Red Robin Gourmet Burgers

Red Robin is a casual service restaurant chain with full alcoholic beverage service. At the
beginning of this decade, it had grown to a large chain with 445 restaurants and sales in excess of $1
billion. Despite this success, Red Robin’s financial performance began to decline due in part to intense
competitive pressure and significant increases in commodity and other operating costs, all of which
contributed to declining restaurant margins and profits. In September 2010, Red Robin appointed a new
chief executive officer (CEO), Steve Carley. Carley had extensive experience in the restaurant industry,
hospitality industry, and brand management. Red Robin’s board felt he was the right person to return
the chain to profitable and sustainable growth. When Carley arrived, the company’s stock was trading at
low multiples, and its valuation was depressed. This made the company a target for a takeover by
another restaurant company or private equity firm. Carley needed to move quickly to improve Red
Robin’s business performance and increase shareholder value. His actions were deliberate, as he
realized the importance of creating value for shareholders, but he did not want to do this at the expense
of employees, which the company refers to as “Team Members,” or customers, known at Red Robin as
“guests.” Carley had joined the company with a great deal of respect for Red Robin’s previous four
decades of success building a highly recognized restaurant brand. He also admired the strong Team
Member culture at Red Robin and believed that there was considerable untapped potential within the
company in terms of both talent and ideas. He knew that listening to his fellow Team Members would
be an essential part of developing a plan that would improve business performance and create a “best-
in-class” restaurant company that preserved the strong internal culture, served quality food and a great
dining experience to guests, and delivered strong and consistent returns to shareholders.

Working with his management team and the company’s board of directors, Carley led the
development of Red Robin’s long-term strategic plan, which the company named “Project RED.” As
Carley explained the plan’s chosen shorthand, “RED, in addition to being a color that is almost
universally associated with a sense of urgency, stands for Revenue growth, Expense management, and
optimum Deployment of capital.” By way of example, before Carley’s arrival, Red Robin teams
developed an initiative to increase revenue called Red Royalty™, a loyalty program designed to not only
increase frequency of guest visits but also establish true customer loyalty by understanding guest
purchase behavior and preferences to tailor incentives for repeat visits. A trademark of any successful
loyalty program is changing consumer behavior. For example, a guest who comes several times a year to
a Red Robin might be offered only a free burger if he or she comes during the next month. A customer
who comes in once a week, but never eats an appetizer, might be offered a free appetizer on their next
visit. The program also features surprise offers that are designed to entice customers to try menu items
they would not ordinarily order, such as appetizers or desserts. This creates an interesting and fun
dining experience. Red Royalty™ had already been in a successful test phase in 45 restaurants. One of
Carley’s early moves to increase revenues was to accelerate rollout of the program to all company
restaurants and begin a rollout to Red Robin’s franchise system. To address the “E” of Project RED,
expense reduction, Carley directed his team’s focus on three main areas of controllable costs: reducing
administrative and restaurant-level expenses, reducing supply chain costs, and improving day-to-day
business efficiencies and productivity. In addition to implementing a reduction in force at the company’s
home office, Carley challenged the company’s operations teams to identify opportunities to improve
restaurant operating margins by about 200 basis points, representing several million in annualized cost
savings. Within the first year of the cost management directive, Red Robin’s operations teams had
identified more than 200 potential cost-saving opportunities, big and small and all across the business.
Finally, Carley’s management team took a fresh look at how the company deploys capital, the “D” in
Project RED. The goal was to establish capital deployment strategies that allow Red Robin to both grow
the brand and maximize long-term shareholder value. Initiatives included continued efforts to improve
the performance of new company-owned Red Robin® restaurants to maximize cash-on-cash returns for
new restaurant development, and increased investment to overhaul systems and infrastructure to not
only better serve the existing restaurant base but also support future growth. While Carley and his team
moved quickly to implement Project RED initiatives, it was also important to make sure that the
company continued to live its core values, which included taking care of Team Members. For Carley, an
important part of respecting and taking care of Team Members was open and consistent internal
communication—making sure that he and his senior team created a culture that encouraged honest
assessment and sharing facts about how the company is performing— “telling our people the score,”
Carley explained. Instead of hiding bad news from employees, Carley held meetings with key employees
to discuss precisely the financial and market share problems facing Red Robin. When asked about this,
Carley said, “Employees in any company know the company’s problems and how serious they may be.
They appreciate straight talk and honest answers to their questions. When employees are told the facts
and are given an opportunity to assist in correcting problems, they will respond in a positive way.”
Carley also said that it is counterproductive to blame poor financial performance on external factors,
circumstances beyond the company’s control or bad decisions from former leadership, or to make Team
Members feel they somehow failed. Instead, he said it is much better to start by recognizing the many
years of dedication and hard work by Team Members in the past that led to Red Robin’s many years of
growth and prosperity. Carley needed to make sure Team Members were now focusing on making Red
Robin the truly great company that everyone in the organization knew it could become. If the company’s
goal was to become great, it was important for Team Members to understand what greatness looks like,
Carley said. The management of Red Robin selected several restaurants they considered to be great
performers, many of which performed considerably better than Red Robin, even when faced with the
same macroeconomic challenges in recent years and used them as “best-in-class” benchmarks. Carley
said that without such external benchmarks, companies revert to measuring performance against their
own prior results.

Questions

1. Perform SWOT analysis

2. A balance scorecard is a concept that was originally developed by Professors Kaplan and Norton
of Harvard University. It is used by Carley on the business operations, what do you think is the
content of the balance scorecard in terms the following.
a. Financial perspective
b. Customer perspective
c. Internal process perspective
d. Learning and Growth perspectives
3. What did you learn on Carley’s management strategies? (Give at least 5)
4. What can you recommend/suggestions to Carley to succeed? (Give at least 5)