To start 2023, Red Robin revealed to the investor community a full-fledged North Star plan that will serve as its comeback blueprint. Two months post-announcement, the casual-dining burger chain is already seeing tangible results.
“Our focus is now squarely on the future,” CEO GJ Hart told investors during the chain’s Q4 and full-year earnings call. “Brands are always evolving and we are moving thoughtfully and quickly to deliver needed changes at Red Robin. We are confident that these changes are right and will result in improved guest experience; team members that are happier, more engaged, and better rewarded; and financial results that reward our investors.”
The strategy breaks into five parts—transform into an operations-focused company, improve the guest experience by adding back bussers, hosts, and bartenders, and readjusting the menu, remove costs and complexity, optimize guest engagement by returning to a “local community brand” mindset, and drive comparable restaurant revenue and unit-level profitability.
On the first point, frontline operators will be involved in all key decisions, and management teams will be compensated every month based on their store profit. Red Robin also restructured its restaurant support center and operations leadership. This is meant to better support single-unit operators by removing bureaucracy and speeding up decision-making.
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CFO Todd Wilson said staffing is at the top of the list in terms of investments. The company will implement a phased shift back to a more traditional service standard where servers have fewer tables and are supported by bussers. Red Robin has already felt sales gains from these changes, and that’s simply because they’re capturing guests that are coming to them. Previously, there was lost traffic from false waits, or when customers are told a table isn’t ready, when it actually is.
“We can measure the opportunity in false waits and what we’ve lost over the past few years,” Wilson said. “We know it’s a meaningful opportunity. And so those positions are positions that we’re looking to add effectively ASAP, right? The team has already started that work, just takes time to get there. But those will be the near-term additions. The evolution that G.J. spoke about in terms of the service model, we’re confident that that’s the right change. That I think will take a little bit more time to fully layer in. It is one I think you can expect we’ll get to completion on that this year. It will just happen throughout the year.”
In the back of house, employees will be given equipment that’s simpler and quicker to execute. Red Robin will transition from conveyor belt cooking to a traditional flat-top cooking method, which delivers a product that’s 20 percent larger, provides better quality, and eliminates significant maintenance and repair costs. The chain began testing flat-top cooking in January with 10 restaurants. Thus far, reviews and feedback from guests and customers have been “outstanding,” Hart said. Red Robin will start a systemwide rollout in Q2 and expects to be finished by the middle of 2023.
As for the actual menu, Brian Sullivan—who spent 34 years at California Pizza Kitchen (Hart previously served as CEO of CPK)—was named vice president of culinary and beverage innovation. He’s tasked with developing items like non-fried appetizers and new entrée options. Those products will be placed in a small beta test, and then Red Robin will expand from there. However, Hart noted that if the company feels strongly about the menu items, it will shortchange the normal cycle, which he believes has been too long in the past.
“We need to be courageous and make some of those decisions,” Hart said. “We may make a mistake. We believe we have enough insights to bring it to market much faster than it’s been done in the past. A little bit non-traditional in terms of the longer cycle that you might think about, but I think in the case of where we are in this comeback, we need to do that.”
Under cost savings, the third piece of the North Star plan, Red Robin is targeting meaningful changes in its supply chain. That includes increasing pack size for products or consolidating vendors to take advantage of scale. Beyond that, the chain is trying to eliminate redundant third-party contracts and use technology to identify further opportunities.
To become a more local brand, Red Robin will look to alter its loyalty program, which has 11.3 million members. Hart wants it to change from a discount program for new members to a platform for guests that are eager to demonstrate loyalty. The company is also looking to get more involved in the community. It recently made a $3 million commitment to Make-A-Wish Foundation over the next three years.
If Red Robin executes the first four tenets of the plan, driving revenue and profit should follow, Hart said. One major goal is to double 2022 adjusted EBITDA margin by 2025. For perspective, adjusted EBITDA was $52.8 million in 2022.
Here’s where the chain stands now: Same-store sales increased 2.5 percent in Q4, marking the chain’s eight-straight quarter of positive growth. Comps benefited from $2.9 million worth of breakage related to the loyalty program. If not for this, same-store sales would’ve risen 1.5 percent. For the full year, comps rose 9.2 percent. The company said its comparable restaurant revenue and comparable restaurant traffic exceeded the industry average as measured by the Black Box Casual Dining index. Total revenue in 2022 was $1.3 billion, growth of $104.5 million against 2021.
“I think fair to say we’ll probably hold to the outperformance,” Wilson said. “We’re obviously very pleased. … It’s been a strong start for the industry. So, we’re certainly pleased by that, but equally as pleased to be outpacing the industry because we think it provides data points that it’s what we’re doing and the changes that we’re implementing that are driving those changes for that outperformance.”
In 2023, Red Robin projects total revenue of $1.3 billion, restaurant-level operating profit of at least 13 percent, capital expenditures between $35 million to $40 million, and adjusted EBITDA between $62.5 million to $72.5 million.
At the end of fiscal 2022, there were 511 Red Robin restaurants, of which 414 were company-owned and 97 were operated by franchisees. That’s an overall net loss of 20 units year-over-year.
“While we see tremendous financial opportunity for Red Robin, regaining credibility with the investment community is of paramount importance to us,” Hart said. “As a result, our financial guidance will be conservative and measured as we work to build a track record of delivering on our financial commitments. In the big picture, our North Star will be the filter that we use to guide our efforts.”
