Stung by a $1.9 million loss for its second quarter, Red Robin aired a plan Tuesday to win back dine-in customers who walked out because a labor-saving initiative backfired.
Simultaneously, executives detailed initiatives to offset the damage by repricing the burger specialist’s everyday-value menu and pushing for more catering business.
Chain officials attributed the concept’s weak performance for the quarter ended July 15 to fewer guests dining on-site during peak periods, particularly at restaurants located in shopping malls. “The continued weakness in our dine-in traffic caught us off guard, while it is impossible to parse exactly how much is due to change in guest behavior and what is self-inflicted,” said CEO Denny Marie Post.
Red Robin’s fault is considerable, she indicated. Post explained that shoppers would see a crush of people waiting for tables and walk away. Even if they stuck it out, she continued, tables were turned more slowly, cutting into guest counts on weekends. “Seventy-five percent of the loss of dine-in service came from peak periods,” she told financial analysts, as recorded in a transcript from SeekingAlpha.com.
The glut, in turn, was the result of operational changes undertaken by Red Robin two years ago, a recast known internally as Maestro, Post said. With the installation of a new kitchen display system, two bussing positions were eliminated from each store. The function of collecting dirty dishes was shifted to servers.
“Unfortunately, we did not execute this well at all. And it impacted us most during peak periods,” she said. “We have seen both our wait time and the number of people walking away without being seated increase year over year.”
Guest-satisfaction gauges and a surge in customer complaints pointed to a problem, but “we were lulled into complacency,” because ticket times improved, Post said. Overall, traffic was down 0.7%.
Post detailed a number of moves aimed at winning back guests who were driven away. Those steps include:
- Upgrading hosts and hostesses.“Today, these hosts are asked to do much more as our takeout and third-party delivery businesses grow,” Post said, noting that staff members holding the job tend to be very junior. “We are moving rapidly forward with required new host training and improved selection criteria.”
- Increasing staff levels at peak times “to capture the unmet demand we see in our restaurant lobbies,” Post said. Yet she noted that Red Robin will continue to look at ways of reducing labor through the adoption of new technology, particularly in five Western states where labor costs are increasing at a gallop. She did not name the states, but said that Red Robin has a preponderance of stores there.
- Focusing laser-like on table turns and ticket times, “day by day, week by week, through year-end.We will be measuring progress weekly,” said Post.
- Simplifying the menu and tweaking service methods. “We are currently running multiple new service model and menu simplification pilots,” said Post.
- Grouping responsibilities for training and operational performance under one team, which reports up through the human resources department.
- Bolstering delivery and catering sales at mall units, which account for 16% of the Red Robin chain. Post also mentioned the possibility of trying new signage and location-specific deals to draw more dine-in patrons. In particular, she noted that Red Robin is forming a catering sales team to promote the chain’s signature Burger Bar, a mini buffet for homes and offices, as a delivery option.
- Trying alternative modes of promotion, such as discounts for members of Red Robin’s loyalty program. Post noted that $1.99 kids meals were offered during the quarter one day a week, to good effect.
Red Robin CFO Guy Constant stressed that the chain does not believe dine-in business was cannibalized by takeout and delivery, though he acknowledged, “we have very little visibility to that because the third-party delivery proprietors don’t share their data.”
Although much of Red Robin’s Q2 woes were attributed to the drop-off in on-premise business, Post noted that a 2.6% decline in same-store sales was also a result of the decline in the average check. The culprit, she said, was the success of the chain’s Tavern Double Burgers menu, a collection of burgers priced at the bargain rate of $6.99. The everyday-bargain items currently generate 15% of orders, up from 6% two years ago, when advertising was put behind the array. The mix was also raised by an expansion of the menu during the quarter to five burgers, from the three that were offered during Q1.
Post explained that the everyday value afforded by the menu has indeed drawn customers, but they tended to be current guests who traded down, instead of newcomers to the brand.
In response, Red Robin will vary the prices of the burgers included in the line, and will move cautiously on expanding the menu. If a burger is added to the Tavern menu, another will likely come off, Post said.
She also noted that future limited-time promotions will likely focus on higher-ticket burgers temporarily added to Red Robin’s regularly priced menu.
Overall, Red Robin’s revenues slipped by 0.6%, to $315.4 million. The net loss of $1.9 million compares with a profit for the year-ago quarter of $6.9 million.
“We are confident we have identified the key issues that led to our misses and are putting solutions in place to improve through year-end,” Post said on the analysts’ call. “Now it is up to our entire team, home office and field, to deliver.”