Red Robin CEO Paul Murphy believes the casual-dining chain is well-positioned to take advantage of consumers’ shift to digital and off-premises, and the rest of 2021 could prove him right.
Before the calendar year ends, the burger chain plans to launch two mobile apps through iOS and Android, unveil a new website experience, and roll out a fresh loyalty program Murphy said creates an “integrated and seamless digital ecosystem for our guest.” Through loyalty segmentation and personalized messaging, Red Robin saw record highs in guest engagement in the third quarter. The chain also reached 10 million loyalty members for the first time.
The new digital experience is expected to soft launch in Q4, and marketing will begin in early 2022 to drive awareness and trial of the app and website. The enhancements are expected to fuel incremental frequency, traffic, and average check, with the website and app generating higher order conversions and offering better upsell capabilities.
Physical infrastructure plays a role as well: Red Robin is continuing to increase space for off-premises orders without harming dine-in business. The CEO said those reconfigurations are scheduled to finish in 2022.
“The elevation of the off-premises experience is critical to maintaining this sales channel,” Murphy said during the brand’s Q3 earnings call.
Helping drive digital sales are Red Robin’s three virtual brands, Chicken Sammy’s, The Wing Dept., and Fresh Set, which are now available systemwide across all delivery platforms. The concepts earned $5.9 million in sales during Q3, which Murphy described as “highly incremental.”
In the third quarter, Red Robin’s off-premises sales mixed 30.8 percent, only slightly down from 32.8 percent in Q2. It’s also the sixth straight period of more than doubling the pre-pandemic level of roughly 14 percent. Although Q3’s off-premises mix is down from last year’s 40.7 percent, Red Robin retained the same dollar amount at roughly $81 million.
Third-party delivery led the way with 52.2 percent of off-premises sales, followed by to-go (39.6 percent), catering (4.5 percent), and native delivery (3.7 percent).
Overall, same-store sales in the third quarter lifted only 0.6 percent versus 2019, a softer-than-expected performance due to the Delta variant and staffing shortages. Red Robin estimated reduced seating capacity and limited hours due to labor challenges and COVID exclusions impacted comps by 2.2 percent compared to 2019.
However, with staffing levels rising and turnover slowing, same-store sales rose 4 percent in September compared to 2019 as Red Robin exited Q3. In October, the chain once again saw figures rise 4 percent. Units among the top 75 percent quartile finished the period with staffing levels at or above 2019, but issues with the bottom quarter of locations have kept capacity running between 85–90 percent.
“While our decision to reduced hours and seating capacity impacts short-term sales, we believe prioritizing a quality guest experience and supporting a workload for our team members that prioritize the satisfaction and retention are the two most critical considerations for the future success of our brand,” Murphy said.
“… Staffing is our No. 1 priority, which is why we are committed to ensuring each restaurant is effectively managed, optimally staffed, and that our team members are well-trained and retained,” he continued. “We are also removing obstacles for our general managers, improving our wage policies and training programs, and increasing our talent pool.”
In addition to better staffing levels, Murphy owed Red Robin’s accelerating sales to investment in strategic initiatives, like pivoting to digital marketing, a vehicle that fueled “meaningful incremental” traffic in the third quarter. He said the transition allows the brand to target messaging by both geography and specific consumer segments.
Through the messaging, Red Robin was able to lead customers toward LTOs, including the Scorpion Burger, an item that has been so well-received that it earned a permanent spot on the menu. Also, the chain’s Cheese Lovers lineup is outperforming expectations by more than five times, and the new Mozzarella Cheese Sticks have become the No. 1 appetizer.
“We are reaching consumers with more relevant messaging that is also more cost-effective,” Murphy said. “In the fourth quarter, we will remain nimble and efficient with the bulk of our marketing investment in digital.”
Throughout the quarter, Red Robin was pressured by 7 percent wage inflation and nearly 9 percent commodity inflation. To mitigate costs, the chain increased prices by 3.5 percent in Q3. For the full year, the company projects mid-single digit commodity and wage inflation.
Red Robin also expects to finish 2021 with $45 to $55 million in capital expenditures, including investment in its Donatos expansion. The brand added pizza to another 38 stores in Q3 and will do another 40 in the fourth quarter. That should bring the total to roughly 200 stores by year’s end.
Donatos garnered $4.1 million in Q3, thanks to increased marketing support at certain locations. Restaurants that offered pizza for the full quarter and didn’t see supply chain issues saw same-store sales rise 4.3 percent versus 2019. Units that have served Donatos prior to 2021 and did not experience supply chain issues witnessed comps increase 8.7 percent.
In terms of development, the brand will open a high-volume restaurant in Federal Way, Washington, that was relocated because of eminent domain two years ago. That new store will have the company’s new prototype elements that improve dine-in, off-premises and curbside execution, and kitchen layout. In 2022, the brand will debut another store based upon this design, and will develop a real estate pipeline for resuming modest growth starting in 2023.
Red Robin earned $275.4 million in total revenue in Q3, an increase from $200.5 million in 2020, but a drop from $294.2 million in 2019. Restaurant level operating profit margin was 12.5 percent, an improvement from 8.6 percent in 2020, but a decrease from 16.1 percent two years ago.