Del Frisco’s Restaurant Group Inc. executives said Tuesday its three upscale steakhouse and grill brands see room to raise menu prices, but they are approaching any increases cautiously.
“The affluent consumer is healthy, enjoying life and spending on the very best in next-generation dining,” Mark Mednansky, Del Frisco’s chief executive, said in a conference call with analysts after releasing third-quarter earnings.
Blended same-store sales during the quarter increased 1.9 percent for all three concepts, with Del Frisco’s Double Eagle Steak House rising 6.5 percent and Sullivan’s Steakhouse falling 1.3 percent. Del Frisco’s Grille is not in the same-store sales base.
Southlake, Texas-based Del Frisco’s Restaurant Group reported net income in the Sept. 9-ended third quarter of $1.8 million, or 8 cents per share, compared with a loss of $380,000, or 2 cents per share, in the prior-year period. Revenue rose 14.3 percent, to $61.9 million, from $54.2 million in the same period last year.
The company said it had increased menu prices 1 percent to 2 percent to offset rising beef commodity costs. Average check grew 1.8 percent in the quarter. Mednansky said the company took a “modest 1.7-percent increase in price early in the fourth quarter to offset beef inflation, which grew by 130 basis points in cost of goods sold.”
“We believe we still do have pricing power,” Mednansky said. “It’s definitely an affluent guest that comes into the Del Frisco’s Grille.”
He said the company would evaluate possible price increases and do some test markets in early 2015, but that the brands would approach price increases carefully.
“We’ve always been cautious with our price increases,” Mednansky said. “We feel that it costs a lot of money to dine, even for the affluent guest, and we don’t want to build sales with pricing. We want to control costs. But, again, there is some dry power here in the gun if we need to use it. We’ll be cautious, but we do look at it on a quarter-by-quarter basis.”
During the quarter, Del Frisco’s opened a new Double Eagle Steak House in the District of Columbia with a design that, “showcases the brand’s evolution: chic, modern, yet elegant,” Mednansky said. It has 400 seats, covers three floors and offers two bars, a lounge, wine cellar, private dining rooms and a courtyard patio.
The new Double Eagle has no white tablecloths, “which by itself suggests more progressive orientation,” Mednansky noted. The unit also has new glassware, plates and electrical outlets next to most bar stools and tables.
Del Frisco’s chief operating officer Jeff Carcara said the new D.C. Double Eagle has “flexed its culinary muscle” in about 20 to 25 percent of the menu, including such items as niçoise salad, grilled and chilled octopus, and wild mushroom gnocchi.
Carcara said Sullivan’s, which has struggled in the past few years, is building a stronger lunch daypart and has completed three remodels in Austin, Texas; Charlotte, N.C.; and Palm Desert, Calif. Four to six remodels are planned for next year, he said, with the larger bar and mid-century modern look of Austin as the template.
Average weekly sales at the Grille were $116,000 during the quarter, with margins in a range of 20 percent to 25 percent. The company has found the 14-unit Grille concept enjoys an extended “honeymoon” period of 18 to 24 months, boosted especially by higher alcohol sales in the first year that plateau in the second, Mednansky said, especially in urban areas.
The Grille’s broader menu, with less emphasis on beef, has allowed the company to mitigate commodity pressures, Carcara said, and some of the menu items could make their way onto the Sullivan’s or Double Eagle menus. Some locations are testing the migrated items, he added.
Del Frisco’s is launching a new Grille marketing platform, Mednansky said, “that goes beyond our previous grassroots efforts.” Targeting restaurants open more than six months, the new marketing encompasses traditional radio, streaming music services like Pandora and outdoor billboards, he said.
Mednansky said the company, which is based in Texas, which has experienced the first two reported cases of Ebola in the U.S., has seen no effect from the disease outbreak.
“We’re seeing absolutely no pullback with travel,” Mednansky said. “The conversation is there, but the dining habits and the need to do business definitely have not been affected whatsoever. The Dallas market is very strong for us right now.”
Del Frisco's Restaurant Group has 44 restaurants in 20 states and the District of Columbia.
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