Guest traffic at Red Robin Gourmet Burgers restaurants fell 6.4% for the second quarter ended July 14 as the casual-dining chain shifted its promotional focus away from the brand’s $6.99 bargain burger line to pricier selections, with higher checks holding the decline in same-store sales to 1.5%.
Management said traffic should remain soft as the brand continues to nudge guests toward higher-priced sandwiches and addresses the core issue of providing a better in-store experience to guests. Executives said dine-in sales slipped 4.3%, compared with a 25.7% increase in off-premise revenues.
They emphasized plans to address execution issues in a number of ways, including a stepped-up effort to fill store-level management vacancies. The executives revealed that about 30 of the chain’s 562 restaurants are operating without supervisors or a general manager, but noted that the number had dropped from 100 stores at the start of the year.
Research has shown that units with a long-tenured GM at the helm tend to outperform in terms of sales and profits. Red Robin’s leaders continuously stressed that point in their call with financial analysts.
They also emphasized intended service improvements such as outfitting in-store employees with headsets, boosting managers’ time in the dining room and providing servers with handheld devices that avert the common practice of a waiter or waitress inputting all the orders from a station at the same time. With the handhelds, the orders are relayed back to the kitchen one by one for better pacing, the officials explained.
Units have also been equipped with printers for takeout orders, presumably to boost order accuracy.
Chain officials stressed that off-premise business, including catering, has been a bright spot for the brand, now accounting for 12.5% of sales. They aired plans to build off that foundation with experiments intended to capture data on delivery customers. Chairman and acting CEO Pattye Moore explained that Red Robin is testing a new process whereby off-premise customers would be encouraged to place their orders directly with the chain instead of using the app or website of a third-party service. The order would still be transported to the patron’s home or office by one of the third parties, but Red Robin would retain information on the customers and use the occasion to solicit membership in the chain’s loyalty program.
She did not reveal how that arrangement would affect the commission fees that are charged to Red Robin.
Recruiting more consumers into the Red Robin Royalty program will help the chain promote its higher-ticket burgers, Moore suggested. By showcasing those selections, the chain has lowered the portion of sales generated by its bargain-priced Tavern Double burger line to under 10%, compared with a mix of 16% to 17% last year, Moore said.
The Tavern Double line “of course did attract traffic, but it comes at a lower profitability levels and perhaps attracts a little more of the deal chasers,” said COO Guy Constant.
He and other officials said Red Robin still appeals to value-conscious patrons because its average check falls below the typical tab of grill and bar competitors, and price-sensitive guests appreciate the chain’s signature offer of unlimited fries. “As we improve the experience and the product that we're delivering to our guest, we believe that is going to really pay off and increase value perception from our guests,” said Chief Concept Officer Jonathan Muhtar. “At the same time, we get high marks for our bottomless promise, so we're leaning in there.”
Red Robin launched a new “omni-channel” marketing campaign in mid-July in part to stress premium options, and “the campaign is already producing results,” including a rise in per-person expenditures, said Moore.
“We do expect traffic to still be a little bit soft in the third quarter, but we do also expect it to improve,” she said. Moore noted that Q2 comps were Red Robin’s strongest in five quarters.
One of the tools for raising traffic, Moore continued, will be a "deep dive” into guest research during the third quarter.
“The output of this initiative will enable us to develop a comprehensive segmentation framework, better understand the guests needs that motivate visits to Red Robin, and further refine our position as a differentiated choice in the marketplace,” she said.
Overall, Red Robin generated a net income for the quarter of $1 million, compared with a loss of $1.9 million for the year-ago quarter. Revenues totaled $308 million, a slip of 2.3%.
Management did not address its relationship with Vintage Capital, an activist investor that has demanded changes in Red Robin's direction. Vintage Capital has offered twice to buy the brand for $40 a share.