To create financial flexibility during the COVID-19 pandemic, Red Robin announced Wednesday that it is suspending the rollout of Donatos Pizza at its stores.
Postponing the rollout of Donatos is a part of Red Robin’s plan to cut nonessential spending on capital expenditures, planned growth, and other projects like restaurant redesigns and IT projects.
Before the pandemic, Red Robin planned to shake up its menu by bringing pizza—via Donatos—to 100 restaurants in 2020 then 150 each in 2021 and 2022. The Donatos and Red Robin’s partnership was in the form of a multi-year licensing agreement, or a typical franchise deal. The roll out would have required $145,000 of capital investment, $20,000 of pre-opening, and $30,000 of local marketing per restaurant.
The Donatos portion of the menu include: a 7-inch, 10-inch, and 14-inch (plus a gluten-free 12-inch) collection of pizzas focused on the brand’s core options.
The brand expected pizza to be incremental and provide a boost for the company. CEO Paul Murphy said locations piloting the new pizza menu saw a 3.5-percent lift in traffic and increases in frequency, appetizer sales, and delivery. The CEO said general managers in stores that tested the pizza were “very bullish.”
The restaurant said it’s closed dine-in services at virtually all of its units in favor of a to-go and delivery model. Murphy said off-premises sales have more than doubled in the past two weeks, which he believes will mitigate the drop in same-store sales. In Q4, Red Robin’s off-premises business, increased 26.9 percent. It represented 13.9 percent of food and beverage sales. Off-premises and pizza were two of six comeback anchors for Red Robin prior to the pandemic. The others were a new service model, menu rationalization, investment in technology, and portfolio optimization.
In addition to eliminating nonessential spending, Red Robin cut the salary of its executive team and compensation for board members by 20 percent. Hourly employees are receiving emergency sick pay and nearly all corporate workers are telecommuting.
Red Robin drew down the remaining amount under its $300 million credit facility to increase its cash on hand to $91 million. Share repurchases were suspended and the financial outlook was withdrawn.
“We are confident the actions we are taking will ultimately provide us ample liquidity and allow Red Robin to emerge in an even stronger position when the recovery begins,” Murphy said in a statement. “We look forward to resuming normal operations at the appropriate time and continuing the execution of our strategic plan to drive long-term growth and value-creation for our shareholders and other stakeholders. On behalf of Red Robin’s entire leadership and Board, I want to thank our hard-working teams for their dedication in delivering our brand promise while staying vigilant in their commitment to health and safety and serving the needs of our communities under these most trying conditions.”
