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Red Robin Gourmet Burgers Inc. expects its Donatos offering to reach $60 million in sales by year's end.

Red Robin banks on Donatos as long-term growth driver

Casual-dining brand sees pizza sales reaching $60M+ annually, expresses confidence in three new virtual brands

Red Robin Gourmet Burgers Inc.’s Donatos pizza offering and its introduction of three virtual brands in March have helped the casual-dining brand maintain off-premises sales as pandemic restrictions ease, executives said Wednesday.

The Greenwood Village, Colo.-based casual-dining brand publicly launched the initiative with Columbus, Ohio-based Donatos in January 2020, before the COVID-19 pandemic was declared.

And in March of this year, the company launched three new non-burger virtual concepts — Chicken Sammy’s, The Wing Dept. and Fresh Set. The restaurants are also serving as ghost kitchens offering Donatos for delivery through third-party marketplaces.

By the end of the second quarter on July 11, Red Robin had added 41 Donatos locations, said Paul Murphy III, Red Robin’s CEO and president, in a second-quarter earnings call with analysts. The company expects to complete 80 additional locations in the last half of 2021, bringing the total number of restaurants with Donatos to 200 by year’s end.

“We believe Donatos will generate annual company pizza sales of more than $60 million and profitability of more than $25 million by 2023, when we expect to have completed our rollout to approximately 400 company-owned restaurants,” Murphy said.

Lynn S. Schweinfurth, Red Robin’s chief financial officer, said off-premises sales made up about 32.8% of total food and beverage sales in the second quarter compared to 63.8% in the similar period of 2020 and 12.5% in 2019.

 “Notably, total sales driven through digital channels represented 85.3% of off-premises sales,” Schweinfurth said. “As a percentage of total off-premises sales, third-party delivery represented 49.3%, to-go represented 42.7% and catering and Red Robin Delivery each represented 4%.”

Murphy said that restaurants with Donatos are continuing to grow incremental sales beyond the first year with average weekly pizza sales up 4.2% compared to 2019 in the original locations.

“Donatos Pizza generated sales of $2.9 million in the quarter,” he said. “And our restaurants that offer Donatos outperformed the rest of the system by 550 basis points as compared to 2019, exceeding our original sales target by approximately 250 basis points.”

Red Robin is modifying processes, staffing, floor plans and technology to accommodate the virtual brands, Murphy said.

“As part of these efforts, we are increasing dedicated floor plan space to support our off-premises and catering orders without impacting the dine-in business,” he said. “We are on track to complete these reconfiguration efforts in 2022.”

Murphy said the virtual brands have low operational complexity and lack additional stock keeping units, or SKUs, so “executing these virtual brands is seamless for our team members.”

“The data indicate approximately 70% of our virtual brand guests have never ordered online from Red Robin before, demonstrating that we are reaching and activating an entirely new audience through this channel,” he added.

“During Q2, these brands contributed $5.1 million to our restaurant sales or approximately six orders per restaurant per day on average,” Murphy said.

For the second quarter ended July 11, Red Robin narrowed its loss to $5 million, or 32 cents a share, from $56.3 million, or $4.09 a share, in the same period last year. Revenues rose to $277 million from $161.1 million in the prior-year quarter.

Same-store sales in the quarter rose 66.3% over 2020 and declined 2.4% from the same period in 2019.

Alexander Slagle, an analyst with Jefferies, said in a note Thursday that staffing shortages may limit Red Robin’s pace of rebound. Many units are “still under reduced hours given staffing issues,” he said.

Murphy also said labor is impacting the company’s supply chain.

“The challenges in hiring and retention have also affected our suppliers, resulting in some intermittent product and distribution shortages,” he said. “Overall, we are mitigating supply chain disruptions by expanding the number of suppliers we purchase from and approving substitute products that meet our high quality specifications. We also took proactive steps to ensure we had our equipment source to remain on track for the rollout of Donatos in 2021 and 2022.”

As of July 11, Red Robin had 531 restaurants in the United States and Canada, with 430 of those company-owned. Red Robin was founded in 1969.

Contact Ron Ruggless at [email protected]

Follow him on Twitter: @RonRuggless

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