Red Robin Gourmet Burgers alerted stock analysts yesterday that it will likely need the first half of 2019 to resolve the operational and cost issues that left the casual-dining operation with a $10.6 million loss for the last quarter of fiscal 2018.
Here are some of the ways management intends to right the brand. “We expect to see it all come together in the back half of the year,” Red Robin CEO Denny Post told the financial analysts.
Boost on-premise sales and profits
The 573-unit chain has tested three potential ways of luring customers back for a dine-in experience, which typically generates a higher margin than takeout or delivery. The method getting the green light appears to be a new $10 bundled meal that’s offered only as an on-premise option. Guests can choose one of three burgers, each of which comes with unlimited servings of fries and a “bottomless” drink. A packaged deal will also “make it easier to seat a busy family,” Post said.
“This drove incremental and profitable with the dine-in traffic in our test market. If it is as successful on a broader scale, it will be in our national tool kit for Q2,” she said.
Speed up dine-in service
A core challenge for the chain is maximizing business on weekends, when traffic is at its peak, but so are customers’ time pressures. Table turns slowed significantly last year because of operational changes that shifted the task of cleaning and resetting tables to dservers. The waiters and waitresses just weren’t doing it. Wait times soared, as did walkouts by waiting customers.
“Dine-in traffic was down by a total of 4.2% for the year, which clearly is not sustainable and undermines the growth of our off-premise business,” said Post.
In addition to stepping up training and tweaking certain operational processes (see below), the brand hopes to cut service times in several ways. First, the chain is outfitting servers with handheld devices that relay orders from table to kitchen, starting with units in markets where labor is particularly expensive and tough to recruit.
Second, Red Robin is conducting another review of its menu and kitchen processes to simplify back-of-house operations. “2019 will feature a number of steps that will be less about new things for operations to learn and more about taking the things already implemented and making them easier to execute with excellence,” said Guy Constant, who shifted late in January from CFO to COO. “This emphasis will have us work on doing fewer things excellently as opposed to more things adequately.”
The chain has already increased staffing in some stores, and is stepping up its training as a tight labor supply forces the chain to hire fewer experienced restaurant workers.
Decide which restaurants stay in the fold
A large portion of the chain’s restaurants are located in shopping malls, which face their own sales challenges because of the massive shift by consumers to online shopping. A Red Robin inside a store usually generates 3.6% less business than a free-standing store, and that gap has been widening, according to management.
In response, the company intends to reassess its portfolio. Said new CFO Lynn Schweinfurth: “We continue to focus on improving the performance of certain challenged mall locations through rent reductions and marketing and sales-building strategies to improve profitability.”
Post warned that some restaurants will likely be shuttered, without indicating how big of a reduction she expects. Other units will be refranchised, she said, noting that the company has hired an unidentified party to help in speeding up those sales. Currently only 89 of Red Robin restaurants are franchised.
Lessen the chain’s reliance on a bargain menu
Among the initiatives that backfired for the chain last year was the Tavern Double menu, an everyday roster of burgers priced at $6.99. Although the lineup was an effective lure, according to management, it also led regular customers to trade down, eroding Red Robin’s average check by 0.1% during the fourth quarter of 2018.
Red Robin has revamped the Tavern line’s pricing so that now only two of the featured burgers are priced as low as $6.99. It’s also been showcasing higher-priced premium alternatives.
The remedies reduced the percentage of sales generated by the Tavern menu to 14% in the fourth quarter of last year, a 3 percentage-point drop from the third quarter.
More topspin will come from the shift of Red Robin’s loyalty program to a digital platform, where info on customers will be easier to slice and dice, Post explained. Promotions can be based on customers’ preferences and behaviors rather than on price, she suggested.
Continue building off-premise business
One of the bright spots for Red Robin in 2018 was the success of its catering initiative, essentially a burger bar that customers can offer in their homes or offices. Catering sales have grown from $1 million in 2017 to $11 million last year, said Post, who predicted the sales volume will at least double in 2019.
She did not reveal how the sales will be raised, but noted that Red Robin will continue to invest in new technology.
In addition, Red Robin will introduce a new takeout initiative this year, Post said. She did not divulge details.
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