Red Robin Gourmet Burgers, Inc.
Red Robin Gourmet Burgers, Inc.
Incorporated: 1969 as Red Robin Enterprises, Inc.
Sales: $274.40 million (2002)
Stock Exchanges: NASDAQ
Ticker Symbol: RRGB
NAIC: 722110 Full-Service Restaurants; 533110 Owners and Lessors of Other Non-Financial Assets
Red Robin Gourmet Burgers, Inc. is a casual dining restaurant chain with a menu featuring a variety of burger sandwiches made with beef, chicken, fish, turkey, pot roast, and vegetarian substitutes. Red Robin owns and operates 100 restaurants scattered across 13 states. The company also franchises its concept, maintaining licensing agreements with 98 additional restaurants located in 17 states and in Canada. With a per person average check of $10, Red Robin relies heavily on the sales of its gourmet burgers, which account for 44 percent of the company’s food sales. Aside from gourmet burgers, the Red Robin menu includes salads, soups, appetizers, and other entrees such as rice bowls and pasta. With a target market consisting largely of teens and pre-teens, Red Robin restaurants generate an average of $618,000 in annual profits.
Red Robin’s presence in the casual dining industry was established in September 1969 when founder Gerald Kingen opened his first restaurant near the campus of the University of Washington in Seattle. The first restaurant, which offered gourmet hamburgers, found a receptive audience, leading Kingen to expand his concept by developing the format into a chain of restaurants. Kingen, who named his company Red Robin Enterprises, Inc., opened his own units and, importantly, relied on franchising agreements to augment his own expansion. The decision to franchise the Red Robin concept proved to be a significant one in the development of the chain. Through franchising, and through one franchisee in particular, the chain drew its strength. Kingen’s association with the company he founded later ended, but the franchising system endured, creating disciples of the gourmet burger format that extended the physical presence and geographic reach of the enterprise far beyond the efforts of its creator.
Of the numerous franchisees who would ally themselves to the Red Robin concept, none figured more prominently than Mike Snyder. A native of Yakima, Washington, a small city to the east of Seattle, Snyder became a Red Robin franchisee in 1979, when Kingen’s ten-year-old company sold the 29-year-old Snyder the rights to open a Red Robin in his hometown. Snyder’s first restaurant was a success, leading him to open other Red Robin units and to develop his own small chain of restaurants, which fell under the control of his company, The Snyder Group Company. While Snyder cobbled together his fiefdom of Red Robin units, Kingen pushed forward with his own expansion, fueled by the profits gleaned by Red Robin Enterprises. Several years after Snyder joined the ranks of Red Robin franchisees, Kingen reached a turning point in his career. Snyder, the young disciple, lost the mentor of the chain. New owners arrived, triggering changes that later required Snyder to correct.
By 1985, 16 years of expansion had engendered a chain of 22 Red Robin restaurants, which, two years earlier, had adopted Red Robin International, Inc. as its corporate title, a name change reflective of the company’s expansion into Canada. It was at this point that Kingen decided he wanted out. He sold the company-owned restaurants to a Japanese-owned restaurant operator named Skylark Co. Ltd. The large, publicly traded company assumed control over the seven company-owned restaurants and presided over the 15 franchised restaurants. Skylark went to the whip and began expanding aggressively, using its considerable financial resources to inaugurate an era of unprecedented growth. The Red Robin chain grew quickly, but the growth was errant. Under the guidance of Japanese owners, the definitively American dining concept began to suffer from the cultural gap. The chain lost its focus, it lost its consistency as a concept, and became wayward strategically, hobbled by ambitious growth that greatly increased the physical stature of the company but left it rudderless as a niche-oriented casual dining chain. Sales at company-owned restaurants slumped and profits fell. Efforts were made to replace management, but the changes failed to correct the problems. Expansion continued as the situation worsened, characterizing a decade-long period of growth pocked by anemic financial performance. The search for a remedy eventually was found in Yakima. Snyder became Skylark’s savior.
The Mike Snyder Era Begins in 1995
By 1995, a decade of control by Skylark had wrought discernible problems. The company-owned restaurants were generating sales nearly one-quarter below the total averaged by the chain’s franchised units. The franchisees were recording better financial results than Skylark, and one franchisee in particular outperformed all: Mike Snyder. While the Skylark-owned restaurants floundered, The Snyder Group Company thrived, controlling 14 profitable restaurants. After years of trying to resolve the difficulties plaguing its company-owned units, Skylark turned to Snyder for help. In April 1996, the company appointed Snyder as president and chief operating officer of the beleaguered chain, hoping the successful franchisee could lend his salubrious touch to the company-owned restaurants.
Snyder made an immediate impression. Within a year of his appointment as president and chief operating officer, the company’s board of directors selected him as chief executive officer. In May 1997, Snyder was elected as chairman of the board. His rapid rise through the executive ranks was attributable to the positive effect he had on Red Robin’s financial health and the performance of the company’s stores. Known as an aggressive operator before the perplexed Skylark board turned to him for help, Snyder wasted little time before he applied the management techniques he used at The Snyder Group Company to the whole of Red Robin. He paid close attention to costs and efficiency, succeeding in improving the profitability of the chain store by store. Snyder rallied the workforce, instilling a spirit of achievement and offering financial rewards for performance. Store managers, for example, were given bonuses for reaching sales objectives. A new upper-level management team was recruited and the restaurants’ menu was expanded. As part of the program to streamline the operations of the restaurants, 10 of the units were deemed underperformers and shuttered.
Against the backdrop of Snyder’s changes, the Red Robin chain improved its performance, taking on the luster exuded formerly only by certain franchised units. In 1995, the year before Snyder moved into corporate headquarters, company-owned restaurants generated average annual sales of $2.1 million. Individual stores averaged profit margins of 13 percent. After five years of Snyder-led management, the company-owned restaurants were generating average annual sales of $3 million. Profit margins swelled to 19.2 percent.
Encouraged by the achievements of the late 1990s, Red Robin made preparations for more aggressive growth during the first years of the new century. As part of the commitment toward growth, the company made several structural changes to better position itself for expansion. In 2000, the company completed a recapitalization and acquired the 14-unit Snyder Group Company, which gave Snyder a significant equity interest in Red Robin. Also, a private equity firm known as Quad-C invested $25 million in Red Robin, becoming the company’s largest stockholder. Following these two transactions, the company implemented a system-wide reorganization, forming, in January 2001, Red Robin Gourmet Burgers, Inc. to facilitate the reorganization. In August 2001, the reorganization was completed, a process that entailed all the outstanding capital stock being ceded to Red Robin Gourmet Burgers, Inc. Red Robin Gourmet Burgers, Inc. became the company’s new corporate title, although its business was operated primarily through Red Robin International, Inc.
Initial Public Offering in 2002
In its new guise, Red Robin prepared for a major leap in its evolution. In April 2002, the company filed a registration statement with the Securities and Exchange Commission for its initial public offering (IPO) of stock. Management hoped to raise $60 million in the offering, the proceeds from which were earmarked for expansion and debt reduction. The decision to convert to public ownership was indicative of the company’s desire to expand, as management announced long-term plans to increase the size of the chain to 850 restaurants. With fewer than 200 restaurants in the months leading up to the IPO, the company would need all the capital it could secure considering that in 2001 it cost $1.7 million to build a new Red Robin unit.
Red Robin’s announcement of its plans for an IPO and the revelation of its long-term growth plans caused industry pundits to assess the company’s prospects. Some analysts were concerned that the company’s’ reliance on gourmet burgers as its mainstay product hamstrung its ability to increase profits. By 2002, the price of the company’s signature burgers stood at $7, which was considered to be the plateau for burgers. In response, executives at the company’s head offices in Greenwood Village, Colorado, pointed to the projected growth of Red Robin’s core demographic. Teens and preteens constituted the bulk of the company’s customers. Between 2002 and 2005, that sector of the population was expected to grow by two million people, reaching 33.6 million teens and preteens.
At Red Robin, we live, work and think “unbridled,” a concept created in the high mountain desert of Idaho. After watching my son ride his beautiful and powerful horse, he then set this magnificent animal loose to run free in the meadow. Running … floating above the ground with grace and speed … it struck me. What if our company could run that same way with power and grace, no restraints, yet everyone knowing the direction and objective? What if we could be “unbridled” in everything we do at Red Robin? So it was and so it is.
Red Robin made its public debut in July 2002. Although the offering was deemed a success by both those within and outside the company, the IPO failed to raise the $60 million hoped for three months earlier. Instead, the stock was sold for $12 per share, giving the company $42 million in net proceeds. To augment this infusion of capital, the company also entered into a three-year, $40 million revolving credit agreement in July 2002. Together, the proceeds from the IPO and the credit agreement gave the company the financial fuel to drive its expansion.
As Red Robin entered its first decade as a publicly traded concern, the company was concentrating on expanding in the Southwest, Midwest, and East Coast. During the year following its IPO, Red Robin achieved strides in extending its presence into these regions. In July 2002, the company opened two new restaurants, one in Fenton, Missouri, and another in Toledo, Ohio, increasing its presence in the Midwest to 27 restaurants. In September 2002, the company bolstered its presence in the Southwest by opening three company-owned restaurants in Arizona, giving it a total of eight corporate and franchise locations in the state. Next, in December 2002, the company returned to the Midwest, adding a new franchise partner, Kansas City, Missouri-base PB&J. Under the terms of the agreement, PB&J vowed to open seven Red Robin restaurants in Kansas by 2007. In October 2002, Red Robin signed another new franchisee, Wimberly, Texas-based Centex Red Bird LLC. Under the terms of the franchise pact with Centex, seven restaurants were slated to be opened in San Antonio and Austin by 2007.
Expansion continued in 2003, building on the 193 units in operation in January 2003. During the first two months of the year, the company opened two new restaurants in Omaha, the first units in Nebraska. In March 2003, when the first unit in San Antonio opened, the company opened a restaurant in Columbia, Maryland, its fifth unit in the state. The month also included the signing of another important franchise partner, Dallas, Texas-based Mandes Restaurant Group, LLC. Under the terms of the agreement with Mandes, eight new restaurants were slated for construction in the greater Dallas metropolitan market by 2008.
Red Robin International, Inc.
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- Gerald Kingen opens the first Red Robin restaurant in Seattle, Washington.
- Mike Snyder, a Red Robin franchisee, opens his first restaurant.
- Kingen sells his stake in the company to Skylark Co. Ltd.
- Snyder is appointed company president.
- Red Robin completes its initial public offering of stock.
Berta, Dina, “Bob Merullo: A Weil-Done Menu and Beefed-Up Operations Send Sales Soaring at Red Robin,” Nation’s Restaurant News, January 27, 2003, p. 138.
Brand, Rachel, “Red Robin: IPO, To Go Investors Expected to Give Englewood Chain $60 Million Smile to Expand, Pay Off Debt,” Rocky Mountain News, June 8, 2002, p. 1C.
“Red Robin Gourmet Burgers Inc. Signed Wimberly, Texas-Based Centex Red Bird LLC to a Franchise Pact Calling for Seven Openings in San Antonio and Austin by 2007,” Nation’s Restaurant News Daily, October 23, 2002, p. 1.
“Red Robin Inks 7-Unit Pact for Conn., Western Mass.,” Nation’s Restaurant News, September 16, 2002, p. 112.
“Red Robin Raises $48M in IPO, Bucks Stock Slide,” Nation’s Restaurant News, July 29, 2002, p. 6.
“Taking the IPO Plunge,” Restaurants & Institutions, June 1, 2002, p. 23.
—Jeffrey L. Covell