Red Robin Aims to Recapture the Soul of the Brand

This has been a continual process for chief operating officer Guy Constant and Red Robin throughout 2019. When the year began, he said, the chain was short more than 100 managers across its 561-unit system.

At Q3’s end, he said, Red Robin was “essentially fully staffed” at the manager level and its turnover numbers were best in class for casual dining. That’s helped crew-level performance, too. “Now, with more fully staffed management teams, we are also able to reduce the churn of managers between locations and provide a better and more stable experience for our team members,” he said. “The resulting benefit is apparent in the progress we have made in hourly turnover numbers which improved, again, in the third quarter as they have throughout 2019, in sharp contrast, we continued deterioration in turnover and staffing metrics seen throughout the industry.”

Constant did not provide exacts for the metrics, only to say turnover closed Q3 “better than casual-dining averages once again.”

Another 2019 focus concerns front-of-house engagement. It’s a direct solution to the wait times, walkways, and cleanliness issues that spiked late last year. Red Robin’s answer: Have managers establish a better presence on the floor and move them to the host end during peak hours.

“The focus is working,” Constant said. “Overall guest satisfaction, which had declined throughout last year to a low point at the end of Q4 2018, has continued to improve throughout 2019 rising, again, to its highest level over three years at the end of the third quarter.”

It’s critical, he added, given where today’s customers are headed, and how challenging it is to drive frequency into a casual-dining setting. Today, brands can’t rely solely on incremental business from guests it wasn’t getting before (delivery). Service is the factor that nurtures engagement and loyalty, he said.

According to the National Restaurant Association, 92 percent of consumers use drive thru at least once a month. And 34 percent deploy delivery more often than a year ago. Close to 90 percent engage with restaurant delivery every month, with 53 percent turning to third party.

Needless to say, crowding a dining room isn’t as clear cut as it once was. It’s why Red Robin couldn’t afford walkaways and why investing in employees for a better customer experience is key to retrial, and keeping loyal customers from flocking elsewhere.

For Constant, it started with the biggest opportunity at hand—already busy periods.

Red Robin worked to shift its labor investment from overstaffed shoulder hours to understaffed peak hours. It’s helped the brand improve throughput when it needs it the most. Turning tables quickly and encouraging customers to progress can be a dicey target sometimes, but doing so at peak is a different story. Constant said the focus helped Red Robin capture “the greater sales opportunity that is available during those times.” And its renewed focus on staffing yielded improvement in Q3 on guest ratings for speed of service, food temperature, and cleanliness, which led to repeat business.

Moving into Q4, Red Robin plans to add labor hours during its busiest shifts to aid off-premises orders coming in, a “decision that will provide residual benefit to our dining experience as well,” Constant said.

Red Robin’s off-premises sales, including catering, increased 37.3 percent, year-over-year, in Q3 to comprise 13.2 percent of the company’s total food and beverage sales.

Constant also spoke to Red Robin’s “Maestro” platform that zeroes in on kitchen managers and works to coordinate fast and accurate delivery of food at the right temperature. It was one of six labor pilots Red Robin tested back in 2017. The program, unveiled in early 2018, eliminates the expeditor role on the line in favor of supervision by a manager. 

Constant said Maestro resulted in a “sharp improvement” in ticket times, which improved more than 90 seconds in Q3.

But regardless of what initiatives Red Robin invests in, real growth will trickle down from labor improvements.

“The best long-term, sustainable means to drive sales and rebuild our dine-in business is to hire and retain great managers, keep them in the same restaurant to provide consistent leadership, and create a great environment for our team members,” Constant said. “And then these team members will, in turn, deliver that great experience for our guests and will build future loyalty and frequency,” Constant said.

Red Robin’s restaurant labor costs were 36.2 percent of its sales in Q3, 90 basis points higher versus 2018. Schweinfurth credited that to rising average wage rates and the higher manager staffing levels Constant alluded to. Dine-in business declined 2 percent in the period, year-over-year.

The labor cost is a burden Red Robin is happy to shoulder currently, however. Especially given that Constant believes it will pay off with hourly turnover, which is no light anchor in itself. The National Restaurant Association estimates turnover costs at $2,000 per employee (TDn2K taps GM turnover at $14,00). So, any effort that betters one side will prove well worth the investment.

“We look better versus industry metrics on the managers side because that's where we paid most of our attention first,” Constant said. “And now we're starting to see the benefit on the hourly turnover side that we thought would follow-on as we add more stability at the general manager level and become more fully staffed. We believe we've got a better environment and a more engaged hourly team member group that is resulting in continued declines in turnover, which we like and we expect to continue.”

“In the course of due diligence,” a halt to selling restaurants

Murphy spent roughly two years at Noodles & Company before joining Red Robin, ending a lengthy CEO search that began when Denny Marie Post retired in April. Moore, a director with Red Robin since 2007, was serving in an interim standing.

Before, Murphy led Del Taco Restaurants as CEO from 2009–2017 and held leadership positions at Einstein Noah Restaurant Group, Inc. for 11 years, including as president, CEO, and board director from 2003–2008.

In his first five weeks on the job, Murphy said, he’s immersed himself in the company and listened to suggestions.

One shift, after an in-depth review, was to suspend the refranchising program Red Robin installed in March. At the time, the company said it would seek buyers for regions it previously identified as refranchising priorities. It also retained The Cypress Group to manage the process. In all, Red Robin expected to sell about 100 corporate stores to potential operators.

It was a notable directive given the chain’s company-heavy structure and The Cypress Group’s standing in the restaurant industry. It has more than 35 years of multi-unit M&A and corporate refranchising experience. Two notable examples are Wendy’s and TGI Fridays. Buffalo Wild Wings also hired the investment banking firm in March 2017 as it was being pushed to refranchise heavy from activist investor Marcato Capital Management.

Today, only 90 of Red Robin’s 561 restaurants are franchised.

“Based on our analysis, we believe the value creation opportunity to shareholders from refranchising will be much greater once the operating fundamentals in the business has been further strengthened and the support capabilities for franchising enhance,” Murphy said.

In other terms, Red Robin will likely return to the initiative once other ops hurdles are cleared, and the brand is in a healthier place.

It’s an interesting subject to follow as Red Robin’s real estate evolves. The brand said in March refranchising could take the mix up to 30 percent. And it would allow operators to pick up territories that have development upside. The result being a growth vehicle for Red Robin in addition to a structural change.

Corporate could expand in parts of the country it’s ready for, while also allowing franchisees to scale markets it doesn’t rank high in terms of priority.

It’s a long-term view. Red Robin said earlier it would halt all 2019 growth in favor of shoring up its business. The brand closed 13 restaurants in the 40-week period that ended October 6. No stores have opened.

When Red Robin announced in May the impending shuttering of 10 underperforming units, seven were enclosed mall restaurants.

Schweinfurth said Tuesday mall units continue to underperform Red Robin’s system by about 370 basis points, a theme that’s been consistent throughout the year.

Refranchising is something that could enable Red Robin to rethink site selection. But it’s going to take a back seat to other fixes for the time being. “As we move toward these objectives, the company will monitor and reassess its opportunities and options in this regard. My role in the near-term is to leverage my turnaround experience and take Red Robin's current business to the next level, drive additional improvement and thereby enhance value for all stakeholders,” Murphy said.

He added that Red Robin doesn’t anticipate “any wholesale closures going forward.”

Additionally, the chain decided to exit company operations in Canada due to a lack of integrated systems and near-term capital investment needs. One store has closed already with five in the Edmonton area expected to shut down in the coming weeks. The brand is in discussions with an operator to acquire and franchise the remaining 12 restaurants in British Columbia. Year to date, Red Robin’s Canada restaurants generated $31.6 million in revenues.