Less than three years after launching a sprawling turnaround plan, Red Robin Gourmet Burgers is changing its playbook again.
The 500-unit casual-dining chain on Monday unveiled a new strategic plan, dubbed First Choice, that is aimed at driving traffic and improving Red Robin’s balance sheet.
It builds upon the chain’s existing North Star plan, a three-year overhaul begun in 2023 by former CEO G.J. Hart. Hart stepped down in April, passing the baton to current CEO David Pace.
First Choice will keep key elements of North Star, specifically a focus on operations, service and food quality. But it will add some new pieces, including more value on the menu, a fresh marketing strategy and new efforts to reduce costs and pay down debt.
Like North Star, the plan consists of five pillars: Hold serve on changes made under North Star, drive traffic, find money, fix restaurants and win together by creating a high-performance culture at the company. Its overarching goal is to make Red Robin a first choice for customers, employees and investors.
Englewood, Colorado-based Red Robin has been gaining momentum in recent months, posting a 3.1% same-store sales increase in the first quarter and strong profits that sent its stock soaring. But traffic has remained a problem for the chain. Second quarter same-store sales fell 4%, a point worse than what the company had been expecting, Red Robin said Monday.
More value and marketing
The first major update under First Choice is an attempt to reverse those traffic declines. Next Monday, Red Robin is launching a $9.99 combo meal designed to get more customers in the door. The Big Yummm meal will feature a Red’s Double Tavern Burger, bottomless fries and drink.
Red Robin resisted discounting under Hart, but it eased up on that stance more recently as inflation-weary diners sought more value. Last year, it rolled out a lineup of weekday specials, such as $10 burgers on Monday, Tuesday and Wednesday. Big Yummm takes that strategy up another notch.
“We were hearing from our operators and from our guests about price point and the value competitiveness in the marketplace right now,” Pace said during a call with analysts Tuesday, according to a transcript from financial services site AlphaSense. “We felt we had something that we could respond with that we felt good about.”
Red Robin began testing Big Yummm in select markets last year. It boosted traffic by a few percentage points and did not have a significant impact on margins, said CFO Todd Wilson.
It joins a flood of similarly priced casual-dining combo meals, including Chili's 3 for Me, Applebee's Really Big Meal Deal and BJ's Restaurants Pizookie Meal Deal.
And it is a step in a broader process to get more customers to choose Red Robin that will also entail a bigger investment in marketing. Pace said the company has historically not spent enough on marketing to break through with customers.
The new approach will use data and analytics to understand what customers want and how Red Robin can deliver it. It will rely on an algorithm that does not exist in the market today, Pace noted, though he did not go into further detail.
“We believe we've uncovered an approach that allows us to be highly laser-targeted on the guest to understand what goes into their decision tree about choosing where to dine and why to go to Red Robin,” he said.
Refranchising, savings and maintenance
On the finance side, Red Robin will look to free up money to fund its First Choice initiatives and pay down debt. Specifically, it is looking to sell some corporate-owned restaurants to franchisees.
Red Robin currently operates about 80% of its locations, but could bring that down into the 65% to 75% range through refranchising, Pace said. That would see between 25 and 75 locations changing hands by early next year. Red Robin would then use the proceeds to pay down debt. As of April, it had total liabilities of more than $686 million, according to financial filings.
The refranchising plan is still taking shape, Pace noted. The company is weighing the trade-offs between selling a small number of high-performing restaurants for larger sums, or a larger number of underperformers for less money. But he emphasized that the goal is for Red Robin to remain mostly company-operated.
“As we speak with franchisees, as we speak with potential purchasers, it's going to be, what are you interested in? What are we interested in? What are we trying to solve for here, which is the proceeds generation?” he said.
The company will also look to carve out savings elsewhere. That will include ongoing efforts to operate more efficiently by streamlining the supply chain and using technology such as a new labor scheduling platform. Red Robin is also cutting costs at the corporate level that it estimates will lower G&A expenses by about $10 million a year.
The chain has shown progress on the bottom line recently. In the first quarter, earnings before interest, taxes, depreciation and amortization (EBITDA) increased by 108%, to $27.9 million. EBITDA for the second quarter also came in above the project range of $13 million to $16 million, the company said Monday.
Executives credited Red Robin’s managing partner program for this improvement. Introduced as part of the North Star plan, the program ties managers’ earnings to their restaurants’ profits, which has made them more invested in how their stores are performing.
Red Robin plans to use some of the additional cash flow to upgrade its restaurants through maintenance and new technology. A broader reimaging program will likely happen down the road, Pace said.
Pace, who was Red Robin’s chairman since 2019 before becoming CEO, said the company feels great about the new plan and its ability to execute it. Investors seemed happy too. Red Robin’s stock was up more than 8% on Tuesday afternoon.
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