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Red Robin (RRGB) Rides on Sales Initiatives Amid High Costs

Zacks Equity Research

Red Robin Gourmet Burgers, Inc. RRGB continues to focus on menu innovation, digital capability enhancement and expansion to revive top-line growth. However, high costs and limited international presence remains a concern.

Let’s delve deeper into the factors substantiating for driving growth.

Solid Sales-Building Initiatives

Apart from brand revitalization efforts, Red Robin is focused on menu innovation and operational improvement, and strives to build a better customer service platform. The company continues to launch a variety of salads, appetizers, innovative desserts and adult beverages as well as kids’ menu.

Furthermore, Red Robin focuses on promotional and limited-time offers to boost revenues. The company’s guest loyalty program — Red Robin Royalty, initiated in 2011 with a goal to increase the guest count, is an added positive.  

Of late, Red Robin has been investing significantly in technology and data infrastructure. The company is set to grow off-premise, online-ordering business via carry-out, delivery and catering. Increasing demand for off-premise orders is resulting in higher traffic.

On the delivery front, the company partnered with Amazon, DoorDash and GrubHub. Notably, it is working with each provider to better integrate into its POS and KDS systems, and ease the intricacy in operation teams. Also, third-party delivery is now available at most of its locations.

Meanwhile, Red Robin is expanding its productivity and service models, and also increasingly supporting To-Go and catering services to drive greater guest check. To make its menu affordable to a varied range of customers, and drive incremental traffic and sales, the company is banking on prudent pricing strategies.

Concerns

Apart from significant top-line pressure, Red Robin has been witnessing rising costs and expenses in recent quarters. Additionally, the company is investing heavily in several sales-building initiatives like advertising and technical upgrades, which is resulting in elevated costs.

Remodeling and restaurant maintenance are also adding to rising expenses. In the second quarter of 2019, restaurant-level operating profit margin contracted 110 basis points (bps) to 18.2%, following a 170 bps decrease in the preceding quarter. The decline was due to a 90-bps rise in labor costs and a 50 bps increase in other restaurant operating costs.

Moreover, Red Robin, which shares its space with BJ's Restaurants, Inc. BJRI, Brinker International, Inc. EAT and Chipotle Mexican Grill, Inc. CMG, is highly dependent on consumer discretionary spending.

Consequently, it is highly vulnerable to the inconsistent nature of consumer discretionary spending. If the company does not make pragmatic use of advanced technologies to innovate across value chains, it has high chances of fading out like many other restaurant retailers.

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