Good morning, everybody. Excuse the delay, we had a little technical issue. But welcome to CL King 22nd Annual Best Ideas Conference. We're gonna have a conversation with CEO G.J. Hart of Red Robin, and the CFO, Todd Wilson. W elcome, gentlemen, and everyone on the line and listening on the web. Let's get going. I wanna start with the kind of the two big macro questions regarding one, consumer behavior, two, the competitive response, particularly in the market as you see it, and also, we you know, we'll dive into what you guys are doing. So I'm asking, you know, obviously all the companies. Really started last, same question last year, a generic question.
I think last year, you know, was just starting to see kind of a slowing in the consumer and a little less, you know, frothiness in the consumer world. Then I think the summer and spring, but particularly the summer, I think things, especially in restaurants, but in a lot of industries, got, you know, probably the toughest we've seen in terms of, you know, real growth or lack thereof. Then I suspect August, maybe September, some improvement, so I wanted to get your sense. Do you think the consumer is kind of getting better? Was that the bottom? Is the consumer gonna kind of get better with lower interest rates and just sentiment and election behind us? Or what's your take on how the consumer is now and what's your, your outlook?
Sure. Hey, it's great to be with you this morning. I'll take a shot here. Look, it's an election year, and it's a very different election year than we've seen in past cycles. I think that's creating a bit of animosity and a bit of angst for the consumers in general, so I think more so than most. And I think that's definitely having an effect. We believe that as we get through the election, no matter who wins, you know, that things should stabilize a bit, and overall, we think consumer sentiment should get better. Having said that, you know, we've talked about this in our last earnings call.
As we went through the second quarter, the first part of the quarter was pretty strong for us, and we continued to make strides and started beating the industry against Black Box, et c. And then it seemed like, for the whole industry, kind of July the 5th is when things started to really materially change. And you know, we saw that probably till the end of July. And then since, so July was a tougher month, and then as we went into August, things got better. And then I would say thus far in September, things are you know, sort of stabilized to what we've seen in August. And so, that's good news.
From that, from our perspective, we continue to make strides against Black Box, and as we've said, we, in our earnings, that we've continued to beat that over the last several months. So, we're feeling good about that. But I do think getting through this election, going into 2025, the opportunity to see lower interest rates will be helpful. All of that should help the economy. But I just think we need some stability from the, just the political cycle here.
Yeah, G.J., you know, I mean, you've seen a lot of things. I mean, there was the Olympics as well. There's a lot of things that can distract people from restaurants and there was good viewership, surprisingly, for the Olympics. It was a great show, so I mean, that wasn't a surprise, I guess. But, I mean, does all that add up? W ould you put that, you know. Given your experience, you know, I'm, as you put on your analyst hat, not your. A lot of executives don't like to make excuses.
Yeah.
But, as a, you know, somebody who's been observing this industry for a long time, what's your take?
Yeah, I definitely think the Olympics definitely has a distractive effort from the restaurant environment. It's hard to say exactly how much, given everything else that's going on, as I said.
Yeah
Y eah, historically, I think it definitely has some effect.
Okay. Let's talk about, you know, competitive environment. Obviously, casual dining, QSR, in particular, been frothy in terms of promotional response to traffic. Where do you see that going? Do you think that ameliorates if the consumer feels better about going out to restaurant?
A couple of things you asked there. The first one, where do I see it going? I think as you've seen some of the fast food folks come out and say they're gonna continue $5 stuff till the end of the year. So I think we're gonna stay in this promotional activity here throughout until we do see that, and consumer environment start to stabilize. Although, you know, and particularly in some of the brands in casual dining, I think we worked so hard, I think, trying to be discount seven days a week, like some of them are. I think it's gonna be really difficult to come back to get something normal, 'cause people are gonna have an expectation.
As you know, we've worked extremely hard to try to get away from that seven-day-a-week discounting and get some more stability around our brand, and go back to providing a great food experience, great hospitality experience, but yet still being promotional where it makes sense in our spots. So we've worked hard, and we've got a couple things, as you know, that we've been working on with our 30 Bottomless sides. People know us for Bottomless fries. They don't necessarily know us for Bottomless, 30 Bottomless items. That's been super successful. That is a great value every day. That's worked for many, many years for Red Robin. And then starting to focus on things on our menu, like our Tavern Burger, which, you know, is $10 or $11.
It's with fries. It's a good value. It's a great product, and focused on that. And then sporadically doing some things in the earlier parts of the week that are typically the softer parts. So, I think you know this. We've been testing this $10 cheeseburgers on Tuesdays. We've rolled that out system-wide. That's been getting some real, real nice traction. And then most recently, we've added Monster Mondays, which essentially is nothing more than a way to get add-on to a ticket. So a couple bucks off of a margarita or a milkshake, and we're seemingly getting some traction there. We think that's a nice balance. We'll continue to test other things, but what I see this environment doing, I think we're playing well in it.
We're not gonna go compete in a media market with the kind of television and/or mass media that others can. We're gonna be much more targeted around it to communicate what it is we're doing, and that you can come to Red Robin and get a great experience and a great value. And by the way, you know, if you look at our price point compared to, you know, what you get at some of the fast casuals, I'd put us up against anybody if you want an experience. I think we're playing okay, but I do think it's gonna continue to persist, that people think it's gonna drive people into the restaurants.
I t's kind of interesting to me just as a consumer/analyst, that you can go across restaurants and get you know, casual dining or breakfast-oriented. Get pretty much the same price, but different quality. So it's kind of amazing. So you know, you took the company back to a more quality offering, and I think it's more quality differentiated offering. I think it's done well with your own consumers, but how do you get that out to new potential guests in an effective way so they can experience that?
Yeah. In our case, a couple of things that we're doing. Again, I'll just point you to earlier in the year. We heavied up on some marketing expense, and we took different weighting levels with media, traditional media, combined with some of the other activities that we've got going on. And we tested it in different markets, different levels. And what we found is, overall, that we thought we had the right kind of weightings, but net-net, the outcome was we got about the same kind of benefit, a bump up from a traffic perspective. So but let me take you back. Historically, Red Robin has been known to be very much focused on local store marketing, being parts of communities, and went away from that pretty probably five, six, seven years ago, and we've brought that back.
Many of our team members know how to do that. They know it. It's like riding a bike, they know. They've been, and we've brought that back, and we think that's a great way to communicate. We admit that that's a longer cycle, but it's a more sticky consumer that you get, and particularly given that we've improved 85% of our menu with better quality, the cooking's better, and the hospitality certainly is better, and we have you know, we see the data points to prove that out. F rom that perspective, we think that we're doing all the right things, so from a local store marketing perspective. From a PR perspective, that's another area, where it's really just getting the word out: "Hey, Red Robin's out there again.
Red Robin, you know, come give us a shot if you haven't been there." And then thirdly, being very, very focused and targeted in terms of how we communicate through digital and social platforms. And with the advent of our new loyalty platform, we have the ability now to be very specific and very targeted, and build a relationship with each individual consumer, which we never had that ability until we relaunched. W e're really focused on doing that. We think it's driving a bunch of activity for us, and we think it will drive sales long term. W e're not gonna compete, as I said earlier, in the mass media world, but we're doing it in a very targeted digital, social, PR, and local store marketing.
I n terms of the financial side, I believe, you know, I did little, some analysis around, you know, your marketing or advertising spend per store, and it really ramped up. And it sounds like you have discovered that some of that spending wasn't. You know, you didn't get quite the return you expected, so you can be as effective. It sounds like you discovered, like, "Hey, this is what works for this business and this is what doesn't," and, you know, something like that. And if you don't have enough gunpowder to, you know, go full, you know, TV advertising in your markets, you know, you can. It's better off ratcheting it back than being in the middle.
Yeah, I guess I'd like to liken it a little differently. Yes, that's our point. We did heavy up in the early part of the year, and we learned a few things. And to the point, what we learned is we can be effective spending a little bit less per unit and doing it very targeted.
Yeah.
We're gonna continue to do that, and that's why I say those components of, that I just described, I think is going to bode well for us, and particularly where we sit today.
I mean, I cover Krispy Kreme, and, you know, I used to live in Richmond, Virginia, and saw their community attachment and how they do it, blood drives and free dozens and, you know. And I can attest that it's very, it works. Are there other chains that take that approach, or is this kind of, in some respect, more unique to what Red Robin's traditional marketing approach?
I'm gonna refer you to the brand that I was a part of for many, many years. Texas Roadhouse uses the same strategy.
Yeah.
You know, it's very much locally driven and it's worked for them as well.
D oes that tie in, if it works the way you want it to or as it worked at Texas Roadhouse, with the restaurant manager and them getting, you know, obviously good bonuses for incremental business? And you would think it's a natural tie-in, like they'd be kind of living that every day in a more entrepreneurial way, but.
It not only ties, it ties in that way, for sure, Andy, but in addition to that, remember, many of our managing p artners in our system today have been with the company a long time. And Red Robin was sort of the. I think they were one of the strongest and that were really committed to local store marketing in the early days. W hen I was kind of coming up in this industry, I learned a lot from what Red Robin was doing. So we have a lot of folks that are very comfortable because they've done it before, and that makes us jumpstart this program in a much, much faster way.
Okay. So yeah, internally, there are some success stories already that are, you know, pretty decent and kind of point the path to like, yeah, you can get a discontinuous jump in guest count if you do X, Y, Z. And I know that's not gonna work across 500 units. There's a distribution to it, but there are success stories saying, you know, some things are really jumping out. Or even if it's not discontinuous, you know, we are impacting the trend and all that.
F or sure. We have those examples all over the country, and you know, it's like anything, you get a few of those wins, and you have people that are comfortable with it. All of a sudden, that momentum builds, and that momentum builds on momentum for the operators and the teams within the restaurant, so yeah, we have a lot of great examples, which is what's so fun about doing this, because not only does it build our business, but it makes our team members feel great.
G reat. L et's just step back and, you know, the turnaround story, the five-point turnaround, North Star, but just kind of without being a complete overview, this is what we've done. But, you know, where have you gotten the best bang for your buck that you might not have expected? Where's it been a little less impactful? What's left to do? What's sort of just the state of the union, in your view, on the North Star turnaround?
What I would say to start is that we have accomplished a lot. We have teams that I'm really, really proud of the work that they are doing and that we continue to do, and we see that everything from our team member engagement and where we are culturally within the company to our overall guest satisfaction scores, which, as you know, we're hitting numbers we haven't seen for 10 years. We've seen our guest sentiment go up 17 points. We've seen our loyalty program exceed our own expectations. We've put all those metrics in, so what I would tell you is that we're very proud of where we are and what we're doing.
The challenges and the thing that sometimes people in the public environment, it's just that it's, it's challenging, right? Because people expect when you have a little momentum, you're gonna get it overnight. These things take time when you have 500 restaurants. And so , while we're proud of what we're doing, it's never fast enough, and you can't just snap your fingers. There's no silver bullet. You have to do the blocking and tackling. Fundamental from who you hire, how you train them, how you execute, and how do you do everything within the restaurant in a high-quality way? And so I'd tell you that we're well along the way on where we stand. We just, it just takes a little bit longer than you might expect sometimes. O verall, happy where we are.
Overall, feel like we're right on track with what we're doing, and as we continue to prove and continue to make strides and beat the industry average, it's our intention to continue to do that through the balance of this year and into next year. And then, that will be reaping the rewards of all the positive attributes that we see today.
Well, I will tell you, in my approaching 30 years on Wall Street, I've seen a lot of turnarounds. They always take longer than even the ones that work, take longer than you expect. So, the plan's usually two years, and it takes three. I mean, it's just sort of I would just say, generally, year one, implement. Year two and then year two is sort of that, you know, primordial ooze, what's gonna happen period. And then, you know, for the ones that work, it really does happen. So, that's just been my experience. But, you know, every industry is different, but, you know, the consumer, it just seems, like you said, takes a little while to get them to to move. Great. I appreciate that.
So do you think, back to the, when I posed the question, there, there's nothing that you haven't done, there's no big missing thing, like, hey, or a thing you discovered, like, "Wow, we got 14 million members in loyalty. If we get that to 20 million, this thing's a slam dunk," or just something that you kind of analytically or intuitively feel like, hey...
Maybe you don't want to share it with us, because maybe a competitive dynamic you don't want to get out yet, but is it, you know, or have you gotten a better sense of what are the metrics that are, we believe, through experience or just my, your experience, like, the experience of what's happened with the restaurants that are doing well, particularly, that, "Hey, if we just leverage this, this is, you know, this is more important to a Red Robin customer than that?
Yeah.
Service is more important than whatever.
Yeah. F irst thing we had to do was bring back food quality. We've done that. We've changed the cooking platform, which has improved the burgers. We're seeing that in our overall scores around food quality go up, so we're feeling good about that. From a hospitality perspective, you know, look, we really feel good about where we are. We can always do better, but we are providing people in and out quickly now. We're giving people hospitality. We're doing table touches with management. We've got those things going in the right direction. From a marketing perspective, the communication is always challenging 'cause we don't have an unlimited checkbook just to go out and say, you know, just bury the world with Red Robin information. I wish we did, but we don't.
So it takes a little bit longer, and we're being very targeted and focused, and marketing definitely plays a part in what we do to get that message out there, like I described earlier. So we're certainly, certainly focused on that. In terms of is there anything missing that we're seeing? It's a great question because we challenge ourselves all the time. We feel great about what we're doing, we feel great about the success that we're seeing. Never fast enough. You know, is there anything that we're missing? So we'll challenge ourselves all the time, but I would tell you, in my experience, we're hitting on all the things. It's just a matter of having that momentum build and getting a little bit of headwind or tailwind from an economic point of view, and we're seeing it against Black Box.
We're seeing our numbers go up and feel great about that. So I don't think there's anything major we're missing. If I were to say there's one thing that's gnawing at me, is just making sure that as you have turnover in this industry, and we've finally gotten staffed to a place where we feel good with, can we get those people trained up fast enough to buy into and do the things we require from an overall experience perspective? And, you know, that's an ongoing, forever, as long as I've been in this business, that's a challenge. But here at Red Robin, we've made a lot of changes, as we've talked about over the last 20 months, that, you know, we need to get people to buy into.
So that's the one thing that will continue as an operator that we work on, but are we missing anything major? I don't think so.
Great.
G.J. and Andy, one piece to chime in for a minute, if I could. I thought about this when you asked the marketing question earlier, Andy, but just to build on this one of G.J. talked about that piece, but of what, what do we celebrate? And I think you and the investment community have heard us talk about this, but I think we just continue to be excited by what we see as the loyalty program. And, you know, when you talk about marketing and bringing new users in, absolutely, right? We'd love to bring new users into Red Robin, but in many ways, the first hurdle, the most straightforward hurdle is taking existing users and just increasing frequency. You know this, we've talked about this in the past, but, you know, average visitation frequency for Red Robin is around once a year.
Average visitation from our loyalty guests is around three times a year, and, you know, all of my experience, I know GJ's is the same. Typical for casual dining is, you know, at least three times a year, if not four, five, six, from an average guest. And so just what we're seeing out of loyalty with the number of sign-ups, with starting to see people come back more frequently, especially that 2x-5x cohort that G.J. talked about on the earnings call. You know, we've talked about it a lot, but I think the more that we see that data come in, the more excited we get on the opportunity that's still in front of us there with the loyalty program.
Great. Yeah, I, you know, having covered grocers for a long time, I can tell you, the grocers who've cracked the code on loyalty are miles ahead of the ones who haven't, and this is, you know, for high/low grocers, not Walmart or somebody, sticking with you, Todd, tell us- could you update us on your costs, a lot of the cost savings, not just that you've achieved, but what's planned and, you know, how you look at, you know, funding, marketing, and other things that you should be spending on vis-a-vis cost savings?
Yeah, absolutely, Andy. You know, we talk a lot about the investment we've made back into the guest experience to build traffic, and sales, and ultimately, profitability, and you know, we've talked about some of the cost savings of the past, of a different lens on those, right? Meaning the cost savings that were implemented in 2017, 2018, 2019, that we believe adversely impacted the guest. I think you know this, right? We've described it in some ways, these are cost savings that are parity or better, meaning it either keeps the guest exactly as they were or actually improves their experience. One of the simple examples we used early on was, you know, our distribution contracts are a per case delivery fee.
And so we took our hamburgers in different pack sizes across the country, but we took a 10-lb case and turned it into a 20-lb case, right? Guests got the exact same hamburger, admittedly now cooked on a flat-top grill that's a whole lot better than it was in the past. But they got the same ground beef, the same patty size, all of those things, and it benefited Red Robin. I'd say it's things like that that we have continued to do across our supply chain. We continue to capture cost savings. Chicken is an area that we talked about a few conference calls ago, where, you know, Red Robin had gotten to this very tight, narrow spec that was very costly, and frankly, we don't think was the best food quality a few years ago.
We made a change to that, opened up the spec that helped on the cost side, but the guest gets a fresh chicken product, delivered to their table. So it's things like that we continue to maneuver in our supply chain. I would tell you, you know, we've started to look, and the team's done great work. We talked about it on the earnings call of rolling out a revamped A versus T, or actual versus theoretical food cost measure. So I think like some companies, over time, the accuracy of it may wane, and so our team did great work to go back in, rebuild recipes, revalidate yields, and those types of things, to really get a precise calculation so that an operator can look at a P&L and say, "Okay, here's my opportunity, and I know exactly where it is," right?
It's not this a mbiguous number, but I know it's in these specific categories, and so it's things like that, that we just rolled that out in the second quarter that we still see runway going forward. And the last piece I'd say is w e feel confident with our cost saves for 2024, and then looking forward, we still see opportunity in front of us. There's a lot of legacy contracts that either are duplicative or, in our experience, are not at market rates.
Many of those come up in 2025, or some of them do at least. W e continue to expect cost saves will be part of our financial plan, our operating plan going forward. We love to talk about, and we're gonna be focused on driving the top line, but responsible financial management, we very much believe in. And the team's done a great job of that.
Tell me about the, this, you know, operational variance report where, you know, an operator's, a restaurant ops cost versus standardized costing, right? Just, you know, pretty standard to do. Does it come with a solution, too? So like if your labor variance is wrong, it's like, all right, we've identified it, and if the operator's not really quite clear, what they're doing wrong, do you have, like, a SWAT team can help them out, or, or is it a buddy system? I mean, there's, you know, there's a learning element to this and a, a sharing element, best practices, and so forth. So it's all great you can measure it, you got back to standardized costing. H ow do you help them with the solution?
Yeah. Very much so, Andy. That you're spot on, right, pointing at something and saying there's opportunity is only part of the battle. The second part is you got to solve it, and we very much do that. Now, the actual versus theoretical is one example. You talked about labor management, which we obviously have measures and targets there. You know, part of our structure and part of. You know, G.J. can chime in, but he certainly encouraged this, as well as our operations leaders that he's brought in. It is just that spirit of best practices, right? It's easy for us analytically to identify, hey, here's somebody who's different than somebody else. How do we go help that person?
And I think as we assess where Red Robin was in the past, it was a little bit insular, meaning, "I'm gonna do my restaurant as well as I can, but maybe not share that learning with my peers." And what we've tried to foster, and I think the team's done a great job of that, is, "Hey, if I'm struggling in one area and I see that you, Andy, are great at managing labor or food costs, whatever it may be, I'm gonna pick up the phone and call you, and you're gonna be happy to share your best practices with me." That's something that the team has very much encouraged. And whether it's a casual relationship like that, or we do have dedicated, you know, layers of operations leadership, right?
We have a Market Partner who's responsible for their, call it, eight to 10 to 12 restaurants. Those folks are really the coach, if you will, for the managing partner in each restaurant to go help them, right? If I use a carrot-and-stick analogy, this is not the stick, right? This is the carrot of real- we're trying to run a healthy business here and help each other get to success, and I think that spirit is very much across the organization.
Got you. All right, we got about four or five minutes left, probably four. These might be for GJ, but, Todd, if you wanna chime, whoever wants to answer them. But, you know, I mean, just back to sort of menu, catering, off-prem, t hese are some things that are, you know, in the industry where i f I got this right, you're gonna add some items to the menu.
In general, are you in a steady state with the menu, and these are just incremental items, or are these, there are things you're doing to the menu, either, you know, the architecture of the menu or really just adding some really new categories that really could be a bit of a needle mover, whether it's removing the veto power over somebody who just doesn't like burgers, or doesn't eat meat or something? Could you just comment on the menu where it's at versus optimal?
Yeah, sure. So during COVID, the company reduced the size of the menu quite dramatically. And since that time, we've added a few items onto the menu, and where we'd like to be is, is if we're going to put something on that menu permanently, we take something off. W e're feeling pretty good about where we sit with the number of items. S econdly, we clearly, we talked about this, over the last 20 months as part of our North Star plan, is that having a barbell menu strategy so that we don't just have, you know, burgers being the mainstay of the menu. So it does a couple of things that from a value perspective, it's better from a veto vote, it helps us. This widens up where we have categories. So we've done that.
We've added shrimp, we've added salmon, so we, you know, we continue to look at innovation around how do we barbell the menu more so, and then thirdly, we've looked at each of the categories, and we started with gourmet burgers, as you know, with cooking and so forth, and we've added some non-fried appetizers, and we're continuing to look there. Now what we're looking to do is freshen up our salad category. You know, we just launched some of the new desserts, or dessert category, so that we can get a fresh look on each of the categories within the menu, and we'll continue to evaluate what it's doing to check, and what we're seeing in terms of mix and so forth, but we're gonna continue to bring innovation to the menu.
That's part of the DNA of Red Robin, and we think that's important. But we're not gonna overly complicate that for the operators, because we have changed the operating model to where we know that execution is key here, and so the more repetition, the better we get, the better we'll overall do from a perception for the guest. So that's kind of how we're thinking about the menu, but that's on the food side. On the beverage side, we continue to innovate. We've always done a really good job on both non-alcoholic and alcohol, and you know, right now we've been focused a lot around non-alcoholic, and we're seeing some good movement there, but we've got more work to do there.
Just, just a follow-on that just occurred to me. Do you think that the typical group that comes through Red Robin, which, you know, traditionally was kind of family or a mom out with the kids at the mall, is that still the primary or core customer, or has there been a shift or additional change in the demographic, or is it more two moms out together wanting a salad? Does the menu have to match a different kind of cohort showing up?
Yeah, we're looking at that all the time. I would tell you, if anything, our population is getting a little skewing younger, because we're getting a little bit more relevant for the consumer from a younger consumer. But I would tell you that still what leads the way is that we're a family-friendly environment, and we'll continue to focus on that, but it does get younger, and that's a good thing. We will continue to monitor, to your point, is it lunchtime, you know, people coming to lunch, you know, all those kind of things, and then we'll adjust accordingly, but we haven't seen major shifts of our consumer.
Fair enough. Well, we have hit our allotted time. Thank you very much, G.J. and Todd, and thank you everyone on the line and listening on the net. Everyone, have a nice day. Appreciate it. Thank you, gentlemen.
Okay.
Thanks, Andy.
Thanks, Andy. Take care.