Red Robin knows there’s a light at the end of the COVID-19 tunnel.
The days of reducing capacity and scrambling between restrictions won’t be permanent. The latest trends in the U.S. prove that. Hospitalizations are as low as they were in late October, according to the COVID Tracking Project. And earlier this week, President Joe Biden announced there will be enough vaccines for every adult American by the end of May—two months ahead of schedule. The U.S. is now averaging more than two million vaccinations per day.
That’s the light Red Robin is seeing, and it’s taken several measures during the pandemic to ensure it’s ready to capitalize when that day comes. The most notable being the Total Guest Experience, or TGX, which combines technology and refined service coverage to deliver an enriched guest experience. CEO Paul Murphy said TGX enables servers to stay in their section a majority of the time, improves speed of service, decreases wait times, and enhances cleanliness.
The innovation was paired with a restructured management-labor model that provides “increased flexibility and better supervisory coverage during peak times.” Murphy explained the flexibility of moving two salary manager positions to one to three hourly shift supervisors allowed Red Robin to convert historically fixed labor costs and generate $14 million in annual savings.
“As we adapt to a post-COVID operating environment within the full-service dining space, we are preparing our team members with a prescriptive ready, set, reopen training playbook addressing short, medium, and long-term actions required to continue building satisfaction with our guests,” Murphy said Wednesday during Red Robin’s Q4 earnings call.
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The other key piece is the fact Red Robin knows exactly who its guests are. Two-thirds of sales are represented by Gen X, millennials, and centennials. These core guests are typically younger than the casual-dining average and more active digitally, Murphy said.
Equipped with this knowledge, Red Robin is able to leverage digital marketing strategies that are more efficient. In the past year, social media increased engagement and delivered a new high in total followers, and the chain captured its best loyalty email engagement yet, with more than nine million members.
The chain dove head-first into its digital marketing strategy, which drove a record number of guests to the website.
“We have made a bit of a pivot from what you historically have seen with the Red Robin brand and the reliance on broadcast TV, getting much more into the digital space doing the customer segmentation and targeting against those segments,” Murphy said. “And out of the gate, this is the first quarter that we have solely been doing that. I’m very pleased with what I’m seeing, and the response that we’re getting out of our campaign. So, I think you will see more of that as we move into the future.”
The expectation, Murphy said, is to create long-term value as the chain prepares for the recovery of the casual-dining industry.
As of February 28, Red Robin reopened 126 dining rooms since the end of Q4, which means roughly 87 percent of the 441 company-owned dining rooms are open. In the final week of February, those locations saw same-store sales decline just 9.1 percent, with an average capacity of 45 percent. These promising trends are inclusive of the more restrictive Western markets, which accounted for 40 percent of Red Robin’s sales in 2019.
The chain has 53 restaurants in California, but only three have open dining rooms. The brand recently opened in Oregon, but the state is only allowing 50 people per store, including staff, so capacity is about 10 to 15 percent.
“A lot more to come with California reopening, and then both Washington and Oregon being able to expand beyond the 10 percent to 15 percent or 25 percent level,” Murphy said. “So we think that it’s really the beginning of the recovery. I can’t really speak to the pace, but certainly the news out of Texas and of some other states, [Tuesday] was good in the sense that being able to move more restaurants into the 75 percent to 100 percent capacity. So I actually think things are just going to get better from those numbers.”
While Red Robin looks forward to more indoor capacity, outside seating proved useful. The addition of 16 to 24 seats adds about 10 percent in incremental seating capacity on average.
Here’s how business trended at company-owned restaurants through quarter-to-date:
Period ended November 1
- Same-store sales: –15.4 percent
- Average net sales per restaurant: $42,509
Period ended November 29
- Same-store sales: –28.8 percent
- Average net sales per restaurant: $38,941
Period ended December 27
- Same-store sales: –39.5 percent
- Average net sales per restaurant: $35,716
Period ended January 24
- Same-store sales: –27 percent
- Average net sales per restaurant: $39,702
Period ended February 21
- Same-store sales: –22.4 percent
- Average net sales per restaurant: $41,624
Period ended February 28
- Same-store sales: –13.3 percent
- Average net sales per restaurant: $50,226
And here’s how stores with indoor availability fared:
Period ended November 1
- Same-store sales: –13.7 percent
- Average net sales per restaurant: $42,778
- Number of comparable company-owned restaurants: 362
Period ended November 29
- Same-store sales: –20.7 percent
- Average net sales per restaurant: $39,041
- Number of comparable company-owned restaurants: 245
Period ended December 27
- Same-store sales: –23.3 percent
- Average net sales per restaurant: $40,578
- Number of comparable company-owned restaurants: 236
Period ended January 24
- Same-store sales: –8.1 percent
- Average net sales per restaurant: $44,354
- Number of comparable company-owned restaurants: 299
Period ended February 21
- Same-store sales: –16.3 percent
- Average net sales per restaurant: $41,998
- Number of comparable company-owned restaurants: 354
Period ended February 28
- Same-store sales: –9.1 percent
- Average net sales per restaurant: $51,150
- Number of comparable company-owned restaurants: 360
While Red Robin is gearing up for a revival of casual dining and in-person interactions, it’s also proceeding forward with the knowledge convenience will remain a priority. Off-premises sales grew 131.8 percent in Q4, and mixed 43.9 percent. Roughly 80 percent of those orders came through digital channels.
At restaurants with less than 50 percent capacity, off-premises accounted for about 55 percent of sales. At stores with 50 to 74 percent capacity, the mix is 38 percent. For those operating 75 percent or greater, it’s roughly 31 percent—which is still more than double the pre-pandemic mix of 14 percent.
Red Robin instituted strategies to keep off-premises elevated. For example, Red Robin deployed a triple-check program, which improved accuracy by 40 percent and off-premises guest satisfaction by 50 percent. This year, the restaurant plans to introduce new third-party delivery partners and improve its technology platforms via website upgrades and a new mobile app.
“These initiatives use cost-effective channels to engage on a direct and personalized level with our guests, streamline ordering and improve operational execution, drive higher-order conversion and increased guest frequency, and royalty participation, ultimately enabling us to increase sales,” Murphy said.
In terms of the menu, Donatos remains a significant growth driver for the chain. Red Robin expects to generate more than $60 million in pizza sales and more than $25 million in profitability by 2023, when the rollout to 400 stores will be complete. This year, the goal is to add Donatos to roughly 120 stores, bringing the total to about 200 by the end of the year. Restaurants that offered Donatos in Q4 outperformed other stores with similar indoor restrictions by more than 500 basis points.
Murphy noted COVID also allowed Red Robin to improve its enterprise business model with “meaningful operational efficiencies and permanent cost reductions.” Enhancing operations and cutting one-third of the menu led to more than $2 million in annual savings in terms of back-of-house labor and reduced waste.
In addition, the chain made its corporate infrastructure more flexible through a more than 10 percent reduction in G&A expenses, or $10 million in permanent annual savings. And through February, Red Robin completed negotiations with more than 85 percent of corporate restaurants, which resulted in 3 to 4 percent in occupancy savings over the remaining lease terms. Through improved cost structures, Red Robin has realized more than 100 basis points of incremental enterprise margin improvement.
Overall, Q4 same-store sales dropped 29 percent, driven by a 28.8 percent decrease in traffic and a 0.2 percent slip in average check. For the full year, Red Robin earned $868.7 million in total revenue, a decline of $446.3 million compared to 2019.
The brand ended 2020 with 546 stores—443 company-owned and 103 franchised. Twelve corporate stores remain temporarily closed.
Red Robin projects that the combination of enterprise pricing, outdoor seating capacity expansions, restoration of full-operating hours, and Donatos will generate incremental growth of mid-to-high single-digit comps growth, beyond the benefits of a recovering industry. The chain also expects capital expenditures of $45 million and $55 million, including maintaining infrastructure, Donatos expansion, digital solutions, and off-premises enhancement.
