The casual-dining chain, led by new CEO GJ Hart, has a five-point turnaround strategy that touches guests, employees, menus, and more.
Red Robin CEO GJ Hart started his tenure in September, but he's followed the brand long before then and done his homework on the history.
To learn how the 511-unit company has trended, Hart spoke with executives of the past, all the way up to the first president 44 years ago. Back in the 90s and early 2000s, the casual-dining chain was "clearly best-in-class on many things," the chief executive said—local store marketing, execution, family friendly atmosphere, and hospitality. But at a certain point, decline began to set in.
Through his research, the CEO found that revenue was trending upward until the roughly 2017/2018 range. In fact, in 2017, with 566 restaurants, Red Robin earned $1.39 billion in sales, but that dipped to $1.34 billion the next year. In 2019, it went to $1.32 billion and sunk to $869 million in the pandemic-filled 2020 year. The chain came in at $1.16 billion in 2021 and preliminarily $1.27 billion in 2022.
In terms of guest satisfaction, the brand exceeded the casual-dining average until about 2015. Last year, the gap between the casual-dining average and Red Robin was as wide as it's ever been.
The chief executive attributed this notable dip to cost-cutting decisions that were well-intentioned, but hurt the guest experience and financial results. He specifically pointed to lower food quality, labor reductions, and under-investment in the business. As an example, Red Robin removed bussers a few years prior as a way to reduce labor costs and also eliminated the kitchen manager position in favor of more general managing throughout the restaurant. Hart also noted how the expo station became less important and how the company removed a certified training center in favor of teaching at home restaurants. Each of these decisions, the CEO said, impacted Red Robin negatively.
Hart noted that one of these challenges would've hurt a company long-term. All of them together would've likely put a brand out of business. But not Red Robin.
"The brand is resilient. It's incredibly resilient," Hart said at this year's ICR Conference. "The brand promise when done right is incredibly powerful and to this day that's still the case."
Hart is prepared to put his stamp on the chain through a major turnaround plan. It comes in the form of a five-point North Star strategy "designed to drive long-term shareholder value and enhance Red Robin’s competitive positioning."
"While the business has faced challenges in recent years due to the impact of COVID and at times execution that has not met our standards, we are committed to taking bold action through new executive leadership to deliver long term sustainable growth," Hart said.
The first tenet of the plan is to become an operations-focused company. This means frontline operators will be involved and have a voice in every company decision. Hart also hopes to compensate leaders more appropriately and create a managing partner program in which there's a sense of ownership and pride.
"Very challenging to do in a restaurant with 500-plus restaurants, but we're working on something we think that will work," Hart said.
The next part is to elevate guest experiences, including further investment in employees, food quality, and restaurant facilities, a new cooking platform, and a menu refresh (better variety, healthier items, and enticing price points). Hart said Red Robin will modify its service model to where servers have fewer tables to execute against. Additionally, the brand will move to flat top cooking, which in tests has proven to be faster and bring higher quality. The industry veteran added that Red Robin—for many years—has been using processes implemented in the fast-food industry.
"Well if you have gourmet burgers and you had promised this to be the best burgers in the business and casual dining, then you really have to look at yourself in the mirror and say, 'Are we in fact executing against that and how can you produce that speed? The best burger?' And that's why we've come to the conclusion that we've got work to do."
The remaining three portions of the plan aim for eliminating costs and complexity (optimizing supply chain and evaluating vendors); improving customer engagement (engage with communities, enhance off-premises, and build rewards program); and fueling revenue and profitability.
Hart said the plan will guide Red Robin's efforts in the next three years, and should help more than double its adjusted EBITDA margin.
"I'm super excited," Hart said. "I have been with the company now for four months. I'm more excited today than the day that I walked in. While these situations of comebacks or transformations are difficult and hard to do in the meantime, there are fundamental things here in this brand that are powerful that we can bring back to life."
One of the biggest points of optimism is proof of just how well a Red Robin store can perform. The chain's top quartile restaurants have 38 percent better same-store sales, 32 percent better traffic, and are 6 percent better staffed. General managers at top quartile units have been in this type of role 67 percent longer, and they've been staffed at Red Robin for 41 percent longer.
Hart said it was the widest gap in top and bottom locations he's ever seen in his four decades of experience.
"Those are significant," Hart said. "I've never seen the difference between the top to the bottom be that dramatic. But what that creates is hope and possibilities of what can be and where we can go with this brand."
The North Star announcement comes as the chain achieved 2.5 percent same-store sales growth in the fourth quarter—the eighth straight period of positive movement. Donatos—the pizza fast casual licensing its products to about 250 restaurants nationwide—is continuing to lift sales. In the fourth quarter, stores that sell Donatos outperformed non-Donatos outlets by 6.2 percentage points when looking at same-store sales versus 2019.
Hart was named CEO in July after former leader Paul Murphy announced his retirement. He's been part of Red Robin's board since 2019 and has spent about 35 years in the restaurant industry, with stints as CEO of Texas Roadhouse, California Pizza Kitchen, and most recently, Torchy's Tacos.