QUOTE AND NEWS
Benzinga  Oct 11  Comment 
Stephens said in a note that Red Robin Gourmet Burgers, Inc. (NASDAQ: RRGB) remains its best idea in restaurant, attributing the opinion to a trio of factors, namely improving revenue trends, meaningful cost opportunities across multiple line...
Motley Fool  Aug 9  Comment 
These stocks rose on a down day for Wall Street. Find out why.
Benzinga  Aug 9  Comment 
BTIG upgraded Red Robin Gourmet Burgers, Inc. (NASDAQ: RRGB) following the release of its second-quarter results, which showed directional change in traffic trends. Shares were rallying 13.40 percent to $60.95. Analysts Peter Saleh and Ben...
Benzinga  Jul 17  Comment 
Celebrity chef Bobby Flay is tapping the public market and will 'mini-IPO' his burger chain called Bobby's Burger Palace, The Wall Street Journal reported. Flay's company is looking to raise around $15 million to better support his restaurant...
Motley Fool  Jul 6  Comment 
Red Robin, Tesla, and GlobalStar were left for dead in recent years but came back with a vengeance in 2017. Read on to find out what's next.
Motley Fool  Jun 9  Comment 
The burger restaurant chain jumped after a strong quarterly report.




 

Overview

Red Robin Gourmet Burgers, founded in 1969, is a chain of dining restaurants. It is headquartered in Greenwood Village, Colorado. They are well known for their gourmet burgers and family dining experience. Throughout the 2000s Red Robin struggled financially, along with the rest of the restaurant business. However, Red Robin closed out 2010 with a strong fiscal year thanks to new management strategies implemented over the past couple years.

In 1985, Red Robin expanded outside of the United States opening up in Burnaby, British Columbia. In the year 2000, Red Robin merged with Snyder Group which allowed it to expand even further nationwide.

Red Robin went public, July 19, 2002, with an initial public offering. Each share was worth $12 and four million shares were sold.

Currently, Red Robin has over four hundred restaurants located throughout the United States and eighteen in Canada. [1]

Porter's 5 Forces

Competitive Rivalry

Red Robin's main competitors include other companies in the restaurant industry such as Applebee's and California Pizza Kitchen (CPK). Red Robin competes for both its workforce and clientele basis within this industry. Having the ability to retain team members and develop recurring customers is pertinent for any restaurant. Currently, Red Robin's earnings per share is almost twice that of the industry average. Major competitor CPK saw negative growth over the past year while Red Robin was strong at 5.7%. However this was well below the industry average of 8.9%.[2]

Since the economic downturn Red Robin has stayed strong while many companies in the restaurant business have faltered. One competitor, O'Charleys, closed 16 of its operating restaurants this past December.[3] Larger restaurant companies such as Red Robin, Applebee's and California Pizza Kitchen are benefiting from their new customers.

Threat of Substitute Products or Services

The threat of substitutes is high. Red Robin is directly competing with California Pizza Kitchen, Applebee’s, and T.G.I. Fridays. Customers might switch from eating at Red Robin’s if there are other restaurants trying to compete with our customers. The competing restaurants might offer better food choices that are higher quality or they could offer the same food as Red Robin but for better prices. Customers can even buy frozen burgers at grocery stores for much cheaper prices but obviously not as high of quality.

Not only are they competing with casual dining restaurants but they are also competing with fast food. Some customers may not have the time to go to a sit down restaurant so a fast food chain is a better option such as Burger King or McDonald’s. However, by going to a fast food chain the quality of the product is much less than what a customer would get at Red Robin.

Bargaining Power of Buyers

Red Robin has a large customer market and customers are not as demanding. Usually, customers are low to middle class and do not expect/demand too much when they are going out to eat for dinner. Customers have a high bargaining power with Red Robin because they can easily switch restaurants.

Bargaining Power of Suppliers

In the restaurant industry, suppliers have a fair amount of bargaining power. A company like Red Robin, who specializes in burgers, has a high demand for quality beef suppliers. Suppliers of beef are able to have the upperhand in pricing because the majority of Red Robin's products come from them. A shortage of beef or spike in the price would not reduce the volume that Red Robin purchases.

At the same time Red Robin has bargaining power with suppliers in the other food items it provides. Toppings, condiments and other food items which are not essential to every burger are of much less concern to Red Robin. In turn Red Robin has the ability to shop around suppliers to look for the lowest price whereas competitors with a more diverse menu, do not have this option.

Barriers to Entry

The threat of entry of new competitors is high. It is easy for someone to open a restaurant to sell burgers. Burgers are a very popular food in the United States. However, Red Robin has a very strong brand image. When a customer goes to Red Robin they know to expect huge, delicious tasting burgers that will not burn a hole in their pocket. Not many other restaurants would be able to offer the same type of service for the price that Red Robin can do it. This makes customers loyal to Red Robin and more likely to eat dinner there, instead of going to some other restaurant for dinner. In addition, Red Robin has a very strong brand image. They run commercials on television and even have a catchy slogan, “Red Robin YUMMM.”

Image:untitled4.jpg[1]

SWOT

Strengths

Red Robin has a few strengths in this industry. This includes locations, with over 400 restaurants all over the United States. They also have the quality processes and procedures, not only in their food but in their customer service. All Red Robins stand by honest to goodness which includes fresh quality ingredients, made to order, and served with pleasure. Fresh quality ingredients include fresh, never frozen meats and using zero trans fat oils. Made to order is possible since each and every order is made just the way you want it. Served with pleasure is the energy and vibrancy every red robin has with its employees to show how dedicated and proud the employees are to be working there. [4]

Weakness

Red Robin also has undifferentiated products as a weakness, since burgers and several other items on the menu are also available on the competitors menu. Another weakness could be that their menu options. There aren't a variety of products outside of burgers that you can order at Red Robin, which could hurt it in terms that a family may choose a competitor due to the variety of option they can eat.

Opportunity

In 1985 Red Robin entered into the international market in Canada. Since the company is growing to new locations, they are also growing into new markets as they are selling to new customer segments. Some competitors have also closed, such as Charley, opening more opportunity to gain market share. [5][6]

Threat

Threats to Red Robin include their competitors innovating new products. For example, McDonald's now has the new Chipotle BBQ Bacon Burger. The new toppings and sauce make it appealing. [7]. There is also deals and promotions that have been going on by its competitors appealing to customers. This includes Chillies and Applebees both offering 2 for 20 meals. Applebees also offers a diet menu that only has meals under 550 calories. [8]

Competitors

Benihana BNHNA

Benihana is one of the largest Asian restaurant chains in the United States by revenue and the number of restaurant locations. [9] Benihana's core restaurants continue to be its "Benihana" teppanyaki-style cooking Japanese restaurants, which are responsible for approximately 68% of the company's revenue. Benihana also controls two other Japanese food, RA Sushi restaurants and an upscale fusion and sushi Japanese restaurant, called Haru. [10]

Buffalo Wild Wings BWLD

Buffalo Wild Wings is responsible for a total of 232 company owned and 420 franchised restaurants in 42 states in the United States. The majority of their revenues (91%) come from restaurant sales at their company-owned restaurants . Food and nonalcoholic beverages accounted for 76% of restaurant sales, whereas the remaining 24% was from the sales of alcoholic beverages. The highest sales menu item are chicken wings at 21% of total restaurant sales. Franchise fees and royalties are 9.3% of revenues.[11]

Brinker International EAT

Brinker's International Inc. owns and franchises the following four brands of causal dining restaurants: Chili's, Macaroni Grill, On the Border, and Maggiano's. [12] Brinker's restaurants can be found nationwide. However, it has a small international presence. The company earned $3.6 billion in revenue and $79 million in net income in 2009.

DineEquity, Inc. DIN

DineEquity owns two chains in the casual and family dining category. These restaurant chains include Applebee's Neighborhood Grill and Bar and the International House of Pancakes (IHOP). Overall, the company operates a total of 1,976 locations of its Applebee's restaurants and 1,344 IHOP restaurants worldwide.[13] The company identifies its business segments as franchise operations, company restaurant operations, rental operations, and financing operations across its two chains.

Financial and Operating Metrics

' RRGB BNHNA BWLD EAT DIN Industry
Market Cap.367.36M143.42M 942.40M2.07B1.02B381.28M
Employees24,0386,3001,000100,4006504,100
Gross Margin19.50%47.78%46.50%15.92%32.19%28.17%
Operating Margin3.57%14.45%7.80%5.21%6.02%8.07%
Revenue864.27M313.52M613.26M2.86B335.40M357.05M
EBITDA60.29M253.50M120.21M142.21M78.49M44.62M
Net Income4.58M79.74M57.45M46.61M14.33MN/A
EPS0.460.072.101.38-1.240.25
P/E51.48135.2324.6216.83N/A21.3
ROA1.24%-3.64%11.14%5.46%1.92%N/A
ROE2.48%-6.77%16.46%15.08%42.75%26.7%
ROIC1.48%-4.48%14.13%7.07%2.06%N/A
Employee number[2][3][4][5][6]

[14]

BNHNA = Benihana
BWLD = Buffalo Wild Wings
EAT = Brinker International
DIN = DineEquity, Inc.

Competitive Analysis

When looking at RRGB and its four main competitors, a comparison between these companies will not reflect an ideal assessment. By looking at the market capitalization of each company, we immediately realize the difference. The market capitalization range from 143.42M to 2.07B, but RRGB’s market capitalization, 367.36M, is very similar to the average of the restaurant industry. In the categories of gross and operating margins, RRGB underperforms when compared to rest of its competitors and the industry average. However, when comparing the P/E ratio with the competitors and the industry, RRGB has one of the highest value. This high P/E suggests that investors are expecting higher earnings growth in the future. Looking at the operating metrics, RRGB is lagging behind in all three categories: ROA, ROE, and ROIC. This means that the company is less profitable and is not spending its money very wisely when compared to the rest of its competitors.

Trends and Forces

Current Economic Conditions

Uncertainty in current economic conditions and the existence and speed of any economic recovery may have an adverse effect on the businesses, results of operations and financial condition of the Company. The presence of continued unemployment, lack of stable improvement in the already weak housing markets, downtrend in real estate development, fluctuation in financial markets, and reduced consumer confidence are all factors that add to the uncertainty. As a result, customers may continue to remain hesitant about the economy and maintain/shrink their already lowered level of optional spending. This could impact both the frequency and value of a customer dining out, thereby decreasing restaurant revenues and potentially adversely affecting the operating results.

Inclement Weather

Weather is the most powerful force on this Earth. With the recent worsening weather conditions, Red Robin faces significant risks that might cause actual quarterly and annual data to fluctuate significantly or even be affected negatively. Extended periods of extreme and unexpected weather will affect the volume of traffic at the restaurants in a negative fashion. It will also limit the availability and cause shifts in the price of key commodities such as beef, poultry, potatoes, and other important ingredients in their products.

Increase in Prices

An increase in prices may negatively impact the volume of traffic in the restaurants. Red Robin is forecasting around a 1.5% price increase in April 2011 in order to offset increased operating expenses within their restaurants. While they have not experienced significant resistance from the consumer to past price increases in 2008 and prior periods, there is no assurance that the planned 2011 price increase or any future price increases will not prevent guests from visiting the restaurants or alter their buying decisions. [15]

Transition to a new CEO

On September 13, 2010, Red Robin announced the appointment of new CEO, Stephen E. Carley. The company's future success depend on his ability in piloting the company. He has to be capable to simultaneously adapt to and execute corporate strategies/initiatives, while nurturing key professional relationships with team members, franchisees, and key business associates. It is important for Red Robin as an organization to transition smoothly with the new CEO as failure to do so may cause the company to be left behind in this competitive restaurant industry.[16]

Human Resources

Image:Landing_image_right.jpg [17].

When looking at a family restaurant, HR Management does not jump out as a core strategy. Employee turnover can be high and coordinating with store management may not be easy. Red Robin however, puts its employees first. By offering competetive benefits to base employees (Team Members), Red Robin makes itself an attractive employment choice for career workers in the restaurant business or just students looking for a part time job. Red Robin's employee benefits plan includes, but is not limited to, a 401k option, health and other insurance, and vacation time.

At first glance it seems outrageous to offer these types of benefits to someone who may not be with the company for more than a few months, but for all of these employees who leave, Red Robin ensures the longevity of several others. This can dramatically reduce on training and other costs related to new workers in the business. In such a competitive market where the talent pool is interchangeable, retaining workers could be pivotal to a restaurants success.

In addition to benefits for servers and other "Team Members", Red Robin has an extensive benefit package for those in management. All members of store managment are eligible for quarterly bonuses tied to sales, customer count, and income before operating expenses. Tenure, team growth, and leadership are also merits that are rewarded by Red Robin. These attractive bonuses help ensure longevity of management within the business, and may also attract management from competing restaurants.

Marketing Strategies

In 2008 and 2009, Red Robin had to reevaluate their marketing strategies as the recent market downturn had caused a decline in customer traffic to their restaurant. Their customer traffic had also declined due to a decision to cut down on the use of national television marketing. Red Robin had to create an image for itself that stood out from all the national restaurant chains they competed against. In 2010, Red Robin decided to put a lot of marketing research towards how their guests viewed their business; what were their strengths, what were their weaknesses and how could they use these in a marketing plan to increase their guest traffic? They focused on their signature burgers and their fun friendly customer service. Red Robin conducted a limited time promotion with ten local television channels; with the success they received they concluded to continue to utilize national television limited time promotion. This is why Red Robin’s slogan has become so well known is because of all their national television coverage; Red Robin…YUMMM…followed by a limited time promotion that entices families to come in for a low priced burger and a good time.

Red Robin provides a memorable dining experience with a variety of American food at a low price. Red Robin Gourmet Burgers is just that a burger oriented food chain designed to give guests a variety of burger options and toppings to chose from anything from vegetarian to Hawaiian to BBQ. All their burgers come with an endless supply of steak fries. All of the above plus a happy friendly server who makes a connection with you and your family all for an average price per person per check of $11.63 including beverages.

Another strategy Red Robin has put in place is opening less restaurants in 2010 than the previous years. By decreasing the number of new restaurants opened Red Robin can focus on their developments more closely. New Red Robin restaurants, in the first year, tend to have higher sales volumes than other com-parables and but end up having lower profits. In order to balance this out and normalize the new restaurants faster Red Robin has decided while still continuing to expand to do so at a slower rate. This also gives time for Red Robin to plan for future sites carefully. Each Red Robin is placed at a very specific location; always within an area of population with 70,000 people within a 3-mile radius or 100,000 people within a 10-mile radius, having mostly families with the median income being at least $65k per year.

Image:Rrgb1.jpg [7]

Recent Quarter Highlights

Quarter 4 2010

RRGB reported fourth-quarter results that shattered past market expectations.The company reported that it earned $2.2 million, or 14 cents per share, for the last three months of the year, versus $1.6 million, or 10 cents per share, in the same quarter in 2009. After adjusting for costs, the company earned 12 cents per share compared with 11 cents in the prior period. Revenue rose 6 percent to $192.6 million from $182.2 [18]

Quarter 3 2010

RRGB reported its third quarter 2010 adjusted earnings of 11 cents per share, which missed the estimate of 22 cents and were down 70.3% from 37 cents in 3Q 2009. Total revenue in the quarter rose 4.2% year over year to $194.8 million. Red Robin’s total revenue comprises restaurant sales (up 4.2% from 3Q 2009 to $191.6 million), franchise royalties and fees (down 1.1% to $3.0 million) and other revenues (up more than 500.0% to $0.2 million). [19]

Quarter 2 2010

RRGB posted a quarterly profit that missed market expectations as its limited-time value menu offerings hurt the average check, and the casual dining chain named a new chief executive as part of a succession plan. They had an EPS of 0.28 versus the estimated EPS of 0.36 by the market. Red Robin said high unemployment rates in the company's California and Arizona markets also hurt second-quarter results. [20]

Quarter 1 2010

RRGB's reported quarterly earnings of 32 cents per share surpassed the estimate by 4 cents, and up 28.0% from 25 cents posted in Q1 2009. Total revenue in the quarter improved 1.7% year over year to $275.5 million. Red Robin’s total revenue comprises restaurant sales (up 0.3% to $267.5 million), franchise royalties and fees (up 0.4% to $4.2 million) and other revenue (up more than 100.0% to $3.8 million). Selling, general and administrative expenses in the quarter leaped 24.2% year over year to $30.8 million attributable to investment in the company’s television media campaign. [21]

Quarter 4 2009

A nearly 10-percent drop in guest traffic that led to negative same-store sales, as well as impairment charges on two restaurants, resulted in a 43-percent plunge in fourth-quarter earnings for RRGB. Same-store sales for the December-ended quarter fell 7.4 percent at corporate restaurants. A 2.2-percent increase in the average guest check did little to offset a 9.6-percent decline in customer counts. Net income for the quarter fell to $5.8 million, or 38 cents per share, compared with $10 million, or 60 cents per share, for Q4 2008. [22]

Quarter 3 2009

RRGB's profit fell 8 percent on lower sales as people ate out less during the recession. Red Robin had fewer customers and lower average guest checks, which together dragged down sales at stores open at least a year by 15 percent during the quarter. The company earned $5.7 million, or 37 cents per share, in the quarter that ended Oct. 4. That is down from the $6.2 million, or 40 cents per share, it earned a year earlier.Revenue fell 10 percent to $186.9 million from $208.6 million, coming in short of analysts' prediction for revenue of $197.5 million. [23]


References

  1. Red Robin History
  2. RRGB Competitors
  3. Revisiting Restaurant Row
  4. Honest to goodness
  5. Revisiting Restaurant Row
  6. History
  7. McDonald's Promotions
  8. Applebees Menu
  9. Benihana 2007 Annual Report, pg.1
  10. Benihana 2007 Annual Report, pg. 4
  11. BWLD 2009 10-K "Overview" pg. 23--24
  12. EAT 2009 10-K "Restaurant Brands" pg. 1-2
  13. DIN, Inc. 2007 10-K,pg. 4
  14. Yahoo! Finance: RRGB
  15. Red Robin 2010 Annual Report, pg 13
  16. Red Robin Is Ready to Sizzle
  17. Red Robin Careers
  18. RRGB Q4 2010
  19. RRGB Q3 2010
  20. RRGB Q2 2010
  21. RRGB Q1 2010
  22. RRGB Q4 2009
  23. RRGB Q3 2009
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