Let’s talk about pizza
Perhaps the biggest line of conversation today for Red Robin centers on its upcoming Donatos Pizza roll out. The brand plans to bring pizza to 100 restaurants this year, then 150 each in 2021 and 2022.
The test started in Cleveland and Colorado Springs and expanded to 25 or so locations by summer. Early last year, Red Robin engaged the Ohio-based quick-service brand, which has 161 stores across nine states, to nest its product inside Red Robins. It’s not quite a co-branded effort.
Technically, it’s a licensing agreement that more takes the form of a traditional franchise deal, CFO Lynn Schweinfurth said. She noted it’s a multi-year agreement, but Red Robin is not disclosing financial terms.
What it did outline, however, is the cost and performance to date. Launch requires $145,000 of capital investment, $20,000 of pre-opening, and $30,000 of local marketing per restaurant. Murphy said restaurants piloting the option, on the East Coast and North Carolina’s Triangle region, have seen a traffic lift of 3.5 percent.
BTIG analyst Peter Saleh broke down what that might look like for operators near-term. He estimated Red Robin would need to generate a 6 percent comparable sales lift from Donatos to achieve a three-year payback on the investment, assuming 40 percent profit flowthrough. So, test market results of a 3.5 percent traffic lift and $45,000 incremental restaurant profit suggests a payback of just over four years if these results can be replicated sytemwide.
Murphy said Red Robin believes Donatos will drive frequency, appetizer sales, and help with delivery, as it has thus far in test stores. Overall, the chain’s off-premises business, including catering, increased 26.9 percent in Q4 to 13.9 percent of total food and beverage sales. Catering alone upped 12 percent versus 2018.
Murphy added there’s excitement from operators around Donatos, evident from a recent GM conference. “The general managers that already have it in their locations are very bullish,” he said. “They like the results that they are seeing from a top line and bottom line in their locations and they were great ambassadors for at the general manager conference to the other general managers.
Red Robin has tested Donatos in areas, including Phoenix most recently, not in the quick-serve’s backyard. It wanted to make sure the offering resonated and would perform in markets where Donatos didn’t enjoy robust brand awareness. In other terms, could it stand alone just as a product?
Schweinfurth says Donatos sales have been high incremental to date and there has been a surge of delivery orders. Dine-in trends are improving as well, mainly around pizza being ordered as an appetizer.
“Which we love from the spirit of sharing that we have seen as one of the criteria that guests say that the reason they use the brand,” Murphy added. “From a cannibalization [standpoint], it’s been extremely minimal and we are pleased so far with the results that obviously, we are committed to the rollout.”
Up next: More Colorado restaurants.
Red Robin also announced it rolled directed delivery in January to the majority of its company stores. Guests order from Red Robin’s site, but the deliveries are outsourced to third-party. Murphy said this offers three advantaged: Favorable economics, the ability to retain guest data, and loyalty integration.
Today, 30 percent of Red Robin’s business is driven through its loyalty program, which has more than 9 million members.