When G.J. Hart became CEO of Red Robin in late 2022, he vowed to end the chain’s habit of using deep discounts to lure customers in the door.
Too often, he said, the cheap food was matched by a cheap experience. Instead, Red Robin has spent the past two years elevating its food and service to get customers to visit more frequently.
But as restaurants jockey for price-conscious consumers with a deluge of meal deals and promotions, Red Robin has been pulled back into discounting, executives said Wednesday.
The 500-unit chain has cued up a collection of weekday specials aimed at boosting business during slower periods. On Monster Mondays, customers can upgrade to larger items for reduced prices. On Wednesdays, kids meals are half off. And on Mondays, Tuesdays and Wednesdays, the chain is offering $10 burgers and a bottomless side for a limited time
Hart said these offers are different than the ones other brands are running. They’re targeted to certain times, designed to boost check averages and are only available to dine-in customers. The idea, he said, is to expose customers to the improvements the chain has made over the past two years so that they will come back again.
So far, the approach has shown “clear traction” in boosting traffic, he said. But it has also come at a cost. Red Robin’s restaurant-level margins in the third quarter fell more than 2 points, to 9%, due in part to a nearly 2-point increase in discounting.
The chain also lowered its profit guidance for the year to account for the investment in promotions. It is now expecting adjusted earnings before interest, taxes, depreciation and amortization of $35 million to $37.5 million, compared to a range of $40 million to $45 million earlier.
“Look, we want to get people in,” Red Robin CFO Todd Wilson told analysts on Wednesday, according to a transcript from financial services site AlphaSense. “We know if we get them in, they're going to have a great experience. And certainly, partially in response to the competitive environment, we felt like taking a step back into that was the right thing to do.”
Englewood, Colorado-based Red Robin is at least the third restaurant chain this week to signal a change in its discounting policy in an effort to compete with the many deals flooding the market.
On Wednesday, Applebee’s said it planned to launch a value meal and shift away from its traditional approach of limited-time, item-based offers. Noodles & Company, which had been moving away from discounting, rolled out a series of promotions this fall, including a kids eat free meal and a buy one, get one deal.
A second part of Red Robin’s traffic-building strategy is its new loyalty program, which has continued to show promising results. Signups are accelerating, and members are visiting more frequently and spending more than non-members, Hart said. The program currently has 14.5 million members.
Overall for the third quarter, same-store sales at Red Robin rose 0.6% year over year. Traffic was down 4.3%. Total revenue was $274.6 million, a decrease of $2.9 million from a year ago. The company reported a net loss of $18.9 million compared to a net loss of $8.2 million last year.
Red Robin is also monitoring a group of 70 unprofitable locations. The restaurants have lost $6 million over the past 12 months and delivered a 215-basis-point hit to restaurant-level operating profits for the quarter.
Some of the restaurants are in challenging locations or markets, Wilson said.
“We believe in our operators there. We’re supporting them as they execute a plan to turn around those restaurants. But it is one that obviously we're keeping a close tab on,” he said.
Red Robin’s stock was down nearly 16% late Thursday morning.
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