Throughout the course of casual dining history, the path to profitability resembled a restaurant-arms race. If a company wanted to grow sales or EBITDA, it built more units. The larger the scale, the fatter the bottom line.
“And here we are in a very overbuilt industry,” says Austin Barsophy, the director of finance at 550-unit Red Robin.
Like many chains competing in today’s volatile market, Barsophy believes a shift in focus to four-wall economics is critical. Trying to optimize a brand’s current system far outweighs the benefit of opening another unit, he says.
“The way you can really tap into that value and identify different opportunities is to mine the data and then after you’ve identified opportunities, test them. Refine them. And then launch them.”
A lot of what’s taking place behind the curtain at Red Robin these days would fill enough spreadsheets to keep 1,000 financial analysts at bay. To help, Red Robin discovered Applied Predictive Technologies, an analytics software company that uses information to aid decision making at a time where mistakes simply can’t be afforded.
“It’s important that you really move quickly and it’s important that you get it right,” — Austin Barsophy, director of finance at Red Robin.
Multi-unit chains around the country have moved away from LTOs and discount-based pricing. It’s an arena independents and small chains have infiltrated thanks to supply chain logistics and in-store performance. Changing a menu when you have 550 units can be messy. It’s why stalwarts like Chili’s are nixing LTOs, and Darden has reported success by simplifying menus at Olive Garden and LongHorn Steakhouse, not expanding them.
Keeping these food offerings stagnant isn’t the answer, either. The key is just making sure the investment was the right one, the first time it rolls out. “At 550 units, very small changes at the restaurant level can quickly amount to significant value or risk at the enterprise level,” Barsophy says.
Red Robin first started using APT’s Test & Learn software in 2012. The chain was readying to make some menu changes and accelerate its brand transformation process, which mainly involved restaurant remodels.
APT can figure out the true incremental impact of a remodel program. The cloud-based software specializes in measuring cause-and-effect relationships between business initiatives and outcomes to generate economic value by using sophisticated algorithms to analyze large amounts of data.
What is does is take a group representative of the entire network, test the action, measure the impact by comparing performance of the test group to a similar control group that didn’t receive the action, and show the initiative’s true impact. It can understand which variations of the program work best and then help operators optimize rollout by identifying key factors driving performance and by building a predictive model to understand which groups will respond profitably.
In Red Robin’s case, it has allowed the chain to test strategic initiatives and figure out their true incremental impact before making a broad investment. Promotions and product mix can be optimized from a margin perspective.
As time has progressed, Barsophy says Red Robin refined its media strategy, shifting more to local advertising in concentrated areas. APT’s Test & Learn helps identify which markets react better to TV media than others and which markets react to different networks more than other networks.
Red Robin also added APT’s Menu Analyzer component to evaluate the affinity of different products to make better merchandising decisions, both on the menu and with promotional cards. It’s also showing Red Robin how to increase add-ons, whether through appetizers, beverages or desserts by using different merchandising tactics.
Another component is the benchmarking tool, which allows Red Robin to correlate different types of restaurant performance to attain macro-level data and answers such questions as, “If we’re going to open up a restaurant in an already penetrated market, to what degree could sales be cannibalized by other stores?”
“It’s just about getting as efficient as possible in the existing restaurant system, which will create margin dollars or returns, and those returns don’t have to be viewed as just margin dollars,” Barsophy says. “Returns can be your team members are happier because you’ve simplified something for them or your guests are happier because you’ve invested in food quality. So it’s about finding where you could be more efficient and taking those dollars and moving them to areas of the business that are more impactful.”
Having this data deciphered helps Red Robin foster a holistic view of the entire business. In other words, it paints a complete picture. Everything from employee impact to labor costs to food waste can be predicted before a commitment is made.
“It’s marrying all those different data sets to understand the whole picture. And you don’t necessarily have to hit a home run both from a team member perspective and a guest perspective and a bottom line perspective,” he says. “You don’t have to hit a home run in all three areas to decide to launch something system-wide, but it needs to be a net win and you need to understand all of the implications.”
This is increasingly important in what Barsophy refers to as a “shrinking-pie” industry.
“There are fewer people going to casual dining establishments and there are inflationary pressures, largely on the labor front,” he says. “It’s important that you really move quickly and it’s important that you get it right.”