Red Robin CEO GJ Hart unveiled the company’s five-point turnaround plan about a year and a half ago. Several quarters into that work, investors finally seem to like what they’re seeing. On the heels of Red Robin’s Q1 earnings call after market Wednesday, company shares rose by double digits.
The uptick was despite a 7% drop in year-over-year revenues, a net loss of $9.5 million, and comp store sales decrease of 6.5%. But a sunny outlook provided investors with a strong sense of optimism, while Hart noted that the company’s recent investments toward service and food quality, as part of that plan, have driven positive comp numbers so far in Q2, at around 0.3%. Hart added that Red Robin’s value messaging, including 30 bottomless menu items, has benefited the company’s topline in a challenging consumer environment, and the company’s customers aren’t showing major signs of trade down.
“We are seeing our value-oriented Tavern Burgers pick up a bit, so you can assume some folks are managing their checks,” Hart said. “However, our promotional activity around some of our premium burgers has increased the usage of those as well. And add-ons, appetizers, desserts, etc., they held steady, so we’re feeling good about where our overall consumer is. Our consumers know us for bottomless fries, and now they realize that we have 30 menu items that are bottomless. We’re seeing huge improvements in guest satisfaction once we fulfill that bottomless promise.”
Hart said 79% of Red Robin guests want to order a bottomless item, which is driving the brand’s value scores “substantially through the roof,” as Hart explained. When bottomless items are “executed at 84%,” for instance, Red Robin yields 60% value scores, which is high for the brand.
“Value is probably what they rate toughest on. So, it’s telling us our guests want it. They’re significantly surprised there’s 30 items that are bottomless, which I don’t think we’ve done a good job in the past communicating, and that’s being received, and the take rate is improving all the time,” Hart said.
In March, Red Robin rolled out a new marketing strategy with the objective of generating visit frequency from loyal guests, new guest acquisitions, and more engagement. The strategy began with the promotion of the company’s 30 bottomless menu items and a focus on its upgraded ingredients. The strategy was complemented by a “Leave Room for Fun” campaign launched in May, promoting the brand as an “engaging and fun experience.” The campaign’s “Fun Guy” ad generated 1.5 million views in its first week, while driving a 15-percentage point increase in brand perception. Hart added that this strategy has also generated a financial return; a marketing test launched in five markets in March has resulted in an approximately 200-basis-point lift in traffic. Red Robin has since begun testing a new media mix with its campaign, with more focus on digital streaming and video platforms.
“These early results have proven that we have the right marketing initiatives to drive traffic and sales gains,” Hart said.
Red Robin has also homed in on its loyalty program, which has nearly 14 million members. Hart said the program has experienced 10% membership growth in the past year and those members visit three times more often than non-members.
“Eight percent of those new members are on their third visit within the first 90 days, compared to 8% of our members in the same period last year that were only on their second visit in a year,” Hart said. “That gives us incredible reason to believe this program is really going to work.”
The company revamped its program earlier this month, allowing guests to earn a point for every dollar spent, which will yield faster rewards than the previous program. Hart expects the change to drive even more frequency, as well as more customer data to help the company facilitate more personalized communication.
“We fully expect this new program to be a driver of our business rather than just a discount program,” Hart said.
One of the biggest earmarks for Red Robin’s investments is for guest experience initiatives, including a focus on operational execution and full staffing levels. Despite adverse weather conditions, Red Robin maintained its staffing levels in January and February, for instance. This decision created some margin pressures, according to CFO Todd Wilson, but it aligned with the company’s overall objectives of increasing guest satisfaction scores. Hart said the company began lagging the industry in guest satisfaction scores starting around 2016, but a renewed focus last year has translated to gains in scores across surveys and sites like Google, Yelp and TripAdvisor. Also, complaints are nearly 80% lower than they were in Q1 2018, when the company began tracking.
“We are further encouraged as we see first-time guest ratings are even higher than our repeat guests,” Hart said. “Delivering a great experience to our guests is a single key to improving performance of the business.”
As a result of these initiatives, Red Robin has seen sequential improvement in both same-store sales and traffic thus far in 2024.
“We believe the progress we’re seeing on traffic reflects a true stabilization of the business that hasn’t been present for many years,” Wilson said. “That’s only the first step, to stabilize the business. The next step is to grow it with things like loyalty and marketing.”
Contact Alicia Kelso at [email protected]
