As inflation rises and a recession looms, Red Robin feels it’s in a good spot to attract Americans who are watching their wallets.
It plans to do that with a combination of value meals and an ongoing rotation of higher-priced limited-time offers that will give customers more flexibility in how they spend their money.
“We’re prepared for a softening consumer as we move through this year,” CEO Paul Murphy said Monday during the Jefferies Consumer Conference. “I think some of the strengths of Red Robin quite honestly set us up nicely for some of the things we’re seeing in the marketplace.”
U.S. inflation hit 8.6% year over year in May, driven in particular by higher gas prices, stoking fears of a recession. Some full-service restaurants have responded with value menus aimed at more price-sensitive consumers.
Red Robin is getting in on that strategy with a new $10 Gourmet Meal Deal. In test in a few markets, it will expand further over the next couple of weeks, Murphy said. He didn’t reveal what the meal consists of, but noted that it does include the chain’s signature bottomless fries and drinks offer.
Murphy said the meal sends the message to customers that, “Hey, if I only want to spend $10, I can do it at Red Robin.”
At the same time, the 540-unit chain will continue to lean into an LTO program that has proven to be consistently popular with guests. Right now, it includes the Whiskey River Backyard BBQ menu and an Pineapple Upside-Down Cake Milkshake that CFO Lynn Schweinfurth said is setting records at the chain.
Those items are more expensive, but the chain hopes that by offering them alongside the $10 value meal, it can give customers more control over their spending.
“Right now for the consumer, it’s about choice for them,” Murphy said. “How do they want to spend whatever discretionary income they have?”
Red Robin has been careful about raising prices over the past year. Pricing in the first quarter ended April 17 was 5.4%, below the 8.7% increase at full-service restaurants overall for April, executives said during an earnings call last month. Instead, the chain is working to get customers to order more items, such as 10-inch appetizer pizzas, to boost check averages, Murphy said.
Still, it remains focused on value, and customers tend to spend less at Red Robin than they would at other full-service chains. Its per-person check averages are about the same as a fast casual, Schweinfurth said.
So another piece of the equation is getting customers to order more often. To do that, the chain is leaning on its Red Robin Royalty program, which currently boasts more than 10.6 million members. That program has allowed the chain to push out targeted offers that have helped generate more clicks and orders.
“It is beginning to drive frequency for the brand,” Murphy said of the loyalty program. A recently revamped mobile app and website is also contributing to growth on the digital side, Schweinfurth said. In the first quarter, Red Robin’s overall traffic was up 6.9% year over year, according to an earnings call transcript from financial services site Sentieo.
Sales, meanwhile, have not been a problem for the chain as of late. Same-store sales were up 19.7% year-over-year in the most recent period. But those sales have not been enough to offset rising costs. The chain’s restaurant-level operating margins were 14% in the quarter, a decrease of 1.7 percentage points compared to last year. And while executives believe there’s an opportunity to get margins back to 2019 levels by next year, a severe pullback in spending could throw a wrench into those plans.
“I think it’s realistic, pending the impact a recession may have on the consumer and the industry,” Schweinfurth said.
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