Digital Initiatives to Aid Red Robin (RRGB) Amid High Costs
Red Robin Gourmet Burgers, Inc. RRGB is likely to benefit from digital initiatives and menu innovation. Also, the emphasis on loyalty program and strategic initiatives bodes well. However, increased expenses are a concern.
Let’s discuss why investors should retain the stock for the time being.
Factors Driving Growth
Digital Initiatives to Drive Growth: Red Robin has been investing in technology and data infrastructure to grow its off-premise, online ordering business. On the delivery front, the company partnered with Amazon, DoorDash and GrubHub. The company is working with each provider to better integrate into its POS and KDS systems and reduce the complexity in operations teams.
In the future, the company intends to collaborate with new third-party delivery partners and improve its digital platform through website enhancements and a new Red Robin mobile app. Backed by cost-effective channels, the initiatives are likely to boost operational execution, drive higher-order conversion and increase guests’ frequency and royalty participation.
Focus on Loyalty Program: A key long-term growth driver for the company is its guest loyalty program, Red Robin Royalty. The company engages guests through this program with offers designed to increase the frequency of visits. RRGB is focused on enhancing its ability to efficiently reach a broader audience through digital infrastructure and an omnichannel approach.
During third-quarter 2023 earnings call, the company stated that it is undergoing certain enhancements in its loyalty program, which is scheduled to launch in early 2024. The upgradations will focus on its strategy of moving toward rewarding its loyalty guests rather than concentrating on heavy discounting. The enhancements include its aim to deliver more relevant messaging to its more than 13 million members, transforming the program into a VIP-like experience accompanied by acquiring new members to foster a new generation of Red Robin ambassadors.
Strategic Initiatives to Enhance Profitability: The company continues to focus on three areas — revenue growth, expense management and efficient capital deployment to drive profitability. On the expense front, the company is focusing on a new supply chain management software, replacing its older manual system. This might result in improved control of waste and cost of goods, significantly reducing inventory levels at its restaurants. It would also allow restaurant managers to interact more with guests, resulting in improved guest experience.
The company also emphasized the upgrade of its cooking techniques. This includes transitioning from the existing conveyor belt cooking system to a more traditional flat-top cooking method. The company stated that the process is simpler and quicker for execution, eliminating significant maintenance and repair costs associated with the cooking platform.
Emphasis on Menu Innovation: Red Robin continues to focus on menu innovation to drive growth. In October 2023, Red Robin gave more than half of its burgers a gourmet status under the banner of Turn Up the YUMMM. In addition to this, it launched new entrees, appetizers, beverages and seasonal additions. Per prior anticipation, in the third quarter of 2023, Red Robin has introduced its upgraded items, including bacon, mayonnaise, vine-ripened tomatoes, pickles, fresh pineapples, sauces and other produce.
The company also launched new menu items, such as St. Louis-style pork ribs with the signature Whiskey River barbecue sauce and panko-breaded tsunami shrimp, in line with its barbell strategy.
Shares of Red Robin have gained 42.9% in the past three months compared with the Zacks Retail – Restaurants industry’s 12.6% growth.
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Concerns
Red Robin is persistently shouldering higher expenses, which have been detrimental to its margins. During the third quarter of fiscal 2023, labor costs rose 3.2% year over year to $103.7 million, while as a percentage of restaurant revenues, the metric increased 240 basis points to 38%. The increase was primarily due to investments in hourly and management labor, payroll taxes, and incentive compensation, partially offset by group insurance. For fiscal 2023, the company anticipates that commodity inflation will sequentially step down.
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