Red Robin’s research informed the company it was on the wrong track. It was trying to attract guests through largely price-driven messaging, and getting blanketed by quick-service competitors in the process.
The brand’s average check, per person including tip, comes in at $13.45. That’s a tick above fast casual ($12.88) and well below casual-dining peers ($15-plus). But if you factor in convenience, the figure doesn’t hold the same weight. And, arguably, it wasn’t nearly enough ammo to fight a value battle with fast food, grocers, and other take-home outlets that swap price for experience. Yet more importantly, price point simply wasn’t the No. 1 reason guests got off the couch and headed to Red Robin.
CEO Paul Murphy, who joined the company in September, said customers pointed to “moments of connection,” as the top attractant. Once the company corrected this messaging misalignment, he added, Red Robin scored as one of the top two brands for search engagement volume across all of casual dining during its fourth-quarter media flight. Social engagement doubled year-over-year with increased positive sentiment. In 2020, Red Robin will allocate further resources to social and digital channels to capitalize on the upward movement.
A LOOK BACK at 2019:
The brand’s “All the Fulls,” Omni-channel campaign launched in Q3 last year and helped showcase Red Robin as a family-friendly, playful brand that puts Americana front and center.
Telling its story “to reinforce emotional connections and core brand equities,” is going to be a critical lever as Red Robin hopes to leave another difficult calendar behind.
Beyond executive changes at the top, including COO Guy Constant departing in January, the chain struggled to generate sales momentum throughout 2019, although it did see accelerated performance toward the back end. Q4 same-store sales increased 1.3 percent to give Red Robin two consecutive periods of positive gains. That after reporting negative in seven of the previous eight and 12 of the last 14.
Following the same-store sales
- Q4 2019: 1.3 percent
- Q3 2019: 1.6 percent
- Q2 2019: –1.5 percent
- Q1 2019: –3.3 percent
- Q4 2018: –4.5 percent
- Q3 2018: –3.4 percent
- Q2 2018: –2.6 percent
- Q1 2018: –0.9 percent
- Q4 2017: 2.7 percent
- Q3 2017: –0.1 percent
- Q2 2017: 0.5 percent
- Q1 2017: –1.2 percent
- Q4 2016: –4.3 percent
- Q3 2016: –3.6 percent
- Q2 2016: –3.2 percent
- Q1 2016: –2.6 percent
It won’t be clear until the second part of fiscal 2020 whether or not Red Robin’s improvement lately is more an indication of weak comparable laps or something else. But it is headed in the right direction.
The company’s net loss in Q4 narrowed to $7.7 million, or 60 cents per share, from $10.6 million (82 cents per share) in the year-ago period. Adjusted net loss was $4.7 million versus adjusted net income of $5.4 percent in Q4 2018. Total revenues decreased 1.2 percent, year-over-year, to $302.9 million. Restaurant revenue fell $4.1 million due to a $7.8 million decrease from restaurant closures, partially offset by the comps growth.
Red Robin’s 1.3 percent same-store sales performance remained weighed down by traffic. Q4 average check lifted 4.1 percent, thanks to a 1.1 percent increase in menu mix and 1.8 percent hike in pricing, and a 1.8 percent uptick from lower discounting. Guest counts fell 3.4 percent.
Traffic trends in 2019
- Q4: –3.4 percent
- Q3: –3.1 percent
- Q2: –6.4 percent
- Q1: –5.5 percent
Much of this negative run can be attributed to a pull away from discounting as Red Robin continues to reduce heavy incentives related to its Tavern Burger lineup. Traffic has tracked negative for two consecutive years and has only been positive in one year since 2011—a heavily discounted run.
Red Robin finished the fiscal year with 556 total restaurants. It closed five units and sold 12 to franchisees in Q4. For the full calendar, the chain shuttered 18 locations (all company owned). There were 573 total units as of December 30, 2018. Red Robin heads into 2020 with 102 franchises versus 89 this time last year, and 454 corporate locations compared to 484.
In Q3, Red Robin announced it was exiting company operations in Canada, closing five Edmonton-area restaurants and refranchising 12 in British Columbia. In 2019, Canada units generated $38.6 million in restaurant revenues and $500,00 in restaurant-level operating profit.
Let’s talk about pizza
Perhaps the biggest line of conversation today for Red Robin centers on its upcoming Donatos Pizza roll out. The brand plans to bring pizza to 100 restaurants this year, then 150 each in 2021 and 2022.
The test started in Cleveland and Colorado Springs and expanded to 25 or so locations by summer. Early last year, Red Robin engaged the Ohio-based quick-service brand, which has 161 stores across nine states, to nest its product inside Red Robins. It’s not quite a co-branded effort.
Technically, it’s a licensing agreement that more takes the form of a traditional franchise deal, CFO Lynn Schweinfurth said. She noted it’s a multi-year agreement, but Red Robin is not disclosing financial terms.
What it did outline, however, is the cost and performance to date. Launch requires $145,000 of capital investment, $20,000 of pre-opening, and $30,000 of local marketing per restaurant. Murphy said restaurants piloting the option, on the East Coast and North Carolina’s Triangle region, have seen a traffic lift of 3.5 percent.
BTIG analyst Peter Saleh broke down what that might look like for operators near-term. He estimated Red Robin would need to generate a 6 percent comparable sales lift from Donatos to achieve a three-year payback on the investment, assuming 40 percent profit flowthrough. So, test market results of a 3.5 percent traffic lift and $45,000 incremental restaurant profit suggests a payback of just over four years if these results can be replicated sytemwide.
Murphy said Red Robin believes Donatos will drive frequency, appetizer sales, and help with delivery, as it has thus far in test stores. Overall, the chain’s off-premises business, including catering, increased 26.9 percent in Q4 to 13.9 percent of total food and beverage sales. Catering alone upped 12 percent versus 2018.
Murphy added there’s excitement from operators around Donatos, evident from a recent GM conference. “The general managers that already have it in their locations are very bullish,” he said. “They like the results that they are seeing from a top line and bottom line in their locations and they were great ambassadors for at the general manager conference to the other general managers.
Red Robin has tested Donatos in areas, including Phoenix most recently, not in the quick-serve’s backyard. It wanted to make sure the offering resonated and would perform in markets where Donatos didn’t enjoy robust brand awareness. In other terms, could it stand alone just as a product?
Schweinfurth says Donatos sales have been high incremental to date and there has been a surge of delivery orders. Dine-in trends are improving as well, mainly around pizza being ordered as an appetizer.
“Which we love from the spirit of sharing that we have seen as one of the criteria that guests say that the reason they use the brand,” Murphy added. “From a cannibalization [standpoint], it’s been extremely minimal and we are pleased so far with the results that obviously, we are committed to the rollout.”
Up next: More Colorado restaurants.
Red Robin also announced it rolled directed delivery in January to the majority of its company stores. Guests order from Red Robin’s site, but the deliveries are outsourced to third-party. Murphy said this offers three advantaged: Favorable economics, the ability to retain guest data, and loyalty integration.
Today, 30 percent of Red Robin’s business is driven through its loyalty program, which has more than 9 million members.