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Red Robin

Red Robin is now incentivizing managers for restaurant profits

Red Robin CEO G.J. Hart expects the company's turnaround plan to more than double the company’s 2022 adjusted EBITDA margin by 2025.

Red Robin’s “North Star” 5-point plan – aimed at “reversing the declining trajectory of the business” – is well underway. CEO G.J. Hart implemented this plan when he took on the job about six months ago.

During Red Robin’s Q4 earnings call Tuesday, the company reported a 2.5% increase in comp sales versus Q4 2021, marking the eighth consecutive quarter of positive comp store growth for the company. Restaurant-level operating profit margin was 11.4% in the fourth quarter and executives expect its North Star investments to boost those to 13% this year. Hart also predicts these efforts will more than double its 2022 adjusted EBITDA margin by 2025. For context, Q4 adjusted EBITDA was $8.9 million, while fiscal 2022 adjusted EBITDA was $52.8 million.

One of the biggest priorities in the turnaround plan is to get frontline operators involved in key decisions. Hart said those restaurant leaders will be compensated “as partners” by creating a similar program to other companies he’s led. Those companies include Torchy’s Tacos, California Pizza Kitchen and Texas Roadhouse. The program includes monthly compensation for restaurants’ management team based on their unit’s profits.

“The management team at each restaurant will be compensated every month based on the profits of their restaurant,” Hart said. “This will instill a real sense of ownership and drive real-time accountability and rewards for performance.”

Additionally, in December, Red Robin brought back bussers, hosts and bartenders – positions that were trimmed under previous leadership to save costs. The company plans to bring back its traditional service model, “where servers have fewer tables and are supported with busser assistance,” Hart said during the call, adding that restaurants will now have a managing partner, a kitchen manager and assistant managers. He said these changes have already generated sales increases.

Further, Red Robin is in the process of upgrading its cooking techniques and will transition from a conveyor belt cooking system to a flat top method. Hart said the flat top method yields a 20-percent larger, higher quality product, while the process is simpler for employees. The flat top cooking method has been in test since January, with 10 restaurants now live. Full system deployment is expected in Q2 with completion expected in the middle of the year.

“Reviews and feedback from both guests and team members has been outstanding,” Hart said.

Red Robin is also focused on removing costs and complexities, such as consolidating vendors and right-sizing contracts. Further, the chain is shifting from national media to local-store marketing to optimize guest engagement. It is also shifting its loyalty program, which currently has 11.3 million members, from being a discount program to a “true loyalty program” aimed at driving more frequency.

“When we execute on the first four parts of the North Star, we expect the outcome to be growth in comparable restaurant sales, positive guest traffic, meaningful gains in restaurant-level profit and unit economics that compel unit growth in the future,” Hart said.

CFO Todd Wilson added there is “great opportunity” in attachment items, like appetizers, desserts and alcoholic beverages, but said it will take time to build frequency and guest traffic based on the company’s North Star investments.

Donatos partnership

Red Robin’s Donatos’ partnership continues, and Donatos pizza is currently available in about 250 Red Robin restaurants. Comp sales in those restaurants have outperformed those without Donatos, executives said. Hart noted during the company’s last earnings call that the expansion of this partnership would be put on hold while Red Robin focused on its flagship business, however, 25 Donatos installations are still expected this year.

Contact Alicia Kelso at [email protected]

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