Seattle-based Red Robin Gourmet Burgers Inc. (RRGB) recently announced that it would open a new Red Robin restaurant in Bethel Park , Pennsylvania , in mid July. The new 6,958-square-foot restaurant will seat 239 guests. Opening of this restaurant will create 100 new jobs in the area.
Two months ago, Red Robin Gourmet Burgers had opened another restaurant in Pittsburgh, Pennsylvania. This 5,789-square-foot restaurant has a capacity of 206 seats. The company is focusing on rolling out smaller prototype restaurants (nearly of 5,800 square foot) to reduce construction and occupancy costs, and in turn boost returns on capital. Both new restaurants are partnered with the National Center for Missing & Exploited Children (“NCMEC”), a nonprofit organization.
Red Robin Gourmet Burgers, which currently owns and operates 306 restaurants in 31 states, and franchises 133 restaurants in 21 states and two Canadian provinces, plans to open twelve to thirteen company-owned restaurants in fiscal 2010.
Red Robin Gourmet Burgers has dramatically slowed down its unit expansion in response to a dipping restaurant operating margin as well as same-store sales. It opened 15 company-owned restaurants in fiscal 2009 as against 31 in the prior year. However, with an economic revival underway, the company expects a turnaround in 2010 and stresses on brand awareness through a national advertising campaign.
Red Robin Gourmet Burgers focuses on expediting food orders in a colorful and family-friendly atmosphere that appeals to women and children. As a result, 30% of its customers are under the age of 18 compared with 16% for other casual-dining restaurants. Accordingly, Red Robin Gourmet Burgers will donate 50 cents from every gourmet burger sold during the opening week of Bethel Park restaurant to NCMEC. The donation will support the child safety initiatives by the nonprofit organization. Last month, the company announced another child-based limited period offer that it would give away free Child ID Kits with the purchase of a kids’ menu item at participating Red Robin Gourmet Burgers restaurants.
We believe that the opening of new restaurants in fiscal 2010 is a part of the company’s effort to gain market share in the gradually improving restaurant industry, which was badly hit by the economic downturn that resulted in weak labor, tight credit markets and lower discretionary spending.
Most of the company’s peers like BJ’s Restaurants Inc. (BJRI), California Pizza Kitchen Inc. (CPKI) and Buffalo Wild Wings Inc. (BWLD) are on a modest expansion mode in fiscal 2010. We believe, going forward, this will intensify competition for Red Robin.
We currently have a short-term Strong Sell recommendation on Red Robin Gourmet Burgers.
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