means they make more money, that also means we need less of them. That means we get to keep the best of them. And so on a Friday night, oftentimes in a restaurant on a Friday night where you need more bodies, you're oftentimes going to somebody to come work in the restaurant who's not that skilled, that's only working maybe 1 or 2 shifts a week. And that's the last place you want somebody who's not very skilled is in your restaurant, messing with your kitchen and your POS when you're very busy. And so it does a lot of things to simplify and make the job of the manager a lot easier. You get your best people working. They make more money. So they stay longer and they run the system smoother. And then it gives that career progression. You actually go from server, bartender to certified shift leader to manager, to GM. So the whole cycle of a career progression that can have you entering at Chili's and becoming $1,000 a year plus GM is very clear and evident to somebody. And we're excited about what that does too. Because the next one is really about engaging team members and building a tenured workforce, which is critical if you're going to be best-in-class operator, right? And we've talked a little bit about this in the Q&A, so I won't kind of dwell on it much more, I'd just say we're focused. This is a new pillar. So when I talk about the strategy has changed a little bit, this is a strategy improvement or a change from the last time because based on what we see in the environment now and looking forward, we know this is going to be more critical than ever. It's always been important to us, but now we've said, it's a strategic pillar. We have to become an employer of choice. We have to make sure that we have the best GMs in the business, and we have to make sure that we're focused on not just how they perform their job in the restaurant, but their overall well-being. That we commit and connect to them on aspects of their life that are outside the 4 walls of our restaurant and we're doing that, and we talked about the manager meeting being a good example of how that works. Because when you look at our tenure, it's impressive. I mean the average GM at Chili's is almost 12 years. The above restaurant Director of Operations is 19 and the VPs are 18. So we have a very tenured organization. Doug Comings, 27 years with Chili's; Aaron, 20 years, and a prior GM of the Year for this business. So we have this amazingly powerful tenured and really excellent operations team, and we want to continue that. I share this -- the last data point here is just to give you a little bit of insight into kind of what has always been the case is, there's always people that leave the organization, and then they come back. And in the past, it's been about 4% of our management hires are people that have worked for us before, whether it's an hourly or as a manager and they left and then they're coming back. A little hire on the hourly, some of that's students, they worked in summer, they left, they come back, we rehire them. But you can see what's happened more recently, those numbers have doubled. So a lot of this transient stuff we're talking about, a lot of this turnover we've seen, a lot of those people are coming back, and we're seeing them again. And so I think there's a lot of testing the waters, I'll say, for our people of all industries to kind of say, "Hey, listen, I'm going to try something new. There are more opportunities out there than ever before. " But we're seeing a lot of those folks coming back home to Chili's and to Maggiano's to say, "Hey, I tried that, it didn't work out so well. I now want to come back to the restaurant business. I know what you're about, and I know what this job is about." And that's encouraging to us that we're seeing that uptick as we've seen the turnover go up we're seeing the repeat come back. So engaging team members and a tenured workforce is a critical strategic initiative for us and a lot of initiatives around that. This is really about a powerful menu, but it's really about having a concept that's especially with Chili's that's broad and diverse. Again, so we appeal to a lot of people, and that's one of the strengths of this brand. If you look at it from a psychographic perspective, we lead with experience seekers, and we pretty much run the gamut. This is a segmentation done by an outside consulting firm that segments the whole industry this way. This isn't just us. This is how they've looked at multiple concepts that they've consulted with. They've looked at -- they've consulted with almost all of us. And this is how they break out. And we basically mirror the industry. So the beauty of Chili's is, we are represented equally almost as the industry. And even though you say, hey, there's 4% of the healthy eaters at Chili's, which you go, wow, what healthy eater walked into a Chili's. Well, maybe they got drug in, but the thing you need to know is in the category, it's only 5%. So all are casual dining, only 5% or -- so it's still the smallest segment, but it's starting to become a big enough segment. And we got 4 -- we've got 80% of it so -- coming into a Chili's brand. So again, how they come and how they use us. We have to be available -- or make ourselves available for Chili's, and so variety is important. When you think about a demographic mix, 80% -- more than 80% of the Chili's guest base is 55 -- less than 55. And so again, a large SKU of families, younger kids and really a good generational mix. So the brand is moving through its 40s and into its 50s with a lot of folks that are just coming in and still appreciating it. And it has to do a lot with the menu. Again, affordability, a strong affordability proposition that gives people an ease and a comfort with that brand, a variety that allows people to eat regardless of whether you're healthy or whether you're more an indulgent eater or you're a basic budget family. And then we leverage these iconic menu offerings. It starts with things like our Presidente Margarita, our Big Mouth Burgers, and the chocolate molten, and then we give most of our guests -- are putting a chip in their mouth, and it's a fresh chip made every day with fresh sauce. And that's -- those are the kind of iconic offerings that kind of make Chili's not only broad-based but also compelling to individuals. So really staying on top of this menu and our commitment to the Chili's base brand, I know we'll talk a lot about virtual brands. But at the end of the day, the base business is #1, we're not neglecting it, we're all over making sure that this brand continues to be unbelievably powerful. Again, you'll hear technology a lot today. We've just talked about TSE. We've talked about handhelds when we shifted to an environment where people weren't sure they wanted to touch menus, we were quickly able to go to our QR code because we had all that technology in place. And so we didn't just go to a PDF, but we had a virtual menu on your device, on your phone, so that we could continue to sell your category and push items to you and have you sign up for the rewards program and all the things that we need to do to be successful because we have that technology, and we were able to turn that on quickly. I mentioned previously that we've been focusing on how to make our off-premise experience better, both from a guest standpoint, but also from an operator standpoint, we've pushed a lot more food out that side door. We didn't build these restaurants with the expectation that the mix would be what it is today. And so how do we support them? And technology is the way we can help make sure that even though the geography and the restaurant may not have been perfectly built to do this, technology helps us kind of overcome that and make it work for them. So Aaron's going to walk us through on this video kind of what we've done with off-premise -- our off-premise convenience system. [Presentation]

So you place the order, we tell you when it's ready. You tell us when you're here, although we're getting to the point with the near-field communication, we'll know when you pulled in. We can actually say, "Oh, you're here, just tell us what slot you're in." And this conversation with the guests and these promises, hey, now you don't have to get out of your car, especially if we start to get into some more inclement weather. It's nice to know, "Hey, first, they know I'm here. I know my food is ready because they've already told me my food is ready, and it's going to be coming out. I don't have to worry about getting in and out." It also simplifies our operations because now we don't have people in that section of the restaurant kind of piled in and backed up. It's not a very big area, right? We didn't build it for 20%, 30% of our mix. So now it all happens outside, and we've just moved that whole transaction outside. So it's a great example of how we're continuing to leverage technology to run a better, more efficient restaurant and deliver a better guest experience. The next pillar, I'm going to just hit lightly because you're going to hear Wade in a second here talk about it in a lot more detail. But we think virtual brands and delivery are key to our growth going forward. It really is about unlocking. There was always a knock-on the industry that it was overbuilt. Casual dining is overbuilt. And our premise was, "Hey, maybe we're not overbuilt, maybe we're just underutilized." And so how do we better utilize the capacity that's out there or create additional capacity without expending a lot of capital. And that's what we're doing to bring virtual brands in, and we're very excited about what they can do for us and what they're doing for us today. And then finally, there's just additional growth vehicles. Some of these are more traditional. But we have the opportunity to accelerate new restaurant openings. We are looking, and Joe will walk you through kind of some more detail specifically, but franchise acquisitions to lean into this ownership model and open up bigger areas and trade areas to grow in, where we haven't seen as much development. And then we're going to continue to reinvest back into these brands with reimage programs and other things like technology, to keep them fresh, to keep us around, to make sure that these iconic brands are here for a long time. So just to kind of summarize it, it is about strong brands and keeping these brands strong with Maggiano's and Chili's at the foundation, but our new virtual brand's very exciting, and they will continue to be very strong brands. It's about having them positioned in a way to make them strong, but also to deliver a business model that we think is solid and that our operational expertise allows us to lean into and deliver the kind of results that we know we need for our shareholders. And then finding these growth opportunities, both organic within the brands and with virtual brands and other ways to grow the business. And all of that is kind of foundationally built around technology. I mean, frankly, it's a pillar, but it's a foundational building block as well because at the end of the day, there's rarely an initiative we think of that doesn't require technology now, and doesn't incorporate our technology and our infrastructure to make it happen in a positive way. And those are things that are barriers to entry, not just to the small mom-and-pops that make up a lot of our category, but even some of the larger concepts that have a hard time, especially in a franchise model, getting all the franchisees to align on a technology solution and execute it. So those are the reasons we're excited about the growth. We're excited about the future within Brinker. And now I'd like to bring Wade Allen to talk about virtual brands. Wade joined us 8 years ago. He came in as a marketer. Really then we -- he's got a background in technology. He ran our technology group. He was VP of Technology for years. And more recently, we've moved him over to innovation. He is running virtual brands as well as doing a lot of other very cool things. So Wade?

So awesome. Thanks, Wyman. As Wyman said, I run innovation. Part of my day is doing crazy stuff like thinking about last-mile delivery, autonomous vehicle, drones, robotics, but the lion's share of my day is spending on virtual brands and thinking about how this world is changing around virtual brands. So I'm going to walk you through our strategy and talk about growth opportunities in virtual brand, explain a little bit about -- we're going to first dive into market opportunity around these virtual brands and give you a perspective of how we see it. And then we'll dive into virtual brands themselves, why we're winning in this space, why we are the market leader with our virtual brands? And then we'll finish on plans for growth and layout how we're going to get a path to a sizable amount of revenue in the future around virtual brands. So to start with the market opportunity, you first have to kind of understand just off-premise. This is what fuels virtual brands. A lot of questions around off-premise in the past, and what we believe and we see the data that it is here to stay, right? There is a demand, and Wyman talked a lot about it, to have food where I am, right, whether that's outside of a restaurant or at a soccer game or wherever that may be. That trend you see here in the off-premise. Our data prior to the pandemic, in and around that 17% of a mix of off-premise. And now into this pandemic and where we are in this process, hovering in that mid- 30s range. We knew this was growing before. We had made investments prior to. We were industry-leading prior to the pandemic. So we knew there was a tipping point. We didn't know it was going to be a pandemic that was going to tip this, but we knew there was a demand for guests to give this food off-premise. So we continue to see that growing. Another trend that's interesting to watch. You can't talk about off-premise unless you're also talking about delivery. We see delivery continuing to grow. The most recent data that I've seen said that in the last year, meal delivery growth is up 20% year-over-year. Along that same study, it indicated that 50% of the U.S., roughly 50% of the U.S. consumer base had purchased at least 1 meal from the big delivery companies out there. Further indicating that this is continuing to grow and continuing to fuel this demand at-home. Interesting on this slide, if you take note, you can see the market share breakout from the different delivery partners. I'm going to talk later in the presentation about a growth opportunity. So a little bit of a foreshadow around that market share. Let's talk about ghost kitchens for a minute because this is another one that's -- if you're out in the industry and you're talking in the industry and you're aware in the industry, you hear this a lot, ghost kitchens. But ghost kitchens is another one that's fueling this idea of virtual brands an opportunity outside and away from the restaurant with food. In 2019, an analysis was done, that said by 2027, $42 billion of restaurant sales would be recouped in 2027 from this analysis. They restated that in '20 -- just recently, a couple of months ago, that metric changed and the restatement was now $71 billion in restaurant sales by 2027. So that's a massive change through this COVID experience we're having and continues to convey this demand for food at home. It doesn't mean restaurants are going away, it just means there is a new demand that's being met today in this space. And what that allows us to do is shape up what the market share looks like, or the market opportunity looks like, for the 2 different virtual brands that we have today. So specifically around Wings, when you look at everything that we've talked about and you look at some of the industry data, we think that's a $6.5 billion total addressable market for Wings. On the Italian side, I've seen metrics, and I've seen analysis done that says this is much larger, $20 billion. But when you pare it back to just the casual dining and you take pizza out of that equation, it's still a sizable opportunity at $7 billion. So significant for us and our brands. So if you then move in and start to talk about, hey, let's look at the virtual brands and the performance we've done today, there are 3 things that have driven our success in our virtual brand space and made us market leaders. And it really comes down to being very methodical and specific about our brands and the target that we appeal to. The second piece is the operational systems. You heard Wyman talk a lot about the importance of systems, and we're going to dive into that a little bit and show you what we mean by making sure that we have powerful operation systems in place that don't disrupt our Chili's brand and still allow us to deliver a high-quality and great product through that kitchen where at times it can be chaotic. And then third, we talk about distribution. To be a winner in virtual brands, you have to have distribution, right? It's all about treating the guests. So let's talk about our superior brands for just a minute and the work that we've done around this. On the left, you'll notice it's just Wings. You know this brand well. I'll talk just for a second of the target. When we started this back in June and all the testing prior to that, we knew very specifically what the target was. It was focused on young males that were all about sports. It was a value brand. It was killer wings, stupid prices, free fries and it was valued then and it's valued today, and that's where we're focused. Interesting thing about this is our best restaurants for It's Just Wings tend to be around college campuses. It's pretty interesting, right? The target for Maggiano’s Italian Classics is very different. It skews more female. It's family-oriented. It's mill around the table. It's affordability, but it's more about abundance and quality. And it is really bringing authentic Italian-American food home with this brand. So with those targets in mind, let's dive into some of the success that we've seen with It's Just Wings. I can brag about this brand all day long. I think we -- sometimes I tell my team that we've accomplished more in 18 months with this brand than many brands accomplish in their lifetime. Some key metrics to pull out here. We are the largest virtual brand in the world today with over 1,300 locations worldwide. We did $170 million in system sales in the U.S. last year. There is rarely an article, a podcast, a white paper that's written that doesn't include the success that we've had with It's Just Wings in our first year. In fact, just recently, we were awarded the Innovation of the Year Award by Nation's Restaurant News in Colorado and my team and I had a chance to go up and accept that. And so I tell you these results, again, there's a little bit of bragging here of the power of this brand. But what really matters is the guest metrics, right? And the guest metrics are super strong. When you look at the strong repeat rates and frequency rates, it tells you the power of this brand. 60% of our guests will come back and purchase for a second time with our brand. And we see that consistently, period after period, quarter after quarter. This is over a 90-day time frame. The frequency transaction cycle, I always call it recency, how -- what was the last time they came back and purchased? And for our loyal guests, it's on average about 25 days. That leads this category. It bests those other wings players as well as our own brand here at Chili's. So a powerful brand. I call it sticky, right? When people come and they try the brand, they come back. They love this brand. Another interesting dynamic with Wings is it is no surprise, it follows the traditional sports cycle, right? If our target is male, love sports, and that's what they're focused on, then obviously this is going to follow that seasonality. So we see lower sales in the summer and the spring time and a build that happens in the fall with a culmination in the winter. And you can imagine, as football season kicks up, as we see the NFL season turn on as we see Major League Baseball playoffs happen, a lot more interest around getting people together, having wings, having the fries and enjoying that experience. And then in the wintertime, with college football playoffs, with the NFL Super Bowl, with the NCAA Basketball Tournament season and specifically March Madness, you see this really kind of flourish and grow at a high point. There is a wrinkle here. And that wrinkle is -- this also appeals to an audience that loves gaming. And we're investigating this now. We've kind of uncovered this, but there's just gaming element that exists here, online gaming element, that is not seasonal, that is consistent. And as we focus on that target and exploit that wrinkle a little bit, this can help us smoothe some of those seasonal low points and being consistent as we work with different platforms and providers to market to those gamers that love Wings and our product. All right. I'm going to turn it back just for a minute from Maggiano's because I've talked a lot about Wings. Maggiano's Italian Classics, we haven't spent a lot of time on. We are 450 restaurants deep in our rollout with a plan to be at about 900 by the end of our fiscal year. This target is very different. We talked about it, female, family, quality and abundance, but that also implies the check averages are larger for this type of meal at home. And that check average, along with the market share and the opportunity that we see in front of us, believe this is a scalable beyond $100 million annually. So we get really excited about this opportunity. So I'm going to then drive -- we've talked about our brands. We've talked about Maggiano's Classics. We'll take some questions later about these brands, but I want to jump into operational systems. There's been a lot of conversations. I've spent some time at different conferences and different events to talk about virtual brands and ghost kitchens. And there's this thought at times that you can just launch a ghost kitchen and put 10 brands into a kitchen. That couldn't be further from the truth in my opinion, and from our opinion. When we look at the operational element of this, there is a strategy and a methodology that is very important. So to kind of talk through this and convey this a little better, I want to show you a Chili's kitchen. What you see on the screen is a flow -- a basic design of a standard Chili's kitchen. It's kind of in a U-format. You'll see 3 different zones, Zone 1, Zone 2 and Zone 3. When we bring our virtual brands into a kitchen, we're very specific about where they reside in order not to disrupt the flow of that kitchen because as the food is cooked in these different zones, it then moves forward through Zone 2 into the quality assurance area and then out to our guests in the parking lot or in the case of Chili's, out to the dining room as well. So when we built It's Just Wings, we worked closely with Doug and Aaron to make sure that we built the right systems. There's a lot of fried food that comes out of our menu for It's Just Wings. And so the natural place for this was right next to the fryer. So we built a system, the appropriate kitchen equipment and technology to allow somebody to work in a small space to have that kitchen flow seamlessly, just like it would if it was coming from Zone 1 up through the kitchen. Similarly, on the other side, we did the same thing with Maggiano’s Italian Classics. We were very focused on how this works, so not to disrupt the flow. Kitchen equipment, technology, everything needed right there for an individual to work that station. And then again, using that methodology of running up through Zone 3 and then out to the QA area without disrupting the flow of the kitchen. I can talk a long time on this picture, but it's probably better to show you. So Doug and Aaron were nice enough to do -- or produce a video for us to actually get in the restaurant and see what it looks like. So I'm going to have them run that video now. [Presentation]

All right. I hope that brought some clarity and some color around how we actually execute those virtual brands inside of a Chili's kitchen. The last piece of our success. Again, we talked about this earlier, it was broad distribution. And I don't want just to get brushed aside because I think this is an important point. To win in a virtual brand space really requires scale. You'll hear a lot of people talk in the industry about, hey, we launched a virtual brand and we've rolled it to 5 locations or 10 locations or even 50 locations. That's great, but you're not going to ever lead the industry and be the major player in the space without the scale that we bring, like -- that Brinker brings with 1,000-plus -- 1,100-plus kitchens. That's given us an enormous amount of strength in this space to launch not only the Wings brand, but then to bring on 900 Maggiano’s Italian Classics brands. So if we then move to plans for growth, this is the section that I have a lot of passion around. So if I get animated or excited, you'll know why. But this is the future, and this is where I think, as an organization, we're going to change -- we're going to make some big changes that happen in the industry. Before we jump into the layout of this, and you can see the slide in front of you to talk about it, I want to give you some context. All of the success that we've had to date has been primarily through 1 marketing channel and 1 distribution channel, right? Our partners, and they've been a great partner at DoorDash. The opportunity in front of us is about diversifying. We have to be broader in our branding and reach more customers with our branding and that awareness. And that means we have to evolve that marketing model. And we have to diversify our distribution channels and expand that to reach more and more guests. And then third, it's about growing our footprint. Beyond the existing asset we just talked about, how do you grow beyond that, using a combination of ghost kitchens and new kitchen formats that are specifically to delivery and to-go. So let's jump in and talk about these different areas. First is about building brand awareness. What's a great presentation without the marketing slide? This is the marketing slide, and this is how we're going to extend our voice and our advertising to guests who have not been able to hear about our virtual brands today. A couple of key points on this slide. First is direct marketing. I'll make the bold statement that I don't believe there's anybody else in the industry that has as much muscle and as much expertise in the direct marketing space than Brinker and Chili's. We have a state-of-the-art loyalty program. We know direct marketing, and we know customer retention marketing better than anyone. I led that initiative when I was in the marketing department. I'm proud of the effort that's been done there. We're going to bring that expertise and muscle here and implement it to grow these brands. We're going to lean into this new and evolving medium model that we've created that's really focused on digital, mobile-first, SEO, SEM, keyword search and winning the local search battle because that matters. We're going to do some great social work and establish our personality online. And then we're going to lean into brand activations. Brand activations, I get animated and excited about because it is something that is really interesting and evolving. And I want to kind of show you what this looks like for It's Just Wings. We -- as you know, the NCAA recently changed the rules around working with college athletes to promote brands and other aspects. We've been working with a company that's given us access to over 100 athletes across the United States from these different universities. And it's allowed us to turn them into brand ambassadors. And as you see on the screen, these are athletes from colleges like Notre Dame, Arkansas, North Carolina. We've been working with Florida State, Brigham Young University, these different athletes that now embody our brand. They get the Wings, they enjoy the product, we give them the swag, they get to talk about it online. They're also involved in a gaming platform that kind of brings together Wings, our target and sports. It's a really powerful brand activation that we're working on. So it's through that mechanism that we're going to actually change the dialogue around our marketing and move away from just a single channel of marketing today and diversify. Along with that conversation comes about diversifying our distribution points. As we talked about earlier, we have -- our success today has been in 1 channel, a good channel, a strong channel. DoorDash is our great partner, but it's about moving beyond that 1 channel. So immediately, we've already started to move to grow and strengthen our dot-com. We have itsjustwings.com. We're currently building out maggianositalianclassics.com. This will allow guests to access that, quickly order, select if they want to have that delivered or if they want to pick it up in the restaurant for further value. Another part of this is Google Food Ordering. It's a little bit of a complex offering. But if you understand it, it makes total sense. We've gone and tagged all of our Chili's across the country as It's Just Wings locations, for example. And now when you search in Google, in the mapping section, you find physical locations for It's Just Wings, which helps us win in the search engine optimization area. With that allows a click to purchase and using a transaction widget that we've built in concert with Google that allows a 1 or 2-click transaction to happen for Its Just Wings. It's 1 more mechanism to reach the guest in a quick and efficient fashion through digital media. But the biggest opportunity and the closest opportunity really resides in diversifying into other third-party delivery partners. If you think back of that slide, at the beginning of the presentation that I said it would be a foreshadow to the growth part of this conversation, and you think about the market share, our current provider -- our exclusive provider today provides the lion's share of that market share. There is a sizable amount left to work with, and that's what we're now starting to test. We think that is a big opportunity for us. We're going to continue to evaluate that, test it and look to move in that direction in the not-too-distant future. All right. Last on the list from the growth perspective is about growing our own footprint. We have this asset base, but we have to go beyond the existing asset base that we have today. That comes through, again, 2 mechanisms: ghost kitchens, smaller formatted kitchens, and overall, our own-owned small format kitchens, I think, 1,200 to 1,500 -- 1,200 to 1,600 square feet that are delivery and to-go only. That will afford us the opportunity to get to places where our Chili's brand has not been able to get to before, dense urban and college towns. So next month, we are going to launch our first ghost kitchen test in New York City in Manhattan, and it's going to be both Chili's and Its Just Wings available in Midtown. We think that is a huge opportunity to unlocking future growth in growing our footprint. Along with those, we have multiple sites identified today in college or -- in and around college towns, close proximity to grow these smaller footprints to meet that captive audience that we already know loves our product in both, It's Just Wings, Maggiano’s Classics and Chili's. All right. So that is the growth strategy. I'm going to turn the page a little bit and talk a little around margin and flow-through. I wanted you to see the P&L lines for our virtual brands. This is a good representation. We see this period-to-period, quarter-to-quarter. And as you can see, those profit margins are very strong in and around that mid-30%. The one line on there that may have some of you kind of turn your head a little bit is the marketing line. And Wyman talked about this. We have that in at 9%, but I will tell you, we can throttle that number up and down depending on if we're in a growth mode. When you're growing small brands for the first time, you're going to lean into marketing pretty heavily. And so that's why you see that in that 9% and sometimes 10% range. But again, we have that as a throttle to pull back if needed. So all of this, when you put it all together on the growth and the opportunity, we're very confident that we're set to deliver significant revenue in the next 3 years between $300 million to $400 million annually. This is something we think is very achievable. And again, confident that these numbers are realistic and attainable. So just in summary, strong brands. We've been doing this a long time. We have a great -- in a short amount of time, we've been -- we are the market leaders. We know these brands well. They are incremental to our business. We have strong flow-through. And there's a lot of growth to be had with some diversification of our marketing, our distribution and growth of our footprint. So with that, I'm going to conclude my section of the presentation. We're going to take a 15-minute break. I think we're still on track to do 15?

If you could come back in 10, it probably would be better because we are running a little behind and we started 10 minutes late. So -- everyone hurry, when you get back, we're going to keep going.

All right. So we'll break. Thank you guys very much. [Break]

Somebody give me a thumbs-up. Yes? All right. We're back online. So we're going to actually finish the day with a video from Steve. Again, we really wish we could have had some opportunity to take you into restaurants. And so without being able to do that, we wanted to get some videos of the restaurants so you get a sense for kind of exactly what we're talking about in the real space. So Steve Provost, who's 12-year Brinker head, ran Maggiano's -- well Steve and I ran Maggiano's for a few years together. He was heading up marketing for me and then took over Maggiano's, did an amazing job there for years, and then came over to the Chili's brand and worked on marketing for Chili's as we were kind of working through some transitions. And really started the innovation group and was the leader that got virtual brands up and running. So Steve's had a huge impact throughout his career here with us. He went back to the Maggiano's brand with all the changes from COVID because we really needed that stability and leadership, and he and Larry have done an amazing job setting Maggiano's up for the success they're seeing now. And I think what you'll see and what you should know about Maggiano's is they struggled during COVID, right, because it's a brand that's built on getting groups of people together in big numbers in the space. And so the first year of COVID was more challenging. They did some amazing things to modify their business that Steve will walk you through. But that's a brand we weren't as concerned about their value proposition, it's strong. Plus, we needed to take a little bit more risk because of everything that was going on. And so Steve and Larry, they made some bigger bets and their margin situation is strong. So when you think about what we're experiencing in the first quarter, it's not a broad -- it's not -- it happened to be influencing -- impacting Chili's much more so than Maggiano's. And I share that with you because it's not like we don't understand how we deliver a business model and the kind of profitability. We're just a little bit behind at Chili's because of our desire to stay, really understand the cost structure. Maggiano's are ahead of the curve and doing a great job delivering that and sales. So let's watch this video from Maggiano's. [Presentation]

Great. And thank you. The real Steve is here joining us too, and he'll join us for Q&A in a few minutes, so that you can dig into any questions you might have on that presentation. But great work again being done on the Maggiano's team. We knew their recovery curve would be a little bit slower and they've exceeded expectations. Came very close to a record first quarter profit, whisker away this last year. So we're looking forward to the holiday season and really seeing the initiatives pay off as we move through that critical quarter for them. I want to end our formal presentations by kind of bringing all these initiatives together and give you a feel for what we believe this is going to look like over the course of the next 3, 4, 5 years as we continue to implement against a strategy that frankly has been working for us despite the pandemic, despite the headwinds over the course of the last couple of years. And as I do that, I want to really start with where we're at right now because, again, our journey for the next several years has to begin. And we're at a really strong beginning place to implement against the next 3 to 5 years. Strong base businesses. One thing that I think is important to understand is not only the recovery I just talked about with Maggiano's, but Chili's continues to operate above that COVID level even without Wings. We get some questions that there's the Chili's base business performing because of Wings and the answer is Chili's base business is performing because Chili's base business is doing a good job almost every week with the exception of maybe a couple during the height of the August surge, we saw Chili's performing above pre-pandemic levels. And we also have, obviously, the virtual brands and now the ability to invest back into new restaurant development at a much greater pace. As I indicated before, again, the curves of these businesses have been very steady and very up and to the right as we've moved through the recovery periods. Again, not fully recovered quite yet. We'll continue to unlock that capacity as we go forward, but run those businesses at levels higher to we were doing going into the pandemic. We've talked a lot today about the shift to off-premise, and we have been in the sweet-spot of being able to run our business as well from the to-go side of the equation from the delivery side of the equation. Chili's was at a little below 20% going into the pandemic. And that seems to be landing into that nice 30% -- mid-30s there you see in the first quarter at just under 35%. But Maggiano's is also taking advantage of that. And as Steve went through in his video, they're now into the mid-20s, up again from the 16-ish mid-teens now into the mid-20s, and have done a great job of really reintroducing and in some cases, introducing the Maggiano's availability from a to-go standpoint and the fact that you can get such high-quality Italian food at great prices with the convenience that you want. So I think a great opportunity to elevate that business on the carryout side of the equation. And then the other position that we start from that is essential to really driving the business forward is strong cash flows. And as we bring our cash flows back, you see where we dipped on EBITDA during the pandemic, back up into the mid-300s in F '21. And we're heading above $400 million as we move through this fiscal year, expecting EBITDA for F '22 to be north of $400 million. And that allows us again to execute against our capital allocation strategy that has been in place, but it's going to be consistent as we kind of move forward, generating that cash flow, investing more aggressively back into the business. Doing it from a stronger balance sheet than you've seen in the last several years. We will continue to reduce debt and take advantage of better leverage positions as we grow the cash flow side of the equation. And then after all of that has been done, take excess cash and return it to shareholders. We've reinitiated the share repurchase program, which we talked about on the last call, and we've kind of reinitiated some of those share repurchases as we moved through this quarter. And we will continue to do that as warranted as we kind of move forward. Let's talk about how we invest back into the business. From a capital expenditure standpoint, we're going to up the game a little bit. Now this is not a radical change, but it's definitely a step-up a little bit above where we were pre-pandemic. We were running in that $150 range for several years, heading into the pandemic years. And now we're looking at $160 to $180 as we kind of move out over the next 3, 4, 5 years because we have the opportunity to invest across a number of initiatives that we've talked about here. We have the financial wherewithal, the financial positioning from a balance sheet to do this very effectively to drive incremental cash and incremental bottom line returns. Unit growth. We're upping our pipeline of unit growth into the 20 to 30 units a year. And we've already taken the steps to put those teams in place, continuing to bolster that side of the equation and have a pipeline that has now moved north of 20. Those openings will start to pick up pace as we get into calendar '22. Obviously, there's a time frame that takes to get development up and rolling, but we're at that place now and excited about where we're going with new unit development. And what really is an opportunity there is where we see new restaurants opening in this past really 18 months, opening at really nice volumes. And being able to take this new prototype that is contemporary in look, it's very appealing from a curbside perspective, and works extremely well from a guest satisfaction and efficiency standpoint on the inside. And we've been able to take it into some markets that we haven't penetrated more recently and seeing it done small market and large suburban market at higher volumes. So a lot of opportunities as we continue that development pace going forward. Franchise acquisitions. We're very forward in our belief that corporate ownership is the best way over time to drive returns in this segment, and we're continuing to bring franchise operations back on to the corporate side of the equation. Going back a number of years. Again, the Northeast that bluer color was done several years ago. We more recently announced the Mid-Atlantic, that lighter blue we closed on at the earlier part of this month -- of last month. Obviously, the Midwest was an acquisition we did roughly 2 years ago, that green color and a lot of work going into those restaurants right now. And we're now moving towards a close of another franchise operation that I would expect to get done in the next couple of weeks that is that red, 37 restaurants kind of in the Great Lakes area working over towards the Mid-Atlantic, Philadelphia area. So another good long-term partnership, but a great opportunity to bring those restaurants back into the Chili's corporate fold. And the opportunity still exists for several other operations that are out there. Once the Great Lakes acquisition is complete, we'll be running north of 90% of our restaurants in the United States being corporate owned. And I would expect, over time, to see that number kind of move a little bit north of there. We've been reimaging restaurants on an ongoing basis, and we'll continue to invest back into our existing fleet. Chili's has a program underway. We're doing roughly 12 to 15 restaurants a month. We'll continue that pace for the foreseeable future, focusing very much right now on high-volume markets. If you think about the Miamis, Utahs, places of that nature, plus these restaurants that we are acquiring back in. In many cases, while the restaurants are decently maintained, probably not reimaged at the same level that we would reimage those restaurants. So focusing on newly acquired restaurants, but also restaurants that have the ability to drive incremental volumes when you give them a new look and feel, and focusing on areas within the restaurant that have the largest opportunity. What do you do around the bar spaces to make that a more appealing opportunity for guests when they're using the restaurant, things of that nature, that tend to have a greater and quicker return to us from the amount we're investing in. And as Steve mentioned, we're excited about the opportunity to start the reimage program on Maggiano's. That's a 30 -- a little over 30-year plus brand. This will be the first time that it has a significant reimage as we move forward. Two of them are works-in-process that should be done here in the not-too-distant future prior to the holiday season, and then we'll start a disciplined approach to doing a handful of those as we kind of move forward each year and get a new, fresh and updated look back into that brand to go along with the quality, service and the excellent Italian food you can get. And then technology. Of course, I mean we talk and believe technology continues to be a significant differentiating factor for us, and we will continue to invest at pretty decent levels as we go forward. Technology has a lot of opportunity for us. It's also the gift that keeps on giving and needs the feeding and investment that goes with it. We have typically invested in that $50 million plus, probably taking it up a notch this year as we roll out TSC in particular, which Wyman spoke about earlier. It's a great opportunity in how we improve the operations within -- in the Chili's restaurants. Those numbers are combined both capital and G&A that are related to the technology investment, but I want you to see both numbers to understand that this is a very meaningful amount of spend that we take seriously from helping drive the business going forward. So as we make those investments and we implement the strategic initiatives that we've talked about, there's some long-term growth targets that I want to kind of review with you. And so based on those 4 items that we talked about from an investment standpoint over the next, I'm going to say, 3 to 4 years, I would expect to add $1 billion to the top line of Brinker International. We will also do it by expanding margins. Again, I think we -- despite the headwinds that we've talked about today in the short run and what's going on in some of our labor markets, there is opportunity to leverage the P&L as we move forward. We're very strong believers in our ability to drive top line growth and the opportunity it presents to expand margins. We can see a minimum of 50, 100 basis point improvement in margins off of our pre-COVID. I've given you a pre-COVID 13.2% number there to kind of represent a little more normalized opportunity and grow the margins as we kind of move forward from that point. Also have targets established for protecting the balance sheet and improving the leverage position there. We're continuing to move down. We moved obviously, well down from that COVID impact into 2.5x, close to 2.5x at the end of the fiscal year. I can expect that to continue to tick down this fiscal year and then move in out years down below 2x on a funded debt-to-EBITDA and below 3x on a lease adjusted debt-to-EBITDAR. So again, wanting to make sure that our balance sheet is strong, giving us the flexibility and optionality on how we maneuver the business around it. Now when I bring it all together from a multiple extent -- and we think we are laying out a strategy that allows for multiple expansion. If we can deliver on these numbers on a consistent basis, we strongly believe there's an opportunity to grow the multiple related to the stock. Total revenue growth should average 6% to 8%. I would caveat that with a deal that will be very high the next year or 2. So again, when you think about what we're doing from a franchise acquisition standpoint, from a rollout of a virtual brand standpoint this fiscal year, you can expect to see revenue growth is really more in the mid-teens in the -- in this fiscal year, then probably stair stepping down as we kind of move through those 2, 3, 4 kind of years out. You get some benefit of the lap of that as you move into year 2 and then you probably normalize down in the lower single digits as you get out later on in that forecast period of time, but averaging out to that 6% to 8% over the time. We talked about the margin expansion and the opportunities particularly that, that top line growth brings to margins. And when I bring that together, I expect to see EBITDA grow in the 8% to 10% range over the next 3, 4, 5 years. And I expect to see our EPS growth, both from a combination of organic improvement in the business and our capital allocation policy to be north of 15% year-over-year. So those are the targets we're committed to, and then we strongly believe this strategy has the ability to deliver on a consistent basis. Short-term turbulence that's going on. We all are aware of that. That's nothing new. We're working our way through that very effectively and comfortable that once we clear that turbulence, we have a lot of incremental upside as we move forward in a great place. And as we wrap it up, I think I'm going to ask Wyman, Wade, and Steve to come on up. And we're going to open it up for as long a Q&A session as you guys want to have. So why don't we take some seats over here because I think we got some talking to do.

All right. Start with -- John has the mic first and then we'll go to Dennis right after that, okay?

John Ivankoe. When would that $1 billion of revenue -- was there a year that you gave on that, just for clarification before I ask the questions.

Yes, I gave you a 3 to 4, 5-ish kind of time frame. So kind of let's -- you can take the midpoint of that, John, and say, 4 years, okay?

I thought like something like that. Just wanted to make sure I didn't miss it. So this seems to be one of the first few times in a while that you're not expecting G&A leverage. I mean, it seems like EBITDA growth fairly in line with operating income after factoring in the store level margin improvement, maybe even a little bit flat. There might actually be some G&A deleverage in your forecast? Or can you talk about G&A as the part of that piece in terms of how you expect that to grow relative to your revenue?

Yes, I think, well -- I mean, again, we'll continue to invest. A portion of that technology investment I talk about goes through the G&A accounts. We want to make sure we're providing a strong support system and team here as you look at the organic growth dynamics. When you think about development, do we have to have that development, construction, design teams all in place. So we're investing appropriately there. But I do think you will see G&A leverage as you move through that opportunity. We like to target 4% in that range. But I think there's some opportunities there. I'm not looking for a big delta one way or the other, but I don't see it delevering at all, but we'll invest G&A as long as it's appropriate on how to drive the business going forward.

And the final question, it's John Ivankoe, I guess I wasn't on the microphone before, $64 million of technology spend in fiscal '22. It's interesting to see some of these next-generation point-of-sale systems that have come out. Toast is one that really does come to mind. You don't have -- I mean I really have -- I mean it's a step function change for what the industry, especially the independent industry had 3 to 5 years ago. I mean, how does that make you -- or does that make you in any way think about what you do in-house, the money that you spend in-house, your own development engine versus using some technologies off the shelf by others that would probably be pretty hard for you to develop yourself or at least maintain at the level of some of these other -- which are now quite large companies, at least from a market cap...

Yes, from a market cap perspective, they're amazingly large. I'll just -- we'll just go to experiences, right, John? The reality is we don't want to be like developing software and would prefer to use outside sources and be more of an integrator and a modifier. With the case of TSE, they just not -- they don't hold up, frankly. I mean, if you go right to it, some of these products that are out there now that are gaining a lot of buzz, they just can't handle the kind of volume and the kind of pressure that a high-volume restaurant like a Chili's and a Maggiano's put them through. And so it's interesting. So if you're a mom-and-pop cafe and you've got a handful of people and you're doing whatever, they seem to be fine. We'll see how the equipment holds up in 2 or 3 years, too, to some abuse. And those are the things that are important. We have to have -- so to answer your question, right now, we're doing what we have to do from a technology standpoint to be leading. And if we find a partner that can help us with that, we'll engage them. But right now, we're finding that we're having to carry a little more of that weight ourselves for multiple reasons. But at the end of the day, it's so that we can guarantee our operators that the system we provide them works. And it works day in, day out, under volume and that we're not dealing with R&M issues down the road because those are very difficult to deal with. The only thing -- just on the G&A, I would just add, obviously, with acquisition and with virtual brands, extremely good leverage from a G&A perspective. We don't add a lot of resources at all when we -- at the restaurant support center when we're doing these acquisitions. And with the case of virtual brands, we're -- this team's able to scale up from -- with what we've got.

Dennis?

Dennis Geiger, UBS. And thanks to the team for putting this event together for us. First question, Wyman, just going back to the beginning of the presentation, you talked about staffing being basically at pre-COVID levels, I think. And I just want to marry that up relative to the 3- to 4-point headwind, I think you mentioned as it related to comps, similar staffing levels, but I guess your volumes are higher. So is there a percentage that you're understaffed right now where you want to get to, to kind of close that operational gap to capture the sales impact?

Yes, absolutely. We're still dealing with some understaffing issues. Again, I think I mentioned whether you want to call it a 911 restaurant in terms of, hey, they just don't have enough bodies to run a full shift or the full operating hours that we -- the percentages are, again, regionally, it's probably the Midwest is the only region, I would say, hey, that's a fairly large part of the country that's got more than its fair share of challenges. Beyond that, then it's more just restaurant-by-restaurant within the individual markets and trader to trader. There are a small number of restaurants relative to the system, but they're disproportionately impacting the system. So their impact for a bunch of reasons -- the deleverage issue is the biggest one, right? We talked about how much we know we can leverage the business when we get it up and running and sales are there and it works the opposite when we're not open and we're still running a lot of the same cost structure. So 100% focused on -- it's really supporting those restaurants so that they can run well and the management teams can rest easier. So that's our number one priority, but also has obviously great business implications going forward. And we're making progress. So that number gets lower every day. We're starting to see these turnover trends recede and move more towards normalcy, still elevated, but nowhere near where they were 2 months ago. So all of that says, yes, we're still seeing some of that headwind, and that's kind of why that number is there. We didn't mention it, but one of the ways we give operators an option too, is like, listen, if you're getting slammed and you're understaffed, you have to turn off Olo. We'd rather have you turn it off than disappoint guests. So when we say -- so they'll turn off the takeout and delivery mechanism. And so that happens more than it needs to happen when we're fully staffed. And so those are some of the things that are taking place today that we know. And we know exactly where that's happening and what restaurants and what times of day and week and we're focused on getting them so they won't have to do that going forward.

Great. And then just one other one. Joe, just as it related -- relates to the $400 million -- greater than $400 million EBITDA target for the year. Just wondering if anything, you gave a lot of color earlier, anything more on the considerations or the assumptions that go into that areas of sort of upside risk, downside risk? Obviously, a lot of volatility, a tough year from everything going on, but anything more that you could speak to kind of -- that feeds into that number for '22?

Yes, I think -- I mean the greatest risk, I think, is going to be operational environment. And again, as you -- I mean, as we saw last -- it's interesting, if you go back to the second quarter last year, you saw a COVID wave hit the country. You saw our margins decreased about 10.7% ROM similar to this last quarter where -- and then you saw meaningful recovery and improvement coming out of that. So we're anticipating kind of a similar recovery cycle as we come through that. Again, I think there's risk, but great opportunity as you work through the second quarter as it relates to the recovery curve of where Maggiano's is at. Again, I'm feeling more and more comfortable about that as we kind of get closer in to that taking place in the pipeline they see from a banquet standpoint and things of that nature. But that's an unknown that we'll work our way through. Again, our ability to effectively, in a timely manner, get the transitory costs out of the system is a key driver to that success. I'm comfortable the seasonality will be there. We will have higher volume quarters as we work our way through the rest of the year, and that will be beneficial and impactful to us too as we go forward. So those are the big ones, I think.

Yes. I mean we've got a call in...

2 weeks.

2 weeks. Maybe at that point, maybe we'll be able to provide a little bit more color on some of the details. I know you're all anxious to model. But right now, I think we'd leave it at that.

I was wondering if you guys can dig in a little bit more on just kind of what you're seeing as far as activation or deactivation of Olo? You mentioned that -- and I might have misheard this that when you're fully staffed, you're still seeing people turn it off. So I'd just be curious to hear how you're seeing that trend over, let's say, the last couple of months?

No, again, fully staffed in the system, but hotspots in areas, right? And so again, when we look at the totality of the restaurants, on average, we're in pretty good shape, but that -- we still have challenged restaurants. And in those restaurants, on a given shift on a Friday or Saturday night when they don't have enough cooks to handle the dining room and all the takeout, they can turn it off. They can turn it off, so we don't disappoint guests. And so the number -- without giving you the exact number, it's meaningful. As Joe talked about, hey, we feel like we're giving somewhere, 2, 3 points of sales up right now because we're not running full capacity in all the restaurants at all dayparts, and that includes -- that would be a component of that. And so we're all focused, and the operators are all focused on, okay, well, let's get ourselves staffed, trained and ready to run restaurants the way we typically run them and the way we're running them in a lot of places. I mean, again, a lot of restaurants are up, and we're seeing double-digit growth in a lot of markets around the country. The 7% average is made up of a fairly broad range of restaurants doing double-digit growth and some regional areas pulling that down. We also know that on the weekend, we -- our pre-COVID to current results are much stronger at weekday because we don't have capacity constraints. So again, we're not putting as much pressure. It's on the weekends where we're starting to level off more where we're bumping into these capacity constraints, some of them driven by staffing issues.

Got it. And would it be fair to say that there's slightly weakening just given that like you see Chipotle staying like mid-single digits like off-line for their Olo? I guess, kind of how is it trending?

Yes, we're getting better. We're getting better. We're not turning it off as much. The operators have got better systems, first off, to identify where -- when and where we need to turn it off. Just culturally now, people are better understanding. In the middle of this -- this pandemic has come in different waves, right? You had the initial wave of what the heck? I mean, you closed your doors and then you've had all these subsequent waves. This last wave, which started in March, where the economy heated up and it became a labor and a staffing challenge more so than anything else. And then you started to see the inflationary pressures, right? That's been a different operating environment. So COVID hasn't been the same over the last 19 months. It's come in these different waves and Maggiano's is a great example. Maggiano's, now in this last wave, is doing significantly better above prior pre-COVID levels where they were running 30%, 40% below. Banquet business has come back. But now it's a staffing, it's a supply chain. It's those kind of issues. And in the middle of that, you have a restaurant operator who is working and has been working through all of this COVID in a very difficult environment. And we have to be very sensitive to put our arms around those people, embrace them, give them the systems that they need, let them know how much we care about them. We've raised pay, we've changed bonuses, we paid out in this quarter that we just ended that we're disappointed with, we increased the bonus payout significantly because these people are working hard. They're dealing with supply chain issues, they're dealing with staffing issues and they're dealing with training issues, and we embrace and appreciate everything they're doing for us, even though we're not happy with the result, and they know that either -- they're not happy with the financial result either. And so that's kind of what I'd like you to understand. We know this is transitory though. This will go, pass. As we've been around for decades, we know how to run restaurants, we'll get back to running them the way we are. All we just need to do is get the bodies in place and train them up and away we'll go.

It's Alex From Jefferies. I just wanted to follow up on some of the margin outlook. And Joe, maybe just the multiyear restaurant level margin view, what you're baking in, in terms of commodity inflation, labor inflation, pricing. Just are you being excessively conservative there? Or just how you're looking at that at this point?

Hey, I don't think we're being excess conservative, but I think we're being realistic to what the current environment is telling us. Again, a lot of what -- commodity side of the equation is cyclical. And we expect to see cyclicality kind of through that period of time. You have seen, obviously, commodity price increases of a fairly substantive nature working their way through the systems. I don't think that is sustainable over the course of that 3 to 5 years. So we expect to see a level of inflation, but probably back more in that normal low single-digit rates, but you'll have cyclicality of that as you kind of move. Again, we feel we can maintain pricing power as we go through that period of time. So we won't model in as aggressive of pricing as you might see us do here in the short run. But again, I think that 2% range of pricing optionality is still going to be there as we kind of go forward. And again, I think the incrementality from a wage rate, I think those inflationary pressures that we've seen are at the high end right now. So I don't expect those to continue to maintain themselves as you go through the next several years, but labor will continue to have an inflationary factor. I think it's going to be running at a level somewhat below where we have kind of experienced this last year, but it will be real. So we're factoring all of that in. Again, that $1 billion top line growth helps us deal with a lot of those factors as we kind of move forward. But we're definitely cooking increased costs into those thought processes.

But for the most part, Joe, when you say we're structurally -- the structural cost with cost of sales and labor, we think our pricing strategy covers and the improvement in margin really comes from higher volumes and leverage.

Maintained. Yes.

It's not like we're saying, Oh, we're going to get a lot of that margin improvement by becoming even more efficient.

Efficient. No.

The efficiencies we bring to bear, like with TSE, will help mitigate some of the labor pressure that you're going to see in the system and help us outperform others that may not have those kind of technology solutions.

And the TSE model and the handhelds, what do you think that amounts to in terms efficiency for staffing? And is that fully baked into that guidance?

I think -- I mean, I think the jury is still out. Again, we see where the optionality may come there. I'm not going to kind of pinpoint a number quite yet till we get it rolled out and we get kind of the muscle memory around it. I think we like what we see from a labor improvement standpoint as you get more proficient with that system, but it's there. And as we get farther down that rollout and understand it a little bit better, I think we'll give you some more insights as we go. So I'm going to deflect you on that one for right now, but it's going to help manage the overall labor system.

Yes. And I would just argue -- add that it eliminates pricing. Again, we got -- we're very cautious about the affordability position of Chili's. And so if we can maintain our margins and deliver a good business model, and these technology solutions help us compete more effectively and not have to price more aggressively, then we'll take it that way versus ensuring that everything flows through. We know with TSE, we need 20% less servers. Now we add some runners. So we add some additional bodies in, but they're at a little lower rate. And so again, back to a management model, it also just makes -- that's just fewer bodies you have in a critical position. Who's interacting with your guests, and how are they interacting with your kitchen in terms of communication and data? That's a huge win there. It lowers that number. And so in an environment where it's harder to find servers right now, we don't have to find as many. We -- this year, we'll hire less servers than last year for the same amount of sales by a significant number. Now we got to go find some runners, but finding somebody that can run food out of the kitchen is a lot lower hurdle than finding a server who's got the hospitality, personality and the skill set and is able to walk in at a very quick time and understand a fairly complicated POS system. We bypass a lot of that now and simplify the life of our managers. In the meantime, we get these new team members in who are now evaluating these -- them as runners to say, "Oh, okay, well, that's somebody that can step up and become a server." So we'll start training them in-house. And so it just makes the whole kind of employee life cycle, if you will, a much easier to staff. The same thing happened when we went to a certified shift leader program from -- as a feeder to our management system. We used to do -- 70% of our management recruitment was external. Now 70% comes from internal. And that ability to kind of know, hey, I know you, you worked for me as a server or as a cook, you make a great manager. Are you interested? Yes, then let me get you up to speed. It just -- it changes the model from a lot of perspectives, and that's what TSE does as well.

Nick Setyan from Wedbush. I had a question on the incrementality of It's Just Wings. I know I think we talked about 30%, including 28% food costs. I think your nearest peer, even in the most deflationary year had [ 33% ] or so in terms of food cost back in 2018. So I guess can you just compare and contrast the differences there? And then second, in terms of just the time frame around the margin recovery here that we're talking about in terms of the longer-term margin guidance, are you thinking that '23 may be at the lower end of that range in terms of the range that you provided at 13.7% to 14.2% and then we build from there? Or could we actually see a jump into the midpoint of that range in '23 and then maybe stay there? I guess how are we thinking about that build over time?

I'm not clear on the -- so the question was specifically around the food cost 28%, comparative to our competition in and around the 30%?

And incrementality.

So I mean the brand itself, clearly, we see the incrementality, right? Different customer growth that continues to grow from a sales perspective. From the cost perspective, on the food cost, I'm not sure how to answer that other than that I know consistently, that's what we see.

Did you break out packaging?

Yes, we have -- it's packaging.

We don't have packaging, but I think a lot of the competitors have packaging in that COG number.

Yes. What you're probably comparing are 2 different numbers, right? So ours was just straight food. And I think the number you're referencing has to have that. Because with our pricing and our portions, we're putting more on the plate in that brand than anyone that we know of scale, right? So you know the big wings players. They're all -- I mean we're -- it's again, it's killer wings super prices. I mean we're a value play in that brand, and we put it more on the plate from a product standpoint. Now we're very -- there's not a whole lot -- it's the plate. That's all you get. You get that and the sauce, and that's how that brand is positioned. So I think our margin on cost of sales, product -- protein is probably high. On a lot of the other stuff, we probably are lower. And then there's nothing else to it. You saw the space, right? That's it. It's 3 x 3, as Doug said, and we just basically bang out wings and fries there, put them in a box and send them out the door, and that's why it works so well.

Key point is, I think the competition buzz on the spot market all the time where we're able to contract a little bit more.

Yes. Volumes allow us to put product away and hopefully take advantage of price cycles where they're typically buying in the spot. We've had to buy in the spot a little bit more recently to ensure product. And then again, we're also talking with a lot of suppliers across the whole bird. So -- not the whole bird, but a broader array of the bird than some other folks might be doing. You've kind of seen some moves in that direction...

No beaks or claws.

Yes, no beaks or claws over here. Charlie always reminds me, it's not the whole bird, but a greater portion of the bird, which gives us a little more, I think, negotiating power as we kind of move through that.

Jared from Goldman. Joe, I wanted to dig in on the margin guidance a little bit further. So if we think about that 30% margins or so on the virtual brands and let's call that $350 million vis-a-vis your $1 billion opportunity, it would imply -- if we hold the base business margins flat, it would imply something in the 30 to 40 basis points higher than the margin guidance you provided in terms of incrementality there. So I wanted to get an understanding of how you're thinking about the base business margins going forward and headwinds, tailwinds within that business? And what you're projecting out over the next 3 or 4 years on that front?

Yes. I'm not going to argue with your -- the math and where you arrive very quickly at. Again, I think we probably would expect to see a little bit more margin pressure in the base business, depending on how you allocate those cost structures because, again, more management side of the equation on the base businesses, a little bit more labor going in as you kind of build those businesses out. So I think they will have -- again, it's that leverageability of how we produce the virtual brands and really take the advantage of the production within the Chili's and Maggiano's side of the equation so they don't carry quite as much of that labor exposure. They get it at high volumes, and that takes care of itself. If you have an Ann Arbor, Michigan putting an ungodly numbers of wings out the door on a weekend. So the first part of the incrementality of labor really is going to probably reside more in the base businesses than it would on the virtual brand side of the equation. And again, any forecast I give you, I'm going to give myself a little bit of headwind when I put the numbers out there.

Fair enough. And I just had one other follow-up on some of the EBITDA growth metrics that you put up. I think there was a discrepancy in 2 of the slides, one called for a 10% to 12% growth and one showed an 8% to 10% growth. I just wanted to make sure if there was...

8% to 10%.

8% to 10% is the correct number.

Okay. I just wanted to make sure that was not something that we should be thinking about in terms of timing or if it was just...

Sorry about that. Thank you for pointing out.

Yes, sorry about that. Thanks for pointing out that, Jared. I appreciate that.

It is 8% to 10% on the EBITDA side of the equation. Eric -- Alec?

Alec Estrada, Stifel. You showed how the virtual brands kind of exist within the kitchen. I'm curious how much in annual sales capacity can you kind of have in that little 3 x 3 space without needing to expand that region? And are you hitting any ceiling in high-volume restaurants here today?

So I don't know how -- I can't tell you -- I don't know what the upward is. I can tell you that in that space, they're able to deliver in the sales turn that we're seeing today. So they're pumping out food, they're working that -- especially when you have -- on a busy Friday and Saturday night and you're having 2 individuals there, one just working that station, right? You can do a high volume of orders that run through there. We see that happening in, like Joe mentioned, Ann Arbor, Michigan on a weekend or Salt Lake City, Utah on a weekend. Your second aspect -- your second part of your question, I think I missed it. It was -- you talked about the volume and then...

Yes, are you hitting any ceiling in any high-volume restaurants?

So there is a ceiling for sure, I think -- but it tends to be product that we've run into in this environment where we'll see them shut down because it's 8:30 at night and they don't have the wings, right? And we've got to drop off, and we've lost fries that goes on every plate. But we're really seeing where that's going to take us as we go through this restaurant. I'll tell you, by putting that system in, it allows us a lot more headroom for success. I don't think we've tapped that yet. I think we're going to see that in the near future probably as we kind of really run a sizable amount of volume through these restaurants, but yet to see that with that new system, station, individuals working there.

We have 4 dense urban -- downtown Boston, downtown Chicago, downtown Philly, they did $0.5 million. And wing sales, last year on Super Bowl Sunday, we sold more wings than we sold Maggiano's in those restaurants that -- there's a lot of upside for the 96% of restaurants.

Correct, that's -- and that's the case.

That's 1 frier, 1 station.

Yes, the ceilings are going to be the anomaly and they're going to be typically a very, very event-driven a Super Bowl kind of deal.

But if you benchmark on Super Bowl, it's kind of like what we tell our operators, sometimes they only -- sometimes you only know what you see. So as an operator, if you've run a $3 million restaurant, if you go to $3.5 million, you think you're like at capacity, and then you have to remind, we've got a restaurant in Miami that does $5 million in the same box, in the same footprint. And so it's just opening their eyes up more than anything. And so again, Mother's Day and Valentine's Day are the days you kind of go, "Hey, listen, these boxes will do some big volume." And now we know on wings, it's Super Bowl. And believe me, if we did Super Bowl every day, which we can, we know we can do the number, the wings business would be well over the number we just gave you, I mean, right? So we know we have capacity. So now it's just how do you get those points of distribution and the better marketing. That's really it. We'd love to start, again, capacity. And I love to deal with capacity issues. Those are fun. Capacity and staffing are actually fun. Low sales and no guests, those are the worst problems to be dealing with. And those aren't what we're dealing with right now. So as much as this headwind is a little bit annoying and troublesome, these are not the things that keep me -- these are not the kind of headwinds that keep me up at night after a long career in this industry. It's when people don't show up, that's when it's a problem. That's when you really start to kind of have to wonder, okay, what am I going to do to drive traffic?

Dave Palmer, Evercore ISI. I do want to get back to the incremental margins question because there are companies out there that have had their AUVs, they're not even going to get back to their past levels and their margins are going to be higher just structurally. You will be higher in AUVs this next year, but your margins will be lower. I know there's a lot of funky stuff going on this very moment. But if you could help us walk past some of them are acute stuff. Maybe even help us think about what post recovery in dining room would look like in terms of your restaurant level margins? You've been at 15 before. Could we be looking at north of theirs or perhaps even significantly north of there if we just have a normalized cost environment and normalized dining room traffic environment? And I have a quick follow-up.

Again, I think that's probably getting on the aggressive and yes, we've been at 15, 16 before. Obviously, there's been some structural changes from a rent structure that impacted that from sale leaseback. I guess the question is what's normalized look like. So again, if I was dealing with a normalized environment of pre-COVID, they didn't have quite the same near-term line of sight on inflationary costs, I might be a little more comfortable there. Can I move back in that direction? Yes. Again, we've always talked about the margin as being a directional play as opposed to a definitive, I'm going to get to x margin. Can I increase my margins is a high degree of confidence. You're asking for what's a normalized margin structure on cost of goods and labor in 3 years? I think we're comfortable with what we're forecasting in there, but that's an unknown. But can I get the margins higher? Yes. That's not -- I don't think that is a question.

But to your point, David, it's interesting times that people are growing margins on lower volumes. Do you think that's sustainable? And what are the 2 variables that they're pulling to make that happen? Pricing and marketing and promotional mix, okay? So where do those usually come back to haunt you? The thing I told you that makes me lose sleep, where did my traffic go. So again, these things have to play themselves out. The history would tell you that, that's how it works unless the whole marketing scenario has changed dramatically and what we've done is rethought our marketing spend and reinvested it back into growth channels, not pocketed it. We could have pocketed at all, and we haven't. And there are people out there pocketing it. And then the question is -- and you've asked these questions of these players, is that sustainable and you get a relatively -- at least what I've heard uncertain answer because nobody knows. We're not banking on that. We could have banked that money. We could have said, hey, listen, let's just pocket the marketing and not invest in things that grow the business like these virtual brands and like delivery and takeout, that have a cost structure that you talked about that we may have to price more aggressively for in the future. But that's why some of our margins are, I think, a little less or under a little more pressure than others because that's how we see the industry kind of dealing with some of these things.

And just a quick follow-up on Maggiano's Classics. At some level, it feels like you're getting to -- you mentioned the 2 stations. It feels like that's a pretty full kitchen. In other words, another brand, you start really thinking virtual kitchens much more. I mean how do you think about that? And then even about the incremental margins of this -- even the second one being a little bit -- it's a little bit more complexity that's brought on and perhaps margin dilutive or perhaps hurting the core margins a little bit because you're not leveraging labor as well.

Yes. So I would -- so I'll tell you, you're right. I don't think there's an unlimited number of brands. We are very focused on the 2 brands that we have in the restaurant today. You saw the system. There is complexity in the kitchen. On a busy Friday night, disrupting that complexity comes at the detriment of the core brand and the other brands. And so we're very focused on the 2 that we have today. What does the future look like in the new footprint? We haven't really untapped that yet and looked at that. But today, we're just super focused on the brands that we have in the kitchen. Around the margin conversation, we didn't show the P&L for Maggiano's Classics. We're still rolling that out. We're working on it. I will tell you it skews a little bit lower. You said there's some extra costs in there, yes, but it's still in a blended range of right in and around when you bring both of those virtual brands together in and around that 30%. So there is a little bit more prep work on the Maggiano's Italian Classics side. So not necessarily on the line in the moment, right? That's pasta sauce, cheese, out the door kind of thing. It's a little bit more effort around the prep side. And so we've been very deliberate in that P&L to assume for any additional costs around labor to make sure that prep work is done prior to. And that's where that extra cost comes when you look at that P&L.

Much higher checkout. So much less labor on a per order basis too. So it doesn't -- so doing the same $100 million in sales of wings relative to Maggiano's taps less labor in the kitchen per order. And so yes, it's a little more complex, but you're getting a lot less orders to get to the same sales volume. So it's less cumbersome that way. The key is making sure as we just articulated. Everything's, first, high quality that we're doing justice to the brand. And secondly, it's easily executed at the point where it's most important, which is 7:00 at night on a busy Friday night.

Anything online that we haven't...

We have a lot of questions.

Anything we haven't touched on here?

Right. Actually, you've touched on a lot of them.

Do we have a Maggiano's question for Steve? He's...

There is a Maggiano's question. I'm going to go ahead and ask it because we haven't addressed it, but they want to know, with all the changes at Maggiano's, does this mean that there could be a growth opportunity at Maggiano's?

I'm not allowed to answer to that question.

Oh, yes. No, you can answer.

No, I think -- the great thing about Maggiano's is it's a beloved brand. Remember, we have 7 of the 54 that were built without banquets, and they're a much smaller footprint, 7,500 square feet. So from a real estate standpoint, they're much more doable, and you can do a lot of them. And right now, when you add that -- in their circumstance, 1.5 million of non -- of that off-premise volume, your sales efficiency has climbed to one of the best in the entire industry. So we're looking closely at that. We'll get through the holidays, see if it holds, and then we'll be back to you.

Yes. But I think it's very encouraging what we're seeing with the shift in business and with the takeout business and the virtual brands, what it has allowed us to do. We didn't just up the new restaurant openings from the teens to the 20s and 30s because we felt like, it's like, no, the business model is much stronger, the real estate availability is much -- is more accessible to us now with some of these acquisitions we've done. And that's the same thing with Maggiano's. Now we're seeing with this revised model, let's let the world kind of settle back into a more normal environment. But it doesn't look like it's going anywhere near to where it was, which is actually a good thing from a Maggiano's growth perspective for that smaller prototype without the big banquet space.

We're very encouraged. Even in October, we're actually growing off-premise over last year. So not 2 years ago, we're going over last year in a pandemic. And I think I know of only 2 brands that can say that. We're -- it's sticking and going upward. So that's encouraging.

So again, we're very optimistic about what's going to happen at Maggiano's. Steve is a little conservative on when business groups will show back up because that banquet business is real critical, but the holidays are really when Maggiano's is at its best and when it really makes a lot of money. It's a very profitable brand, especially in November and December. And so we'll -- by the end of the second quarter, we'll have a much better sense. It's going to be a much better year than last year, obviously, for this brand. And it could be a record-setting year if we get some of the kind of tailwinds from the corporate when you -- corporate banquets when you kind of align that with what they've done to the margin story and better labor, better value proposition from a flow-through standpoint, that consumers so far are not pushing back on. So really some nice work.

A marketing question, too, about the virtual brand. So Wade this could be for you, so listen up. You mentioned building brand awareness using direct marketing with e-mail and text. That implies you're cross-marketing the virtual brands to your existing base of Chili's customer -- house customers. How successful has that been? And are the virtual brand customers mostly different from the core Chili's customer?

So the assumption that we are cross-pollinating, I mean -- so here's what I would say. There is an affinity across some of these brands. We have reached out to a few of our Chili's guests and a few promotional activities to see if they would engage with the wings, and we've seen some of that. But we're getting sources of those customers from other places as well, are partnered with DoorDash in helping build that kind of capability. We're working with other third parties to help us kind of source those names and those opportunities for growth. So in that question, there was an assumption that this is the case. That's part of the story, right? There's a broader story of where those names and opportunities come from. And there was one more part of that, Mika, at the end of the question they asked that I wanted to add a little bit more detail, but can you just...

Yes, they said are they -- are your virtual customers different from your Chili's customers?

Yes. That's what I would tell you. Very different consumer, right? Chili's has always had a great Wing product and a great opportunity, but never had, lack of, better term, the credibility to be a wing shop. What we've done with It's Just Wings is positioned it right there, and that's allowed a very different consumer than otherwise would have selected at Chili's now to come to wings. And that's that young gamer sports lover that now has embraced that brand. So 2 very different consumers.

And to be clear, though, we're not using the Chili's database full force to market wings. We're being very sensitive to that consumer and that Chili's loyalists and members of our loyalty program. We've sampled elements to try and understand the cross, and we've used some consumer names that may have been not as frequent to Chili's to say, well, maybe we're very good at calling our database. When we talk about 9 million names in the Chili's database, and you go, Wow, that's just 9 million, I mean you've heard bigger numbers, much bigger numbers from other people. It's because we call out names at a very aggressive rate. Much more than -- if I were to tell you how many millions of people have signed up, it's...

Very different.

It might be -- yes, it's a significantly higher number than 9 million. And so we have these names that we can then say, oh, well, maybe they'd be interested in a different message because they're not really engaging in this brand as much as they used to or they maybe never did.

Dennis?

Just on It's Just Wings. Wondering if you could talk a little bit about the pickup opportunity or what you've seen thus far from that opportunity and maybe where it goes from here? And I guess just the second part, as you talk about working with other 3P delivery providers, are there any offsets or benefits that you lose that you are able to speak to by going in and then working with some other partners?

Yes. So on the pickup side of it, it's still in its infancy. We're still working. We've launched it. We're working through it. We've had pickup available in DoorDash, the marketplace today, very, very small number there. Most people don't go to DoorDash to have something picked up, right? They're having it delivered. So there is a small piece of that. We're using the Google Food ordering piece as well, which we're seeing a little bit more traction there. And then we have our direct itsjustwings.com growth. Overall, you're seeing small single digits today per restaurant per day on that usage. But that's where the opportunity lies for us. And you saw that in the chart that I explained earlier of a momentum shift and a focus on that opportunity. That also goes back to the marketing question of direct to consumer marketing. It's that flywheel that we'll get moving here in the next short term. But we have the infrastructure in play to start to build those from low single digits to mid to hopefully double digits over time. The second part of your question is specifically around...

Third party. Yes, I can handle that. Yes. So we've had this relationship with DoorDash exclusivity for years now. They've been a great partner. We continue to partner with them. They'll be a preferred partner for ours in the future. But we do see an opportunity to open up additional lines of distribution. Obviously, there are implications to that for both of us, but we're well underway in terms of understanding what that means, and we're excited about that both from our relationship with DoorDash to continue to be strong and to then open up channels. Again, our issue isn't sales. And so there's no need to rush into this right now because we probably -- right now, we've got almost more sales in a lot of restaurants than we can handle. And so we're working on the foundational structural piece. And the good news is we got growth vehicles to turn on at a fairly easy rate in the not-too-distant future.

It's -- from day 1 it was very apparent that Chili's is very valuable to third-party providers because of check. A lot of the early partnerships were with QSRs, and they almost took down a couple of the third-party providers because if you're delivering 3 tacos in Angus, Iowa, there's not enough money for the driver and the company. And so when you bring a brand that has $20, $24, $30 check in Maggiano's case, there's -- it is possible to structure productive partnerships on both sides.

And I think when you talk about implications of this, it's not a negative situation. It's across really all of the players, those are positive implications as you kind of move forward.

Maybe just a point of clarification, but I wanted to just make sure I had this right. The college/urban environment opportunity that you talked about, is that really just a virtual or a ghost kitchen opportunity? Or is -- or are you thinking about small format stores and then leveraging those small formats to also execute this digital brand opportunity? I just want to make sure I was clear on that.

It's the combination. It's the combination.

Okay. And then how are you thinking about potential margins in that business relative to...

We're not really talking about dining rooms though. In Wade's presentation, those were non-dining rooms.

Okay. So those are all...

To-go, delivery, smaller...

To-go, pickup, but not dining.

But not dining room.

That's really helpful color. And then how are you thinking about the margins of those units versus a base business in a Chili's -- traditional Chili's location?

Yes. I think the margins need to be representative of the business as a whole. That's one of the things we're working on figuring out what those volume levels would look like coming out of those units. So again, if we're going to do a multi-brand, small footprint, for instance, looking at Chili's wings and Mag Classics coming out of, can we drive the volumes necessary, that your labor structures are going to be different. They're going to be more shift leader kind of oriented structures with fewer numbers of cooks. You obviously don't have the front of the house staffing issues to deal with. So again, we have to balance all of those pieces equation. But until we fully understand, I think, the sales opportunity, I can't give you a real focus on what the margins would be. I would anticipate if we would move forward with it, you're going to see something that is at or additive to the equation.

We got to get a good return.

Yes.

Just to jump back on third party. So it's interesting. We talked about the traditional third parties. Wade has been working. He's Head of Innovation, right? So I want you to understand, I'm sharing the story with you because there's a lot of stuff we're doing that we're not sharing with you because it's in infancy and we may or may not go anywhere or we like it, and we just don't want to get it out there too publicly. But today, we have a restaurant in a market that's having It's Just Wings delivered via drone. So we now have a third-party delivery system that really is unique, where you go online, you order your wings and it shows up what, 100 feet above your backyard?

80 feet, it drop into your backyard or your front yard...

You were with a consumer getting it weren't you?

Drops into your back yard and away it goes. And it's more efficient than the third-party systems that are out there today from a consumer and a brand standpoint. So there's some very exciting stuff going on in the space. You've obviously seen Domino's Nuro, so everybody knows about driverless technology. But this drone stuff is very interesting, and it's getting commercialized. And we're at the front end of it, and we'll see. So again, points of access. So look for a drone near you with an It's Just Wings banner on it.

Oh, good. Mika -- John, I think we have time. John, let's do one more, then I think we're running out of time and you guys should be getting hungry.

Okay. I don't know if this is necessary, a conclusion worry, but anyway, these are my -- it's my questions, I'll just ask it anyway. So as we think about calendar '22 second half -- first half of your fiscal '23, I mean, how are we looking at some of the bigger commodities? Where you've had contracts at this point in terms of some significant rollovers, whether it is on pork ribs or it is on some of the beef side or how you're looking in terms of rolling over some of those chicken contracts is kind of the first question? And then secondly, you're acquiring enough franchise restaurants for it to matter to us how those restaurants are actually doing from an average unit volume and margin perspective relative to your company? Are those additive or dilutive to your company store AUVs and company store margins?

Yes. So it's several different pieces there. From a COGS standpoint, I think when we talked about the year in a whole, we viewed the exposures. The larger exposure is probably coming in the second half of the year depending on where markets are going because that's reflective of how the contracting is there. Chicken would be the biggest question mark I have right now as we kind of start the process. That's an April time frame. I think that's correct, Charlie, right? April kind of time frame? So we're starting to work through that process, and we'll see where that goes. Ribs, we've started to see some improvement in the rib market, which is good when you look at where that market is going. And so hopefully, we can take advantage of that as we kind of move through the second half of the year. Those are big exposures that are sitting out there. Obviously, you always are dealing with the spot markets around ground beef from our perspective and watching that closely. But I think the big one rolling in the second half of the year will be the chicken side of the equation. The second part of your -- was the...

Franchise.

[indiscernible] your fiscal '23, your chicken contracts...

Acquisitions.

Yes, it's more of '23, tail end of '22. Acquisitions, generally speaking, they are lower AAVs than our average right now. Couple hundred thousand coming in is probably a good benchmark for that. They should -- I think once we are -- once we've acquired and are running the systems, we definitely find opportunities to improve their margins. We've seen that, I think, in the prior acquisitions, particularly in the Midwest as we get in and kind of systematize the operations of this performance. So obviously, the Midwest has been functioning pretty much in a COVID environment to the acquisitions. So a lot of opportunity there. But I would expect to see some margin improvements come in and get them aligned pretty quickly, that -- we can typically do that.

But to the lower volume levels, I mean, again, the volumes matter to margins and they'll be on the lower -- so they will deliver a lower margin than one that's running several hundred million -- or several hundred thousand dollars more typically. Again, where you're buying matters too. So...

What the rent structures are aligned, there's all kind of things that go into that, yes.

We're not buying them in California, we already own those. So we own the highest cost structure and the lowest margin markets already. So these are all average or better, I think, for the most part.

Well, great.

Anything else, Mika...

What's next, Mika?

Well, I mean...

And again, I think we need to sign off on the online side of the equation. So I appreciate everybody watching online.

No, I think that we've had -- you can maybe end on one different one. So we've covered -- a lot of these are pricing, labor questions as we'll -- we've covered in the room, but just making sure that development is still on track even with the given labor market and all the equipment things we issued. So maybe just talk about that.

Yes, development definitely is on track. You have to stay out ahead of it maybe again from a scheduling standpoint, making sure -- and we're not running into issues from a product sourcing standpoint on a construction side of the equation. We're making sure we're developing lead times around equipment packages and things of that nature. It's just -- it takes a little bit more foresight and planning and scheduling out ahead of things as we go there -- as go through there. So again, I don't see any slowdowns in the development side coming out of any of those dislocations right now.

Next is we actually have It's Just Wings and Maggiano's Italian Classics right outside the doors for everyone who's here to try. Yes.

For virtual folks, we appreciate your listening in and time, and obviously, we're available for questions. With that, we can sign off online.

Yes.