Red Robin
Red Robin's off-premise business is a work in progress.

Optimism Surges as Red Robin Beats 1Q Expectations

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Shares of the casual dining chain skyrocketed more than 15 percent Tuesday.
By Danny Klein May 2017 Chain Restaurants

Red Robin CEO Denny Marie Post addressed the “hot topic of off-premise” business during the company’s first-quarter earnings call on Tuesday afternoon. The conversation took place as shares of Red Robin jumped more than 15 percent in late trading following a better-than-expected report and boosted guidance.

Total revenues were $418.5 million, an increase of 4.1 percent year-over-year, while comparable restaurant sales fell 1.2 percent. Red Robin earned $11.6 million, or 89 cents a share, compared with $14.2 million, or $1.03 a share, a year ago. This beat Wall Street expectations of 57 cents a share and $416 million in revenue.

As is the case with many casual dining chains, the rise of off-premise service was a driver for optimism and a source of natural frustration.

Red Robin enjoyed some wins in this field and admitted to growing pains in others.

“Seamless is not how I would exactly describe our experience with the three third-party delivery services we currently engage to collectively cover 138 of our company restaurants,” Post said in the call. “While we certainly appreciate the opportunity third-party delivery provides to our brand, it comes with distinct financial and service challenges. Some of the friction we are experiencing is related to the ordering process itself as none of these service providers is yet integrated into our POS system. This causes us to have to transcribe each order at least once, which takes additional time and undermines accuracy.”

Maintaining quality has also been a concern.

“In addition, we have become aware of too many cases of promised delivery times not being met which is frustrating both to us and to our customers. In view of these factors, we are evaluating how best to proceed weighing the relative volumes and profitability stemming from each of these partners with an eye toward giving preferential treatment to the strongest player in each region,” she said. “But before we could consider expanding coverage we must be certain that the delivery process is being executed in a manner that reflects our high standards for guest experience. And in improving the delivery model we are open to any and all better solutions.”

Red Robin is approaching this platform from multiple angles. Across the casual dining industry, traffic has declined 2.9 percent, according to TDn2K. One way to combat this trend is to enter the ring with to-go players like grocery stores, convenience stores, and quicker options, such as limited service and drive-thrus.

Red Robin’s TV ads now carry a Get It To Go at RedRobin.com graphic and the loyalty program also features a link. Online ordering via Olo is available at all 469 corporate stores. The franchised units, of which there were 87 at the end of the quarter, are adding the service as they install an updated kitchen display system.

Additionally, Red Robin has centralized call centers for call-in ordering at 98 locations, which has been successful, Post said.

“Given our level of customization on gourmet burgers we find that most guests still prefer to speak to a human to ensure their unique instructions are captured accurately,” she said. “…We are slowly expanding reach of this service to ensure quality experience, adding up to about 50 locations at a time while measuring the financial impact as we go, to ensure that the investment in a call center is worthwhile. So far we are encouraged.”

At the end of the quarter, after just six weeks, Post said 15 percent of all To-Go orders were coming through online and carried a slightly higher average check than those called into the restaurant. Ten percent of the system also offers curbside pickup, a number Post expects to reach 25 percent of all corporate stores by mid-year. “By mid-year we will designate To Go specialists in all corporate locations and add clear signage whether at the curb or in the lobby to make the process of pickup as seamless as possible,” she said, adding that parents with little kids gravitate toward the option.

Red Robin’s in-house goals continue to center on customer experience and gourmet burgers. Earlier in the year, Post made good on a promise to tattoo a Red Robin logo on her shoulder after the company improved its net promoter score—a metric that measures customer satisfaction—15 percent in six months.

“Thank goodness I didn't double down on my tattoo bet or I'd be on my way to a full sleeve by now,” she said.

Red Robin is hitting scores at 70 or above with less than 7 percent detractors. In September 2015, its NPS was in the mid-50s with double-digit levels of detractors. NPS scores are determined by a diner’s decision whether to recommend Red Robin to a friend or not, using a 0 to 10 scale. Red Robin takes the top two—9 and 10—eliminate 7s and 8s, and consider 6 a detractor. So the score is the 9s and 10s minus the 6 and under selections.

Red Robin’s renewed focus on everyday value with its $6.99 Tavern lineup is resonating, Post said. “Being viewed as the affordable choice for every day is one way we can win. We are prepared to invest for the foreseeable future in everyday value, including our bottomless fries, sides and beverages,” she said.

Carin Stutz, Red Robin’s chief operating officer and executive vice president, pointed to the company’s internal culture as another factor propelling its success against difficult industry headwinds.

“I think some of the differentiators for us, as Denny talks about, is a better-for-being-here culture that we don't stop at training, like a lot of brands do. We really invest in continued development of our team members to really help them become better leaders,” Stutz said. “And again I think that really starts to make a big difference in people feeling like that there's growth within the positions that they're in, right? That I can be a general manager for a restaurant but I'm still growing personally and professionally and I think that makes a big difference for us.”