Red Robin’s recent slide could sit on the shoulders of a few different issues. The traffic gap in its enclosed mall business versus company-owned units—a difference of roughly 300 basis points in the second quarter of fiscal 2019. A shift away from value-focused Tavern messaging. The off-premises strain on dine-in performance.
But one conversation continues to surface above others. “We’ve found, as would be the case with most casual diners, that the highest correlated factor to good performance in a restaurant is the tenure of the general manager in that restaurant,” Red Robin chief operating officer Guy Constant said Friday during the company’s Q2 review.
It’s reasonable to label some of Red Robin’s previous cost-cutting efforts a misstep. The company tried to slice two positions and put table-clearing duties on servers’ plates. Hosts were asked to handle not just walk-in business, but carryout orders as well. What transpired worked directly against Red Robin’s “Gift of Time” positioning it waves as a segment differentiator. Table turns crawled. Lobbies filled. Guests headed elsewhere.
This issue really hit a head last August when weekend walkways jumped about 85 percent, year-over-year, as total ticket times out of the kitchen hiked close to a minute on average. Wait times saw the same lag. Tables weren’t being cleaned efficiently, which not only dragged seating, but presented an image Red Robin wasn’t comfortable with.
The Q4 2018 spike sent a rush of operation urgency through Red Robin’s system. And it’s been focused from the top down, with staffing at the pulse, ever since.
At the outset of 2019, Constant said, Red Robin was short more than 100 managers across its footprint. By the end of Q2, the brand’s manager staffing level was 99.4 percent and it was short about 30 managers. That’s significant progress, Constant said. “And our manager turnover numbers continue to improve and are approaching best-in-class levels,” he added. “With stable and more fully staffed management teams comes a better experience for our team members. This has been apparent in the progress we have made in our hourly turnover numbers, which have improved throughout 2019. This is in sharp contrast to continued deterioration in industry turnover and staffing metrics.”
It also appears to be showing up on the top and bottom line. Red Robin’s results in Q2 remained challenged, but they were definitely an improvement from past periods. The 562-unit burger chain (472 corporate run), saw its same-store sales decline 1.5 percent, year-over-year. The result was Red Robin’s best since Q1 2018.
Red Robin permanently shuttered 10 restaurants in the quarter and temporarily closed another.
- 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
Also worth noting: board chair and interim CEO Pattye Moore, who plans to retire after Red Robin’s eventual executive transition, said the chain’s highest-performing restaurants—those in the top quartile of the system—are currently generating positive guest traffic and sales.
“And it’s no coincidence these restaurants have higher overall satisfaction scores, tenured management, strong team member engagement, and lower turnover,” Moore said.
So, Red Robin has the blueprint down. It’s just about large-scale, consistent execution at this point, which is a positive development from a year ago. That’s the traction of Red Robin’s turnaround strategy.
“This leading indicator is critical to leveraging the full service that differentiates casual dining from other segments of our industry and nurtures the engagement and loyalty of our guests.” — Guy Constant, Red Robin COO.
But there is room to grow and work ahead. Red Robin’s Q2 comp decline was driven by a 6.4 percent drop in guest traffic. The brand partially offset the fall with a 4.9 percent increase in average check. Net pricing, after taking into account discounting, was 2.6 percent, while a 2.3 percent mix increase was pushed downward by lower Tavern mix and higher entrée mix (more on this later).
Red Robin swung to net income of 8 cents per share from a net loss of 14 cents in the year-ago quarter. On an adjusted basis, earnings were $1.03 per share. Revenue dipped 2.3 percent to $308 million, which topped FactSet’s prediction of 31 cents per share on revenue of $306.4 million.
The report sent Red Robin’s shares up about 6 percent mid-afternoon Friday on the stock market.
More on labor
“As we discussed last quarter, improving the dine and guest experience starts with hiring the right people, training them properly and being fully staffed, particularly at the general manager level,” Constant said.
When he noted earlier the industry was experiencing “continued deterioration” across staffing metrics, he wasn’t offbase. According to TDn2K, turnover rates for restaurant management positions are closing on 40 percent annually. Since 2012, the figure jumped more than 10 percentage points, per the insight platform’s People Report.
If being short 100 managers sounds alarming, it’s also, unfortunately, commonplace, which might be more troublesome. TDn2K’s 2019 Recruiting and Turnover Survey revealed that, on average, at any given time, about one in every four full-service restaurants are not fully staffed. Rounding up Red Robin to 600 locations as a hypothetical, you’re talking 150 restaurants trying to serve peak hours with less-than-ideal resources.
TDn2K also found that nearly 20 percent of restaurant companies said they are continuously understaffed for GMs. Also, 52 percent of chain restaurants are constantly understaffed for management positions under the GM. That means, for roughly half of the brands surveyed, at least one of their GMs was coping with a lack of immediate support. It quickly becomes clear then how some service ticks could be whiffed. Not just cleaning tables and greeting guests, but upselling, cross selling, and simply not being stressed and, in response, inattentive to customers.
In a 1,000-customer survey from supply platform Zoro, the No. 1 reason guests said they wouldn’t return to a restaurant was “poor service.” A whopping 82.8 percent of respondents circled the offense. To put that in perspective, just 21.2 percent credited “visible rodents or insects.”
In dressed-down terms, it’s no secret why Red Robin put a highlighter through this problem when it took a hard look at its own troubled performance.
“Our hourly turnover numbers ended the second quarter better than casual-dining industry averages and have continued to improve into the third quarter,” Constant said. “These important leading indicators are critical to building the engagement of our team members, a key component of any sustained improvement in operational execution.”
Front-of-house engagement is a huge part of the fix for Red Robin. Some of its concerns—guest experience, wait times, walkaways, cleanliness, being proactive about problems on the floor, not reactive—can be resolved “by establishing a better presence of our managers on the dining room floor and by having mangers at the host stand during peak hours,” Constant said. Don’t leave multi-tasking employees on their own.
“This focus has begun to deliver results,” he added.
Overall guest satisfaction, which slid throughout 2018 and reached a low point at the end of the fiscal calendar, has shown steady improvement this year, Constant said. He said it rose to its highest mark in three years during the early stages of Q3.
Red Robin witnessed its trailing 13-period hourly turnover decline. It’s moved more quickly at the GM and manager levels, Constant said, because “our view on that is that the hourly turnover follows, having lowered manager and general manager turnover, we can get stability at the lead positions in the restaurant, that will help us reduce hourly turnover.”
“This leading indicator is critical to leveraging the full service that differentiates casual dining from other segments of our industry and nurtures the engagement and loyalty of our guests,” Constant added.
That point is a very valid one. And it’s been a critical target for casual chains nationwide as they’ve tried to stem the market-share war with fast casual.
Another element for Red Robin is what Constant calls “managing the shoulders to peak the peaks.” Essentially, shifting labor investment from overstaffed “shoulder” hours to understaffed peak hours. This results in better throughput when it matters most.
“Our continued focus on staffing has yielded steady improvement in guest rating scores, speed of service, food temperature, the execution of our bottomless promise and for restaurant cleanliness during the first half of 2019,” he said. “This area of focus is a key part of delivering a great guest experience, while maintaining strong labor productivity.”
Red Robin’s “Maestro” platform helped it focus kitchen managers on the active coordination of “the fast and accurate delivery of high quality food at the proper temperature,” Constant said.
Red Robin’s ticket times improved by 80 seconds in Q2 versus the year-ago comparison.
Moore added that Red Robin’s server handheld POS devices are now live in nearly a third of its restaurants, lifting kitchen execution and server attentiveness. The rollout is expected to complete in the next few months.
Lastly, the brand turned focus to core menu quality, like burgers and steak fries, which reduced complexity and boosted guest ratings for taste of food and pace of experience.
A shift in message
In July, Red Robin conducted what it referred to as the “Full of Family” survey to better understand guests. The company commissioned OnePoll and found that American families spend just 37 minutes of quality time together, per weekday.
What the data did, Red Robin said, was provide the brand with this guidepost: full-serves have an opportunity to court experience over straight price by offering parents and children a place to connect.
The study said 70 percent of parents wish they had more time to connect with their children and 73 percent of children said they’d like more time to do so with their parents.
Red Robin responded by creating “full” days for dine-in guests throughout August that catered to socialization. Things like a “Family Date Night,” “Kids Choice Day,” and “Dessert First Day.”
Back in 2017, Red Robin saw a traffic boost related, mainly, to a specific price point and heavy national media focus on its Tavern $6.99 platform. But that came with lower profitability levels.
Last quarter, Red Robin deliberately moved away from promoting five Tavern burgers at that construct and instead featured its higher-margin Gourmet and Finest line through its Burger Masters series. This shift negatively impacted traffic in the short term, Moore said, but positively affected mix and gross margin.
This is a major change for Red Robin. Tavern mixed a little below 10 percent in Q2. It was up near 17 percent last year.
Constant said the traffic tradeoff is worth the future stability. “What we feel like we have today is the partnership of all the departments … focused on this longer term, stable operational metrics, a message that we have on air that we feel leans into exactly what makes Red Robin special is this connection around the table, particularly for middle class household income families. That focus, we believe, is one that’s more sustainable than trying to get on media with a call to action on a lower price point national message,” he said.
Jonathan Muhtar, Red Robin’s EVP and chief concept officer, added the brand’s survey showed guests’ value perception “really starts with great product and experience, and those are measured against the price paid.”
Red Robin, overall, still posts lower average checks than most of its casual-dining competitors, and the brand gets credit for its “bottomless promise,” with fries, which has been going on for more than two decades, Muhtar said.
“And so, as we improve the experience and the product that we’re delivering to our guest, we believe that is going to really pay off an increased value perception from our guests,” he said.
“Our current strategy is really based on what we’ve heard from [guests],” Muhtar continued later in the call. “We do know, as we’ve shared, that our service experience had slipped over the past year or so. And they encouraged us to focus on that. That’s what they love most about our brand. They love the great experience they have at Red Robin over great food and the connections that they make with each other. Reminding them of what they know and love about Red Robin is very motivating to them. And then the value stems from that experience—that stems from the great product.”