Red Robin Gourmet Burgers CEO Paul Murphy cracked open the casual chain’s playbook Tuesday to reveal the next steps in the burger concept’s turnaround plan, including the rollout of Donatos-brand pizza to its 550 units within three years.
The introduction will cost the company and its franchisees about $91 million all told, or roughly $165,000 per store, according to CFO Lynn Schweinfurth.
The addition of Donatos pies, currently in about 25 units, has boosted both delivery and dine-in business, the executives said. They said the pies have become a popular shared appetizer as well.
Other next steps include a rationalization of Red Robin’s burger-heavy menu. Murphy said a streamlining of the bill of fare should bolster food quality while cutting ticket times and thereby boosting throughput, a key problem for the chain last year. During the fourth quarter, transactions dropped 3.4%. The chain eked out a 1.3% rise in same-store sales through a 4.7% increase in the average tab per customer, with 1.8% coming from a decrease in discounting.
Price cutting will not be a major strategic pillar of the updated comeback plan, Murphy indicated.
He also mentioned the need to keep Red Robin’s marketing aligned with what customers indicated are its key attractions. Previously, the brand had touted bargain prices and special deals. “Yet in research, guests told us it was moments of connection that activated their use of Red Robin, not just price,” said Murphy, who joined the chain as CEO in October. “When we corrected this messaging misalignment, Red Robin scored as one of the top two brands for search engagement volume across all casual dining.”
He explained that the chain conducted extensive research during Q4 about the brand’s perception. According to Murphy, the data showed that consumers valued “the flavor of Americana” provided by Red Robin’s burger-centric menu; the family-friendly and “playful” atmosphere of the stores; the ability to share items such as fries, offered in unlimited supplies, and, in test markets, the Donatos pizzas; and service that provides “the gift of time” by adjusting to how long guests want their stays to last.
“Importantly, these are all actionable items which we are emphasizing to our general managers and field leadership,” Murphy said, without revealing many particulars.
He was similarly mum on the specifics of what he said would be a new service model adapted by the brand this year. He did divulge that a key component will be a shift to tablets for servers.
A new Red Robin prototype is currently under development, with a planned unveiling in 2021, Murphy said.
The initiative that drew plentiful questions from financial analysts was the partnership with Donatos, a Midwestern cult favorite known for pizzas whose topping extends to the very edge of the crust. The Columbus, Ohio-based brand has about 160 brand-name pizzerias in operation within 10 states. Officials of that chain have described the arrangement with Red Robin as a way of expanding the brand’s market scope without an investment in brick-and-mortar—in essence, turning Red Robin units into ghost kitchens for the pizza specialist.
Murphy revealed last month that the current 25-unit test of the partnership would be expanded to 100 stores this year. Tuesday marked the first time the chain indicated its plans to go systemwide with the co-branding. The initial test units saw a 3.5% increase in transactions, he noted.
Schweinfurth described the gains as "highly incremental."
The test began last summer. The arrangement is a multiyear licensing agreement that Schweinfurth likened to a conventional franchise deal.
Overall, Red Robin narrowed its losses in Q4 to $7.7 million, compared with a net deficit of $10.6 million in the year-ago quarter. Revenues for the quarter totaled $302.9 million, a 1.2% decline.