Red Robin Blazes its Own Path to Long-Term Success | Food Newsfeed
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Red Robin's Burger Bar catering is just starting to take off.

Red Robin Blazes its Own Path to Long-Term Success

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The burger chain is charting a unique course for sales and traffic growth.
By Danny Klein May 2018 Chain Restaurants

Affordability, not discounting. It’s the foundation Red Robin believes will support long-term traffic and sales growth for quarters and years to come. But in the short-term? Challenging an increasingly value-focused casual sector isn’t always going to be pretty.

“We're always going to have circumstances like we've had here in the past few quarters where the competitive environment accelerates and you get situations like we did where either you see large increases in advertising spend or significant increases in discounting activity,” Guy Constant, chief financial officer of the 571-unit burger chain, said in a May 22 conference call. “That's going to happen from time to time, but we continue to believe that that's not a sustainable long-term strategy for the industry.”

Red Robin’s stock dropped as much as 14 percent in after-hours trading Tuesday following the brand’s first-quarter earnings report, which underwhelmed Wall Street in key areas. Same-store sales fell 0.9 percent, year-over-year, and total revenues reported $421.5 million—an increase of 0.2 percent. Adjusted earnings per share of 69 cents missed the Zacks Consensus Estimate of 74 cents per share. The revenue figure came up short of analysts’ $430.6 million forecast.

Red Robin CEO Denny Marie Post admitted the Q1 results presented a mixed bag. Unlike many competitors, Red Robin’s comps fell despite traffic climbing 0.1 percent. The reason being that average guest check declined 1 percent—an outlier across the industry, both in full and limited service: Black Box data showed a 3 percent average check hike this past quarter.

“We've gained 400 basis points of relative affordability versus the rest of the space, which we think actually strengthens our position as an affordable alternative for the families or the people that will frequent our business in the future,” Constant said.

“Sales growth in this hypercompetitive environment has been tough to come by without relying on aggressive price increases that we've seen from others in the industry,” Post added.

The positive part of the bag for Red Robin is its booming off-premise business, which Post said helped the chain “take some share from others despite their heavily advertised short-term deep discounting.”

Unlike the brand’s challenged dine-in traffic, its off-premise growth outpaced the industry by 230 basis points on overall traffic, according to Black Box. Off-premise channels were up nearly 40 percent, year-over-year, in the quarter. It averaged 9.4 percent of sales mix in Q1 as Red Robin looks to hit double-digits in the near future.

Another unique factor at play: Red Robin’s average check from off-premise is fairly similar to dine-in, which is also rare considering most see an inflated number, often related to order minimums required by aggregators. Overall, it’s actually skewing a bit lower than dine-in for Red Robin thanks to a drag on beverage sales.

Third-party delivery is live in about 70 percent of Red Robin stores. The chain said the vast majority of customers, though, are still placing an order online or calling in, and then coming in for pick-up.

Also, the fact third-party delivery companies often don’t share customer data with restaurants is creating an information gap Red Robin wants to bridge. The chain isn’t sure if pick-up customers are transitioning to delivery as word gets it, and, in response, Red Robin could look to self-delivery in the future.

“That is one of the drawbacks of dealing with the aggregators is that they won't share that data, so it's hard for us to keep track of the guest as much as we would like, which is one of a number of reasons why we're testing the self-delivery proposition because we believe not only is it cheaper than using an aggregate but it gives us access to the data as well,” Constant said.

Red Robin’s Burger Bar catering is off to a strong start, Post said, despite minimal sales support and awareness to date. The chain is testing TV advertising in select high-penetration markets and has seen positive returns. 

"Our catering business is off to a really solid start and is a highly incremental business," Post said. "[There has been] great guest response so far to it and I think is something that we anticipate leaning into, and, as we learn our way through it, continue to see some real upside there for driving off-premise business."

Red Robin is adjusting its menu to compete more aggressively for sales as well. The chain broadened its Tavern Doubles to five burgers at $6.99, complete with bottomless fries and sides, at the beginning of May. It’s a different look than the discounted, a la carte presentation of some chains, which Post said “really adds up fast.” An every day, every seat, every guest, every channel approach will help Red Robin “move from being only a destination to a complete source of craveable customizable burgers. We're going to do this by going where the guest wants us to be, when they want us and how they choose to enjoy Red Robin, be it in the restaurant or out,” Post added.

Red Robin was coming off a stellar fourth quarter where company-owned same-store sales lifted 2.7 percent, year-over-year, against the prior-quarter comps decrease of 0.1 percent. Four corporate stores and one franchise opened in Q1, and the company expects to open seven additional stores (three franchised) for the rest of the fiscal year before halting growth to shore up operations in 2019.