Red Robin takes a valuable page from the Fast Food Playbook
Red Robin isn’t the only one diagnosing where things went south over the summer. Coming out of his sixth calendar term and into his seventh, CEO Paul Murphy decided to take a page out of the fast food restaurant’s playbook. Murphy, the former executive chairman of Noodles & Company and senior executive of Del Taco and Einstein Noah Restaurant Group, was familiar with this particular chapter.
Consumer confidence has plummeted lately thanks to inflation and the specter of a recession. The full-service industry as a whole saw overall visits drop 4% in June, per mobile location analytics platform Placer.ai. Revenue management solutions found near-mirror data at minus 4.3%.
Red Robin’s LTOs performed and conducted audits. Its second-quarter same-store sales were up 6.7% year-over-year (4.1% from 2019), but 9.6% of those sales came from checks. Guest traffic decreased by 2.9%. The check included a 6% price increase, a 3.7% menu mix and a 0.1% decrease from higher discounts.
So even as LTOs increased spending to cover traffic losses, Murphy, who is retiring as former Texas Roadhouse CEO GJ Hart takes over on September 6, acknowledged the coming cap. “Frankly, [we had to] address the value part because we thought consumers felt pinched by inflation,” he said.
Comps follow as follows: 11.6% in P-5, 7% in P-6 and 1.7% in P-7.
That’s where Murphy’s quick-serve experience came in, especially with Del Taco, a brand that has historically relied on a top-down menu approach. Red Robin entered into a $10 gourmet meal deal at the end of its P-7 (late June). It gave the brand, Murphy said, a chance to “showcase the value of Red Robin.”
The offer includes a burger, the brand’s Bottomless Steak fries, and a Bottomless drink from a select menu. “It worked well for us. Our perceptions of value, our sense of value, really grew over that time,” Murphy said.
He added that the deal does not “give the farm” and has high gross margin potential. But overall, CFO Lynn Schweinfurth chimed in, customers still have every excuse to order premium-priced products so Red Robin can balance promotions. When customers order the $10 gourmet meal, they often add on. “It’s really about…giving the consumer choice in how they want to spend their money,” Murphy said.
Like many fast-paced services, Red Robin’s strategy now includes higher-priced, limited-time offers to balance traffic-driving promotions, such as the $10 gourmet meal deal. It’s a path that Wendy’s talked about recently too as it also struggled with a drop in guest numbers despite a rise on the top line. Wendy’s will be just under 10% off the price, year over year, in the second half of the calendar.
The high-low strategy opens the door to value for Red Robin. In a few weeks, the channel plans to launch a Happy Hour platform on the majority of its system. It will also test lunchtime specials later in the fall.
“Happy Hour increasing liquor sales should help us overall from a margin perspective,” Murphy said. “So we’re looking forward to that, because we believe it can continue to build not only the perception of brand value, but also the brand’s margin profile.”
The more expensive LTOs fed PPA, extra headroom and attachment. In the second quarter, Red Robin introduced a lineup of Whiskey River backyard barbecues, which featured a Smokehouse smoke brisket burger, pineapple upside-down cake milkshake and Tequila Sunset cocktail. Murphy said it was the third consecutive LTO promotion to achieve record sales levels.
The latest LTO arrived in mid-July and builds on steakhouse flavors, like the Savory Steakhouse Burger, Loaded Baked Potato Fries, two liquor choices, and a Pumpkin Spice Milkshake.
The top-down plan seems to prevail. Sales of Red Robin models in its eighth fiscal period, which ended August 7 (the first part of the third quarter), increased by 4%.
And Murphy awaits the path to stable trends for all that lies ahead. “We believe we are better positioned to weather an economic downturn than many competitors, due to our value-based propositions, including Bottomless and a relatively low average check of around $16,” Murphy said.
Red Robin’s digital expansion before and through COVID has reshaped its approach. This includes how it plans to convey valuable messages. The channel has increased its marketing from 2021 but remains below 2019 levels. Still, today’s spending is mostly digital, which is more targeted and profitable, Murphy said. And it boosts watermark engagement levels through customer segmentation, automated offers, and push notifications.
“We also support the current limited-time offer and value message, while conveying that Red Robin is about creating moments of connection for friends and family across diverse, multi-generational demographics,” he said. declared.
The Red Robin’s Royalty program has expanded to 10.7 million people.
“We’re seeing record levels of loyalty engagement through better segmentation and targeted marketing,” Murphy said. “This offers automated and personalized messaging based on purchase history. We’re also running smarter campaigns and starting to drive increased engagement through push notifications. We’re making continuous improvements to these digital assets and recently introduced push notifications. automatic and push as well as Apple and Google Pay options.
Also on deck for 2022 is an online waitlist feature.
Overall, Red Robin has built a new integrated digital ecosystem, with a new website experience, mobile app and improved loyalty offering. Red Robin currently has over 650,000 app downloads, up from over 400,000 last quarter. “Our website and app also drive increased conversion,” Murphy said.
Offsite digital channels became the majority of Red Robin’s sales outside the four walls (83% in the second quarter), as the channel integrated its loyalty platform into its app and online ordering experience. The second quarter marked the ninth consecutive quarter of off-premises dollars more than double pre-pandemic levels.
As a percentage of total off-premises sales, third-party delivery accounted for 54.3%, take-out 35.3%, restaurants 6.3% and white label delivery 4.1%.
Total company revenue in the second quarter rose 6.2% to $294.1 million, up $17.1 million from a year ago.
Donatos and the road ahead
Red Robin’s menu trajectory these days can’t be broken down without Donatos being considered. Although the pizza rollout has stalled thanks to COVID, it continues to deliver results. There were around 200 restaurants serving Donatos at the start of the year, and 50 will come on board in 2022. The remaining 150 will join in 2023.
Donatos sales were approximately $6.2 million in the second quarter, with a sales mix of 60% in-dining and 40% off-premises. Restaurants that serve pizza outperformed those that don’t by 8.4 percentage points in comparable restaurant revenue compared to 2019. That was well ahead of the 5%-plus in the first quarter. Plus, guest checks that include Donatos are, on average, more than $10 higher.
By the end of 2024, Murphy said, Donatos is expected to produce annual corporate pizza sales of at least $60 million and profitability of $25 million.
One of the reasons the second quarter struggled was commodity dynamics. It seems – First Watch also alluded to this – that commodities in general have plateaued. But Murphyy said they did it on a higher level than expected. The biggest unknowns are the weather conditions for the rest of the grain growing seasons and whether demand will drop due to the macroeconomic backdrop.
On the positive side, Red Robin continues to drive staffing forward, particularly with higher numbers of applications, hires and retention. The channel improved its hourly levels from 82% at the end of the first quarter to more than 91% at the end of the second quarter. The ultimate goal remains 95%, Murphy said.
And similar to the previous quarter, Red Robin essentially stored its GM positions at previous brands. There was also a “significant improvement” in turnover for three consecutive periods.
Murphy said that beyond the current restaurant staff race, Red Robin’s long-term focus is on a few key areas. One is “connection conversations” between restaurant managers and employees to refine and improve the worker experience and “run great shifts”, but also to provide quality training by putting the emphasis on back-to-basics runs.
Red Robin offers more locally competitive wages (wage rate inflation was around 7.5% in the second quarter), Murphy said, and refines schedule flexibility. The channel implements the HotSchedules platform throughout the system.
Red Robin recently opened a franchise in West Wichita, Kansas, and will launch a business unit no later than early next year, Murphy said. A new store opening in late 2021 in Seattle is on track to achieve 2022 sales of between $4 million and $5 million. This is significant given Red Robin’s new prototype efforts. The brand is implementing floor plan changes to improve offsite execution in high-volume units, but plans to pilot a comprehensive refresh program “in the coming years.”