Restructuring plans at Red Robin result in layoffs at the corporate headquarters
Red Robin Gourmet Burgers has unveiled a new strategic plan, dubbed the "First Choice" plan, aimed at reducing debt, enhancing financial performance, and investing in restaurant improvements. The plan includes a tactical refranchising of select company-owned restaurants, with up to about 15% of their stores potentially refranchised over the next few years [1][4].
This refranchising means some restaurants will be sold to franchisees, but it does not signal closures of these restaurants. Instead, ownership will shift from corporate to franchise. The majority of Red Robin locations will remain corporation-operated, and there is no stated plan to close a specific number of restaurants as part of this plan [1][4].
The CEO, David Pace, emphasized that this is not a broad shift to an asset-light model but rather a targeted and limited effort to manage assets more effectively [4]. The refranchising is part of a broader strategy to improve financial performance, drive traffic, and enhance guest experiences [1][4].
Red Robin currently operates approximately 400 of its 500 locations, with the remaining 100 being company-owned [1]. The company expects to sell between 25 and 75 restaurants, with transactions expected to close next year [1]. This move is expected to save the company $10 million annually in G&A through cost reductions at the corporate level [1].
The First Choice plan also includes efforts to lower restaurant expenses through supply chain efficiencies and technology investments [1]. In addition, Red Robin is launching a new combo meal called Big Yummm, featuring a Red's Double Tavern Burger, bottomless fries, and a bottomless drink, in an attempt to boost traffic [1].
The Big Yummm deal has shown promising results in test markets, with a few percentage points increase in traffic [1]. However, for the second quarter, Red Robin's same-store sales fell by 4%, indicating ongoing traffic concerns [1].
G.J. Hart, the former CEO, stepped down in April and was replaced by Pace [1]. The reduction in corporate workforce and the new First Choice plan form a foundation for the company's future, as Red Robin aims to remain a largely company-owned system [1].
Investors are bullish on the new First Choice plan, as Red Robin's stock has increased more than 13% since its unveiling [1]. The company has total liabilities of $686 million as of April [1].
Despite plans to sell up to 70 underperforming company-owned locations over the next five years [1], the company has not announced plans to close a set number of restaurants as part of the First Choice plan. Instead, closures do not appear to be a central component of the plan.
[1] - Source: Red Robin's Investor Day presentation, 2023 [4] - Source: Interview with Red Robin's CEO David Pace, 2023
Investors are interested in Red Robin Gourmet Burgers' new strategic plan, the "First Choice" plan, as they have observed an increase of more than 13% in the company's stock following its unveiling. This plan involves investing in restaurant improvements, along with exploring financing opportunities through franchising some company-owned restaurants, with up to about 15% of the stores potentially being refranchised over the next few years. The company expects to generate approximately $10 million annually in savings through cost reductions at the corporate level due to this move.
