The brand is courting guests with a high-low strategy as spending patterns tighten.

Red Robin isn’t alone in diagnosing where things turned south over the summer. Heading out of its sixth calendar period and into the seventh, CEO Paul Murphy decided to take a page from the fast-food playbook. Murphy, the former executive chairman of Noodles & Company and top executive at Del Taco and Einstein Noah Restaurant Group, knew this particular chapter well.

Consumer confidence has walked a rocky line of late thanks to inflation and the spectre of a recession. The full-service industry as a whole saw overall visits decline 4 percent in June, per mobile location analytics platform Revenue Management Solutions found near-mirror data at negative 4.3 percent.

Red Robin’s LTOs were performing and driving check. Its Q2 same-store sales lifted 6.7 percent, year-over-year (4.1 percent versus 2019), but 9.6 percent of that came from check. Guest traffic declined 2.9 percent. Check comprised of a 6 percent lift in pricing, 3.7 percent menu mix, and a 0.1 percent decrease from higher discounts.

So even as LTOs pushed spend higher to cover traffic losses, Murphy, who is retiring as former Texas Roadhouse CEO GJ Hart takes over on September 6, recognized the ceiling ahead. “Frankly, [we had to] address the value part because we thought that consumers were feeling pinched from the inflation,” he said.

Comps tracked as follows: 11.6 percent in P-5, 7 percent in P-6, and 1.7 percent in P-7.

This is where Murphy’s quick-serve background came in, especially with Del Taco, a brand that’s historically leaned heavy on a high-low menu approach. Red Robin rolled a $10 Gourmet Meal deal at the back end of its P-7 (late June). Doing so gave the brand, Murphy said, a chance to “showcase the value of Red Robin.”

The offer includes a burger, the brand’s Bottomless Steak Fries, and a Bottomless beverage from a select menu. “It has worked well for us. Our value perceptions, our value sentiment, have really grown over that time,” Murphy said.

He added the deal doesn’t “give away the farm,” and has high gross-margin potential. But broadly, CFO Lynn Schweinfurth chimed in, guests still have every excuse to order premium-priced products so Red Robin can balance promotions. When customers order the $10 Gourmet Meal, they often add-on. “It really is about … giving the consumer choice of how they want to spend their money,” Murphy said.

Like many quick-serves, Red Robin’s strategy now includes higher priced, limited-time offers to balance traffic-driving promotions, such as the $10 Gourmet Meal Deal. It’s a path Wendy’s spoke to recently as well as it, too, grappled with declining guest counts despite running higher on the top line. Wendy’s will be just under 10 percent on price, year-over-year, in the latter half of the calendar.

The high-low strategy is cracking open the value door for Red Robin. Within a couple of weeks, the chain plans to launch a Happy Hour platform across the majority of its system. It’s also going to test lunch specials further into the fall.

“Happy Hour increasing the liquor sales should help us overall from a margin standpoint,” Murphy said. “So we’re looking forward to that because we think it can continue to strengthen not only the value perception of the brand, but can strengthen the margin profile of the brand.”

Higher-priced LTOs fueled PPA, incremental margin, and attachment. In Q2, Red Robin featured a Whiskey River Backyard Barbecue lineup, which spotlighted a Smokehouse Brisket Burger, Pineapple Upside-Down Cake Milkshake, and Tequila Sunset Cocktail. Murphy said it was the third consecutive LTO promotion to hit record sales levels.

The latest LTO arrived in mid-July and builds on steakhouse flavors, like the Savory Steakhouse Burger, Loaded Baked Potato Fries, two alcoholic beverage choices, and a Pumpkin Spice Milkshake.

The high-low plan appears to be taking hold. Red Robin’s comp sales in its eighth fiscal period, which ended August 7 (the first stretch of Q3) rose 4 percent.

And Murphy expects the path to steady trends for whatever’s ahead. “We believe we are better positioned to weather an economic downturn than many competitors, due to our value-based propositions, including Bottomless and relatively low average check of approximately $16,” Murphy said.

Red Robin’s digital expansion pre and through COVID has reshaped its approach. This includes how it plans to get value messages across. The chain increased marketing versus 2021 but remains under 2019 levels. Yet the spend today is mostly digital, which is more targeted and cost effective, Murphy said. And it’s driving watermark levels of engagement through guest segmentation, automated offers, and push notifications.

“We are also supporting the current limited time offer and value message, while conveying that Red Robin is all about making moments of connection for friends and family across a diverse and multi-generational demographic,” he said.

Red Robin’s Royalty program has expanded to 10.7 million people.

“We are seeing record levels of loyalty engagement driven by improved segmentation and target marketing,” Murphy said. “This features automated and personalized messaging based upon purchase history. We are also conducting smarter campaigns and beginning to drive elevated engagement via push notifications. We are making ongoing improvements to these digital assets and recently introduced automated and push notifications along with Apple and Google Pay options.”

On deck for 2022 as well is an online waitlist function.

Overall, Red Robin built a new integrated digital ecosystem, complete with a fresh website experience, mobile app, and an enhanced loyalty offering. Red Robin presently stands at more than 650,000 app downloads, up from over 400,000 last quarter. “Notably, both our website and app are generating increased conversion as well,” Murphy said.

Off-premises digital channels have become the majority of Red Robin’s sales outside the four walls (83 percent in Q2) as the chain integrated its loyalty platform into its app and online ordering experience. Q2 marked the ninth straight quarter of off-premises dollars at more than double pre-pandemic levels.

As a percentage of total off-premises sales, third-party delivery represented 54.3 percent, to-go 35.3 percent, catering 6.3 percent, and white-label delivery 4.1 percent

Q2 total company revenue increased 6.2 percent to $294.1 million, up $17.1 million from a year ago.

Donatos and the road ahead

Red Robin’s menu trajectory these days can’t be broken down without Donatos factored in. Although the pizza rollout stalled thanks to COVID, it continues to generate results. There were roughly 200 restaurants serving Donatos at the start of the year, and 50 will come on board across 2022. The remaining 150 will join in 2023.

Sales for Donatos were about $6.2 million in Q2, with a sales mix of 60 percent dine-in and 40 percent off-premises. Restaurants serving pizza outperformed those without by 8.4 percentage points in terms of comparable restaurant revenues versus 2019. This was well ahead of Q1’s 5 percent-plus. Additionally, guest checks that include Donatos are, on average, more than $10 higher.

By the end of 2024, Murphy said, Donatos should produce annual company pizza sales of at least $60 million and profitability of $25 million.

One of the reasons Q2 struggled was the commodity dynamic. It appears—First Watch hinted at this as well—that commodities in general have plateaued. But Murphyy said they’ve done so at a higher level than anticipated. The biggest unknowns are weather conditions for the remainder of the grain growing seasons and whether demand will fall as a result of the macroeconomic backdrop.

On the positive tilt, Red Robin continues to progress staffing, in particular with greater application inflow, hiring, and retention. The chain has improved its hourly levels from 82 percent at the end of Q1 to more than 91 percent at Q2’s exit. The ultimate goal remains 95 percent, Murphy said.

And similar to the previous quarter, Red Robin has essentially stocked its GM positions to prior marks. There’s also been “significantly improved” turnover for three trailing periods.

Murphy said, beyond the current staff-up race in foodservice, Red Robin’s long-term focus centers on a few key areas. One is “connection conversations” between restaurant leaders and employees to refine and improve worker experience and “run great shifts,” but also to provide quality training with a focus on back-to-the-basics executions.

Red Robin is offering more competitive wages at the local level (wage rate inflation was about 7.5 percent in Q2), Murphy said, and honing in on schedule flexibility. The chain is implementing HotSchedules’ platform systemwide.

Red Robin opened a franchise recently in West Wichita, Kansas, and will debut a company unit no later than early next year, Murphy said. A new store opened late 2021 in Seattle is on track to deliver 2022 sales between $4 million to $5 million. That’s important given Red Robin’s new prototype efforts. The brand is implementing floor-plan modifications to improve off-premises execution in high-volume units, but it expects to pilot a full-on refresh program “in the years to come.”

Casual Dining, Chain Restaurants, Feature, Red Robin