Why burger giant Red Robin is now serving up pizza

Red Robin President & CEO, Paul Murphy, joins Yahoo Finance to discuss Red Robin’s growth strategy as the company expects an influx of consumers dining in restaurants and it’s new partnership with Donato’s Pizza

Video transcript

MYLES UDLAND: It's also, we should note, National Burger Day. It's always an national something day, but I do think hamburger's something we can get behind. Joining us now to talk about the state of its business is the CEO of Red Robin, Paul Murphy.

Paul, thanks so much for jumping on the show this morning to talk through the state of things over at Red Robin. So, you guys for coming out of the latest quarter and, I guess, do you think about it this way? What percent of the business has recovered from the pandemic yet? You know, are you guys operating at what you would deem a 75% level? Lower? Higher? How are you thinking about that recovery trajectory for your company?

PAUL MURPHY: Well, first, thanks for having me on today. You know, for the first quarter we were actually operating at about 48% capacity, and then as of a couple of weeks ago, at the end of our fifth period of the year, we were at 65% capacity. And so, we feel like we have a lot of runway still to grow sales and to bring people in.

You know, we have a very heavy presence on the West Coast and, you know, they've been a bit more restrictive and a little slower to loosen up and increase the capacity. But we see that coming by mid to end of June, and so we're very bullish of the trajectory that we have ahead for ourselves.

BRIAN SOZZI: Paul, you haven't hit in that-- like many other fast food companies, you are feeling the effects of the labor shortage. Have had to reduce store hours. When does that get under control for a company like Red Robin?

PAUL MURPHY: Well, we see it being under control and stabilized by early summer, and we've taken a few steps to address the issue. We, through technology, shortened our time for the hiring process and the onboarding process. We've modularized our training because a lot of applicants that we're seeing coming in have not been in the industry before, so we've enabled our training to be shortened in the sense that they learn one station at a time.

And then we've also put in a wage progression program that, when somebody's hired, very transparent as to their wage increases at 90 days, at six months, at 12 months, and 18 months. And we're finding all those things combined are working well for Red Robin. What we're seeing is, every week, an increase in the number of applicants, and that's what gives us the confidence to say that, you know, we see ourselves being fully staffed by early summer.

BRIAN SOZZI: And Paul, can your model support paying workers $15 an hour, because that's where a lot in the fast food industry, that seems to be where things are going.

PAUL MURPHY: You know, one, actually, an advantage of having such a heavy presence on the West Coast is a lot of the West Coast is already at that number. So, we feel like that we're actually advantaged against some of the other brands out there. The fact is that our kitchen wage is actually just a few cents shy of $15 now, so the impact on Red Robin I think is going to be much lighter than it will be on some of the other brands. So, we think we really got some great learnings from the West Coast and we're able to move forward and absorb this and be very effective from a financial model.

BRIAN SOZZI: Paul, you have a lot of fans here at Yahoo Finance-- our producer, Val. I mean, she loves Red Robin, loves the dipping sauce. Says it's fire. We were showing some burger images there on the screen. But I would be-- I would say a lot of investors don't realize you're also rolling out pizza to the chain. How big is this business right now inside Red Robin?

PAUL MURPHY: Right, we partnered with Donatos Pizza. We're in 79 locations. We're adding 120 this year. We'll have added 40 already by the end of the second quarter of this year. The restaurants with Donatos are outperforming the other restaurants without Donatos by over 300 basis points. And we see by the end of 2023, when we'll be in 400 restaurants, it'll add over $600 million to our top-line sales and $25 million to our profitability. So, we're excited about it, certainly it has done well pre-pandemic in the dining rooms, and as you can imagine, it is a top seller in the off-premise world. So we think we are fortuitous with the timing of bringing that into the brand.

MYLES UDLAND: All right, Paul Murphy, president and CEO at Red Robin. Paul, really appreciate the time this morning. Thanks so much for hopping on. Have a great Memorial Day weekend. I know we'll talk soon.