To say that Texas Roadhouse enjoys a steady stream of returning customers and soon-to-be regulars alike would be an understatement. Since the chain opened its first location's doors way back in 1993, carnivores across the country — and beyond — have made it their go-to getaway for all things meaty. While its entrees' prices may vary, depending on the quality of a cut and the size of a guest's order, the red meat staple's menu remains pretty affordable across the board. But how exactly does a chain known for its delicious, quality food manage to keep its prices so low? Well, we finally know why Texas Roadhouse is so cheap.
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00:00With the slogan,
00:01Legendary Food, Legendary Service, Texas Roadhouse is all about delivering top-notch dishes at
00:07attractive price points. But did you ever wonder just how they manage to serve so much for so
00:11little? We did, too, and here's what we found out about everything from menus to footfalls.
00:17To say that Texas Roadhouse is hugely popular is an understatement. With close to 600 locations
00:22across the world, each serving around 5,000 guests per week, Texas Roadhouse is a steakhouse
00:27powerhouse. In fact, the chain serves a whopping 300,000 meals per day, which is a lot even for
00:33a franchise. That said, it's little surprise that the Texas Roadhouse butchers cut around
00:38$1 million worth of meat per store annually. While the numbers stand testament to the
00:42restaurant's popularity and no doubt keep the chain's prices down, the chain's popularity has
00:47its downsides. At dinner hours, guests can expect a 15- to 45-minute wait. Luckily,
00:52the restaurant's call-ahead seating service can cut this waiting time.
00:56Motivated employees are a huge part of making it in the restaurant business,
01:00and this includes restaurant managers whose enthusiasm can inspire those working below them.
01:05To increase personal involvement and turnover, Texas Roadhouse offers its managers a long-term
01:10reward scheme. Texas Roadhouse describes it,
01:13In exchange for 10 percent of the profits, managing partners are required to put down
01:17a $25,000 deposit and sign a five-year employment contract. And the scheme appears to be paying off.
01:23With a direct interest in boosting profitability, outlet managers are
01:26frequently seen approaching tables to ensure that diners are having the best possible experience.
01:31This high level of personalized service can go a long way to increasing customer loyalty.
01:36I have taken a picture of every steak I've ever eaten there.
01:39Around 70 percent of Texas Roadhouse guests are repeat customers, and that's impressive.
01:44With the restaurants making more money, so are the managers. According to Investor's Business Daily,
01:49over time, many have earned between $100,000 to $200,000 due to these personal investments.
01:55Texas Roadhouse has managed to stay ahead of the chain Steakhouse Pack by utilizing a model that
02:00attracts customers who are looking for a great deal, then asking them if they would like to
02:04add high-profit items like drinks and appetizers. According to a review by one employee, the
02:09company's upselling strategy is an important part of the work culture. As servers, we play games
02:14almost every shift and compete with each other to see who can upsell certain items. Winner gets
02:18cool prizes. It's not all roses and butterflies, however. Some employees and customers haven't been
02:23quite as excited about the restaurant's upselling strategy. One employee complained on Reddit that
02:28the Texas Roadhouse management bases employee value on how much they can upsell, and runs stats
02:33on these for every server every night. Some customers have also expressed annoyance with
02:38the Steakhouse's upselling tactics. A TripAdvisor reviewer has described the chain's upselling as,
02:43quote, shady, after a server upsold her unsuspecting 82-year-old mother-in-law
02:48with a margarita kicker, or more specifically, an extra shot of tequila in a test tube.
02:53While the Texas Roadhouse menu has been designed with a wide range of tastes in mind,
02:57it rarely changes. And it doesn't really have to. According to Texas Roadhouse representatives,
03:02the Steakhouse offers different choices within menu categories that fulfill each patron's
03:07expectations and budget. This win-win formula not only lowers the costs associated with introducing
03:12new menu items, but keeps recipe consistency across outlets to ensure that guests always
03:17get the dishes they know and love. Let's take the chain's number one selling item,
03:21the 6-ounce sirloin. That's been served at the restaurant since its opening some 30 years ago.
03:26Menu changes are only ever made with consideration of customer feedback and
03:30operational and economic consequences. And for every new item added to the menu,
03:34one is removed to enable the chain to maintain its high standards of service and food quality.
03:39Wow. First try. Every time. Bum-sucking good.
03:44Just like other chain restaurants, Texas Roadhouse's hourly wages leave much to be desired.
03:49Hostesses and hosts at the restaurant earn between $2 and $12 an hour, with the average wage
03:54clocking in at $8.52 per hour. To make matters worse, hostesses and hosts generally don't make
04:00tips. This is low, even when compared to the average hourly wage in the fast food industry,
04:04which is $9.36 an hour.
04:07Looking at this another way, if a Texas Roadhouse server works 40 hours a week,
04:1152 weeks a year, their annual salary will stand at $19,568,
04:16substantially lower than the average U.S. wage of $41,950 per annum.
04:22Texas Roadhouse's payment structure has come under fire in the past. In 2016,
04:27Texas Roadhouse employees were awarded a $700,000 class action settlement.
04:31The two waitresses who initiated the action claimed that the franchise forced them to
04:35put their tips into a tip pool, which was then divided between waitstaff and employees
04:40who didn't serve customers. According to the lawsuit, this violated the minimum wage law,
04:44since the waitresses were paid $2.13 an hour, well under the minimum wage of $7.25 per hour,
04:50while the restaurant claimed tip credit under federal law.
04:54Texas Roadhouse keeps its costs down by not serving lunch on weekdays.
04:58This approach keeps real estate costs down, as it means that the restaurant outlets don't
05:02have to be in what are called high-traffic business districts. According to Investor's
05:06Business Daily, the decision to only serve lunch on weekends hasn't hurt the steakhouse chain one
05:11bit. In 2018, Texas Roadhouse averaged $5.2 million per restaurant while competing outlets
05:17that serve lunch averaged under $3 million per location. The no weekday lunch policy is
05:22also the chain's way of ensuring a better work-life balance for its managers and employees.
05:27This makes sense when you consider that typical restaurant managers work between
05:3050 and a ridiculous 80 hours per week.
05:34While many franchises spread their message on the national media,
05:37Texas Roadhouse doesn't rely on paid advertising. In fact, the franchise spends very little on
05:42advertising. According to MarketWatch, the chain spends a 0.3 percent portion of its sales on its
05:47advertising fund. This is practically nothing compared to the restaurant's competitors,
05:51who put aside between 3 and 5 percent of their revenue for advertising.
05:55So how does Texas Roadhouse promote its fare? Instead of spending bundles on advertising,
06:00the franchise relies on local-level promotions and word of mouth. As former Texas Roadhouse CEO
06:05Kent Taylor explained to Investor Business Daily,
06:08"...our free hot bread and free peanuts are our best advertisements."
06:12A part of this strategy involves community involvement,
06:14loyalty programs, and organic promotion on social media.
06:18The fact that Texas Roadhouse is open about its mediocre desserts may come as a bitter
06:22surprise to some. After all, many of us love to linger over a cake or a pastry after a satisfying
06:28meal. Well, this is precisely what Texas Roadhouse doesn't want its guests to do.
06:32Former Texas Roadhouse CEO Kent Taylor explained the somewhat unusual strategy
06:37to Investor Business Daily,
06:38"...we don't want our guests to stay for dessert. We like the table turns."
06:42That kind of makes sense from a business point of view, so keep that in mind the next time you're
06:46tempted to scoff at their so-so offerings of the Big Ol' Brownie, Granny's Apple Classic,
06:50and the Strawberry Cheesecake.
06:52Since beef makes up 45 percent of Texas Roadhouse's offerings — this figure stands at 33 percent for
06:59its competitors — the franchise is hypersensitive to rising beef prices. To prevent any sudden cost
07:04increases, the restaurant has a policy of signing 24-month contracts with its beef suppliers.
07:09While long-term contracts usually translate to higher beef prices at the outset,
07:13they are a smart strategy in a climate of rising beef prices, particularly because according to
07:18ABC7 News, beef prices increased by 20 percent between November 2020 and November 2021.
07:25Locking in beef prices and quantities can also help restaurants deal with any supply chain
07:29disruptions, such as those that took place in the U.S. after the outbreak of the COVID-19
07:34pandemic in early 2020. According to USDA, American restaurants lose $162 billion on
07:41food waste annually. And this doesn't make customers happy, with 72 percent of U.S. diners
07:47saying that they care about how restaurants deal with their food waste.
07:50With the motto, Waste Not, Want Not, Texas Roadhouse's commitment to minimizing wastage
07:54isn't only good for the planet, but also is a great cost-cutting measure.
07:58The philosophy is supported by the franchise's made-from-scratch model,
08:01where all of its meals, including sides and even dressings and bacon bits,
08:05are made on the premises to reduce waste. Each Texas Roadhouse outlet has its own butcher,
08:10or meat cutter, who hand-trims each steak in a 34-degree Fahrenheit cooler.
08:15This not only ensures high-quality steaks, but it also helps prevent wasted meat. Meanwhile,
08:20the steakhouse's in-house bakers prepare the franchise's famous yeast rolls from scratch.
08:24They come out piping hot from the oven every five minutes.
08:27These are then served with homemade cinnamon butter right after guests are seated.
08:32Just like many other chain restaurants, Texas Roadhouse relies on attracting its
08:36guests with its main offerings, in this case steaks, and increasing revenue by
08:40selling higher-margin products such as drinks. It's a pretty common way for
08:43restaurants to make money, and Texas Roadhouse has it down to a science.
08:47As such, most Texas Roadhouse restaurants boast a full bar with a wide range of
08:51bottled and draught beer, as well as big-brand wines and liquors. This strategy seems to be
08:56working. According to MarketWatch, alcohol made up 10.8 percent of the chain's sales
09:01in the fiscal year 2021. One of the restaurant's specialties is the margarita. In fact, the chain
09:06has 15 different versions of the cocktail. The cocktails come with an upsell option
09:10affectionately named The Kicker, which consists of tequila and triple sec.
09:14"...and a Cadillac margarita?"
09:16"...Hey, it's 5 a.m. somewhere, right?"
09:18"...A.M.?"
09:19The choice of pushing their margaritas isn't an accidental one. The beverage director at
09:24Quixote in Chicago, Jay Schroeder, told El Restaurante that margaritas are the perfect
09:29cocktails when it comes to high-profit margins. He explained,
09:32"...with the classic, you are not looking at using a lot of different expensive liqueurs
09:36or multiple pieces of produce. At its core, it is a recipe for a cost-effective cocktail,
09:41even when you are using the best expression of those ingredients."
09:44In addition, Texas Roadhouse also serves the typical range of soft drinks,
09:48which can generate a 90 percent profit margin. And who doesn't have a drink with their steak?