Financing

Red Robin's recovery gets off to a fast start

Staffing changes and new grills are already paying dividends for the chain, but executives cautioned that a full turnaround will take time.
Red Robin exterior
Red Robin's sales and traffic are outpacing the industry this year. / Photograph: Shutterstock

Red Robin customers may already be noticing some changes at the 510-unit chain.

Perhaps while tucking into a burger and fries during a recent visit, they became aware of more workers, including, for the first time in years, employees dedicated to bussing tables and tending bar. Those roles, nixed by an earlier regime, began to return in December.

They might have also noticed bigger and better-tasting burgers. The chain is switching from a conveyor-belt cooking process to flat-top grills that seal in flavor and make the patties appear 20% larger. They’re already in place in 10 restaurants and slated for chainwide rollout this year.

According to executives, customers have been registering their appreciation for the updates via higher guest satisfaction scores. And sales are also improving. Through the first eight weeks of the year, Red Robin’s sales and traffic are outpacing the industry benchmark set by data firm Black Box Intelligence. The chain attributed the gap to its staffing changes, which have shortened wait times and allowed restaurants to capture more guests.

The glimmers of growth are part of a turnaround effort that is only just getting underway and that executives cautioned will take time. The three-year, five-part “North Star” plan calls for changes across the entire business, but most of them will flow from improvements to food, staffing and atmosphere. 

“It is really all about the guest experience,” CFO Todd Wilson told analysts Tuesday. 

CEO G.J. Hart outlined a few other North Star changes in store, including:

  • Performance-based compensation for managers. Management teams’ monthly earnings will be determined by profits at their restaurant. The program will start later this year.
  • Local marketing. Red Robin in recent years has positioned itself as a national brand with a national media presence, Hart said. He wants to take a more local, community-based approach.
  • New menu items at a faster clip. Hart called out non-fried appetizers and new entrees as areas of focus and noted that they’ll have shorter testing and rollout cycles than in the past.

“We are now highly confident that we can bring this brand back better than before,” said Hart, who has revamped the chain’s C-suite since taking over in September.

His strategy will be costly, entailing more labor and new equipment. But the chain plans to reduce expenses at the same time by finding efficiencies in the supply chain and eliminating redundant contracts—anything that won’t impact customers, Hart said.

Red Robin expects that formula to deliver the same revenue as last year—$1.3 billion—while also expanding restaurant-level operating profit margin to 13%. It was 11.4% in the fourth quarter.

It’s also predicting commodity and labor inflation in the mid-to-high single digits. 

Analysts were curious about how the chain plans to turn higher costs and flat revenue into better margins, but Wilson assured them that “Yes, we can grow restaurant-level operating profit while making these investments at the same time.” He also noted that the guidance does not reflect Red Robin’s strong start to the year.

For the fourth quarter ended Dec. 25, same-store sales increased 2.5%. That reflected traffic of negative 6.3%, a 7.3% price increase and a 2.2% mix improvement. 

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