COVID-19 landed just as Red Robin was starting to roll turnaround projects under new CEO Paul Murphy. Namely, the introduction of Donatos Pizza and an improved hospitality model called “TGX,” or total guest experience.
And then, in early July, as Red Robin began to build sales momentum from mid-May reopenings, California once again mandated the closure of all indoor dining—Red Robin’s largest market.
It led to another pivot, and one that has additional layers coming. The company Tuesday shared stark Q2 results, which saw revenue slump 48 percent to $161.1 million from $308 million a year ago. Red Robin swung to a net loss of $56.3 million versus net income of $981,000 in Q2 2019. Same-store sales slid 41.4 percent as traffic declined 38.5 percent.
One statistic vividly captures the bizarre cadence of today’s restaurant dynamic for full-serves. Red Robin’s off-premises sales jumped 208.7 percent, year-over-year, to 63.8 percent of total food and beverage business. Just a quarter ago, it was 26.3 percent of mix. Pre-pandemic? A steady 14 percent.
Meanwhile, Red Robin’s Q2 dine-in sales plunged 76.2 percent.
Murphy said during Tuesday’s conference call that Red Robin persevered over the past several months. Yet it’s also used the focus created by the pandemic to improve the quality of its operations and build trust and loyalty that can endure long-term.
Before that, though, Red Robin has some imminent changes in store.
Firstly, the Donatos Pizza introduction is back on after a COVID-19 pause. Murphy said Red Robin expects to introduce the program to 31 restaurants in the Seattle market by year’s end, with the majority of the equipment purchased pre-virus.
Red Robin first engaged the 161-unit Ohio-based quick-service chain in 2019. It essentially brought a scaled-down Donatos menu into select units, reconfiguring kitchens to allow for an additional oven. The company referred to the partnership as “nested” inside Red Robin, not co-branded. Originally, Red Robin suggested at the ICR Conference in January it hoped to spread the menu to 100 locations in 2020.
Forty-eight Red Robins added Donatos prior to COVID-19. Murphy said those stores consistently outperformed restaurants without it from a comp-sales standpoint by about 700 basis points. In initial pilots, Red Robin witnessed comparable traffic lifts of 3.5 percent.
“We, therefore, look forward to resuming our Donatos rollout, given its proven and compelling return on investment,” Murphy said.
Donatos could play well into the current landscape, too. The option instantly adds a highly incremental delivery channel to Red Robin. Not to mention, Pizza has been one of the steadiest categories from COVID-19’s onset.
Jason Rusk, the chain’s VP of business transformation, previously told Columbus Business First Red Robin wanted to encourage additional occasions with the move. And it looked at concepts with delivery experience and a history rooted in quality. Donatos was founded in 1963 when Ohio State sophomore Jim Grote bought a small pizza shop in Columbus, Ohio, from a young seminarian for $1,300.
Additionally, Donatos has worked under a national umbrella. It was acquired by McDonald’s Corporation in 1999 before being sold back to Grote and his daughter, Jane Abell, in 2003.
In tests, Red Robin said, Donatos improved overall menu appeal and value perception, and aided incremental check and visits among current users. Before COVID-19, the company said the add would require $30,000 in incremental marketing spend per unit in the first year. Also, a capital cost to the company of $145,000 and pre-opening expense of $20,000 per restaurant.
Red Robin added that in the second year and beyond, there would be about $45,000 yearly, per restaurant incremental gross margin.
THE COVID-19 ROAD FOR RED ROBIN SO FAR
Red Robin is Prepared to Accelerate its Reopening Strategy
Red Robin Sees Progress, but Serious Concerns Remain
Red Robin Temporarily Closes 35 Locations, Cuts Support Center Positions
Red Robin to Reopen 65 Percent of Company Stores by June 7
Red Robin Postpones Rollout of Donatos Pizza
The other tangible shift for Red Robin is taking form with restaurant models themselves, inside and out. Red Robin is working to expand outdoor dining and introduce indoor table partitions to boost seating capacity, as many restaurants across the country have.
The outdoor initiative is something Red Robin really launched just 10 or so days ago. Murphy said the brand expects it to take two to three weeks to get the majority of the system on line, as it’s had to procure umbrellas and do some licensing extensions.
In an average unit, this systemwide patio expansion provides 16–24 extra seats, Murphy said. “You’re seeing it across the industry,” he said. “But in our own research, we’re seeing that our guests, certainly that the research we’re doing, have said that even if they’re not quite willing to come into a dining room right now, they are willing to engage with Red Robin in an outdoor patio situation.”
Red Robin currently has a pilot going on the partitions. There are 155 restaurants, Murphy said, where local jurisdictions or state regulations would allow the chain to increase capacity to 75 percent. It plans to start with the higher-volume units and work its way through that number of stores. Murphy estimated about 30–40 percent of seats in a typical Red Robin are booths versus tables.
Looking forward, Murphy said Red Robin is redesigning its restaurant prototype to enhance the off-premises experience and thrive in a post-pandemic reality. Digital channels, including online ordering through its website and third-party marketplaces, are driving about 80 percent of Red Robin’s business outside the four walls.
Murphy said Red Robin’s plan to refine its restaurant prototype will occur in 2021. At its core, it will “more effectively balance and address quality of execution for both off-premises and dine-in channels,” he said. It will also provide the company flexibility to navigate a projected favorable real estate environment, Murphy added. The company will look at remodeling some units this year as well.
Red Robin didn’t provide any further details on what the new design might detail.
Murphy said “resetting our operational focus” has been a strategic imperative for Red Robin throughout COVID-19. One key change: a smaller menu that’s trimmed 33 percent of options. The chain also dedicated additional space for off-premises assembly inside kitchens and implemented direct, or last-mile, delivery across all company stores and third-party systemwide.
Murphy said the menu reduction boosted quality and ticket times. “There may be some items brought back to the menu over time, but we see that being a more of a permanent structure,” he said.
Red Robin shared the company’s sales figures in recent weeks and months.
Average weekly sales per unit
Q2 2019
- Company-owned stores (total): $52,907
- Franchised: $58,573
Q2 2020:
- Company-owned stores (total): $32,287
- Franchised: $34,582
You can see below how weekly sales started to come down in July but have worked their way back up.
Week ended June 14 (company restaurants)
- Weekly net same-store sales: –35.5 percent
- Average net sales per restaurant: $38,259
- Number of comparable company-operated restaurants: 413
Week ended June 21
- Weekly net same-store sales: –27.4 percent
- Average net sales per restaurant: $40,596
- Number of comparable company-operated restaurants: 413
Week ended June 28
- Weekly net same-store sales: –30.4 percent
- Average net sales per restaurant: $38,471
- Number of comparable company-operated restaurants: 413
Week ended July 5
- Weekly net same-store sales: –33.9 percent
- Average net sales per restaurant: $33,938
- Number of comparable company-operated restaurants: 413
Week ended July 12
- Weekly net same-store sales: –33.9 percent
- Average net sales per restaurant: $34,731
- Number of comparable company-operated restaurants: 413
Week ended July 19
- Weekly net same-store sales: –35.9 percent
- Average net sales per restaurant: $35,164
- Number of comparable company-operated restaurants: 413
Week ended July 26
- Weekly net same-store sales: –34.3 percent
- Average net sales per restaurant: $36,783
- Number of comparable company-operated restaurants: 412
Week ended August 2
- Weekly net same-store sales: –35.4 percent
- Average net sales per restaurant: $37,239
- Number of comparable company-operated restaurants: 412
Week ended August 9
- Weekly net same-store sales: –32.8 percent
- Average net sales per restaurant: $38,031
- Number of comparable company-operated restaurants: 412
As of August 8, Red Robin reopened 346 indoor dining rooms with limited capacity, or about 84 percent of its corporate footprint. The company said these units have, on average, maintained off-premises sales in the 40 percent range of mix, meaning they’re about 20 percent lower versus the fully off-premises-only units, yet still far higher than past metrics.
Customers are required to wear face coverings in all locations while entering, exiting, and walking around the restaurant. Red Robin provides masks to guests who arrive without one.
Since Q1, as noted before, Red Robin has had to reclose dining rooms at numerous company-run stores in recent weeks as cases spiked and states pulled back, including 53 in California.
A similar weekly sales trend swings down and then up here:
Reopened corporate indoor dining rooms
Week ended June 14
- Weekly net same-store sales: –27 percent
- Average net sales per restaurant: $42,271
- Number of comparable company-operated restaurants: 336
Week ended June 21
- Weekly net same-store sales: –22.4 percent
- Average net sales per restaurant: $44,134
- Number of comparable company-operated restaurants: 359
Week ended June 28
- Weekly net same-store sales: –26.3 percent
- Average net sales per restaurant: $40,834
- Number of comparable company-operated restaurants: 385
Week ended July 5
- Weekly net same-store sales: –29.7 percent
- Average net sales per restaurant: $35,592
- Number of comparable company-operated restaurants: 328
Week ended July 12
- Weekly net same-store sales: –28.4 percent
- Average net sales per restaurant: $36,845
- Number of comparable company-operated restaurants: 336
Week ended July 19
- Weekly net same-store sales: –30.5 percent
- Average net sales per restaurant: $37,380
- Number of comparable company-operated restaurants: 349
Week ended July 26
- Weekly net same-store sales: –29.5 percent
- Average net sales per restaurant: $38,393
- Number of comparable company-operated restaurants: 350
Week ended August 2
- Weekly net same-store sales: –30.4 percent
- Average net sales per restaurant: $39,058
- Number of comparable company-operated restaurants: 348
Week ended August 9
- Weekly net same-store sales: –27.9 percent
- Average net sales per restaurant: $39,808
- Number of comparable company-operated restaurants: 346
As of July 12, Red Robin had 552 total restaurants (450 company run). It closed two stores permanently in Q2 and has 35 units temporarily shuttered due to COVID-19.
In the 28-week trailing period from mid-July, Red Robin has permanently closed four restaurants. The prior year timeframe, 12 shut down. Overall, Red Robin had 562 locations on July 14, 2019—10 more than it does today.
Red Robin’s average cash burn rate in Q2 was about $1 million per week. It expects the number to run around $2 million in Q3,, including the impact of increased occupancy payments compared to the previous quarter. As of August 9, the chain more than $103 million in total liquidity, including cash and cash equivalents and available borrowing capacity under its revolving line of credit.
Red Robin previously raised about $30 million in capital through an at-the-market equity offering.
