Red Robin has made notable progress on shifting its labor model, cooking equipment, and profit-sharing philosophy since announcing its major North Star turnaround strategy earlier this year. For all of those reasons, the burger brand broke more than 900 hourly, daily, weekly, and monthly sales records in the first half of 2023.
CEO GJ Hart said dine-in is where most customers experience the improvements in hospitality and food. This begs the question, what opportunities are there to build awareness of these changes and bring more customers through the doors?
Hart pointed to Red Robin’s loyalty program, which is undergoing a revamp. The platform has roughly 12.9 million members who are in need of better communication, the CEO said.
“We’ll recognize our most loyal guests and reward them accordingly and be able to develop a relationship with them,” Hart noted during Red Robin’s Q2 earnings call. “And that revamp of that program, as I said, is ongoing, and I’m very confident that the direction that we’re going is going to reap some real benefits. In fact, I would tell you that we’re finally going to use our loyalty platform in a way to really drives our business. So I’m very excited as we go into ’24, what we’ll be able to achieve.”
The executive wants to use the loyalty program to build traffic but in a profitable manner. That’s why it’s pivoting away from an over-reliance on discounts. This process will be led by new CMO Kevin Mayer, who previously spent about eight years in leadership roles at BJ’s Restaurants and served in a variety of marketing positions in the car industry. In Q2, discounts represented 3.9 percent of revenue, a 90-basis-point decrease versus the year-ago period.
During last year’s second quarter, Red Robin released a $10 Gourmet Meal Deal that provided customers bottomless fries, a drink, and their choice of either a Gourmet Cheeseburger, Whiskey River BBQ Burger, or Banzai Burger. The promotion drove traffic growth between 3 and 5 percent, but the deep discount economics hurt the chain’s profitability in the latter half of 2022. Across Q3 and Q4 2022, discounting accounted for 5–6 percent of sales. But this year, Red Robin anticipates it being closer to 3–4 percent.
“That’s part of how we’re thinking about this is getting back to that healthier, more profitable base that we talked about,” said CFO Todd Wilson. “There could be some traffic headwind as a result of that, but we think the move makes us a much stronger and healthier company, especially to GJ’s point, now that we know we’ve got great products, great experience, and we’re seeing guests tell us that in their comments to us.”
Red Robin’s focus on the loyalty program will be combined with an emphasis on local marketing. The chain is providing each single-unit operator with a toolkit that includes guidance on how to support the community through fundraisers. From a corporate perspective, the burger chain launched a coast-to-coast promotional tour. A Red Robin-labeled Airstream visited spots around the country, offering customers samples of their enhanced burgers.
However, unlike Chili’s, which is pumping an incremental $50–$60 million into advertising, the chain doesn’t anticipate using national media to spread its message any time soon.
“Candidly, we think that there’s enough going on here that from a word of mouth and an experience perspective that we’re going to gain traction pretty rapidly,” Hart said. “And we’re seeing early phases with what we’ve done with our flat-top cooking. Just the changes we’ve made to date with the bun, the burger cooking, as well as the way we presented on the plate ware. So I feel good about where we are and when we’ll take some of this marketing spend and put it to work here later in the year.”
The brand’s same-store sales lifted 1.5 percent in Q2, marking its 10th straight quarter of positive growth. That figure was driven by an 8.8 percent menu price increase and offset by a 6 percent drop in traffic and negative 2.1 percent menu mix. Dine-in same-store sales improved 5.9 percent and now account for 75 percent of sales.
When comparing the first six months of 2023 to last year, comps rose 5.5 percent and dine-in same-store sales increased 11.8 percent.
Hart attributed these favorable financial figures to the ongoing North Star plan, which has five key targets.
One is elevating guest experiences, like a switch to flat-top grills that deliver a 20 percent larger burger. The back-of-house process is also simpler for employees and allows for more innovation in the future, like St. Louis-style Pork Ribs featuring the chain’s Whiskey River barbecue sauce; panko-breaded Tsunami Shrimp; and Crispy Parmesan Brussel Sprouts. Additionally, the brand will phase in upgrades to bacon, mayonnaise, tomatoes, and other produce. And instead of presenting burgers with wax paper and baskets, they are now brought to tables on new plates. For the chicken sandwiches, Red Robin moved to a fresh, hand-breaded product that improves taste and quality.
From a hospitality perspective, the chain returned to its historical model, beginning with more servers being responsible for fewer tables. Red Robin also brought back busers, which has led to better cleanliness ratings; bolstered staffing at the host stand to reduce wait times; and added more than 200 managers dedicated to the kitchen.
Red Robin is also considering how its store designs impact the customer experience. In the second half of 2023, the chain will launch its renovation program with up to five restaurants. These stores will pilot an upgraded interior ambience and exterior appeal to match the food updates. The changes will start in Q4 and should be completed by the end of 2023 or start of 2024.
A second portion of the North Star strategy is becoming an operations-focused company by aligning goals with operators. At the start of Q2, Red Robin launched a revamped market partner compensation program that rewards multi-unit operators by letting them share profit in their restaurants. A single-unit program will roll out in early 2024. Another facet of the big plan is eliminating costs and complexity, such as evaluating vendors and streamlining the supply chain. Thus far, Red Robin has saved $3 million year-to-date and expects that savings rate to accelerate in the remainder of 2023.
The brand also exited its partnership with virtual brand MrBeast Burger to reduce complexity in the kitchen and drive more profitable sales.
“The [virtual brand is] nowhere near as profitable as our regular business at all,” Hart said. “And in fact, that whole business over time has become even more complex and the margins continue to deteriorate in terms of what their expectations were.”
The other two parts of the North Star initiative call for improving customer engagement (engaging with communities, enhancing off-premises, and building rewards program) and fueling revenue and profitability.
Hart said satisfaction scores increased 3 percentage points in Q2 versus a year ago and that net sentiment and service net sentiment grew 13 percent and 28 percent, respectively, according to Google, Yelp, and Tripadvisor reviews. In addition, a survey of loyalty members who visited in the past month found 42 percent agreed food quality has improved, 44 percent agreed burgers have improved, and 46 percent agreed service and hospitality have improved.
Restaurant-level operating profit margin was 12.6 percent in the second quarter, a decrease of approximately 100 basis points compared to the second quarter of 2022. This change was expected by leadership and actually exceeded Red Robin’s internal target. The decrease was fueled by inflation across all cost categories and the chain’s intentional investments back into the guest experience.
As of July 9, Red Robin had 418 corporate and 91 franchised restaurants.