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Needing a Hit, Red Robin Bringing Back Prime Chophouse

Filed under Marketing

Red Robin Gourmet Burgers next week begins what may be its most important promotion ever as it brings back the Prime Chophouse Burger, tries a bold pricing tactic and adds happy hours. 

The chain introduced the Prime Chophouse Burger one year ago, putting it on the menu at the discount price of $5.99 (most of its specialty burgers are priced from $9.29 to $9.99). Along with it, the chain featured a Southwest Grilled Chicken Salad, also at $5.99.

Beginning next week, the Prime Chophouse Burger (with horseradish-sautéed mushrooms, steakhouse sauce, Provolone cheese, onion straws and Country Dijon spread on an onion bun) is back. It will debut in the $9 range, but after two weeks the price drops to a more appealing $6.99, then moves back to $9 for the final two weeks of the promotion (which ends April 17). Sort of inverse bell-curve pricing. The LTO will get TV advertising support, via agency Periscope, for a portion of the promotional schedule.

Red Robin confirmed the burger’s return next week to but declined to offer guidance on pricing plans.

Red Robin has been trying to signal consumers that it has more than just burgers, so the flanker additions for this promotion will be a Spicy Avocado Chicken Wrap, Arctic Cod Fish and Chips and a new dessert, Cheesecake Bites.

The Prime Chophouse was a hit last year, so the pressure surrounding it isn’t about consumer acceptance. Instead the edge comes from the unease brought on by the Jan. 24, 2011, letter to Red Robin Chairwoman Pattye L. Moore from stakeholder Chicago-based Oak Street Capital Management LLC. The investment group called on Red Robin management—including Moore and recently hired CEO Steve Carley—to remove poison pill provisions barring takeovers; to reduce corporate overhead; suspend new-unit development until sales and profit margins strengthen; redirect cash flow to buy back shares; and put Oak Street members on the board. The letter concludes that “we believe that the market has lost confidence in the Board’s ability to effectuate positive change.”

Moore responded with her own letter to shareholders outlining changes in its shareholder-rights plan “designed to allow the board and our new CEO the time to comprehensively identify and evaluate a strategic direction for the business against a challenging consumer environment.” Management will report full year 2010 results on Feb. 17 and hold an earnings call that same day.

The pressure on the Prime Chophouse promotion (planned long before the Oak Street confrontation began) to succeed will be even greater if Red Robin reports results that Wall Street—or Oak Street Capital Management—consider disappointing. Results for the third quarter, ended Oct. 3, 2010, were positive. Restaurant revenues were up 4.2%, same-store sales at company stores rose 0.9% and guest counts were up 2.6%. Red Robin needs strong sales to continue to blunt Oak Street’s pitch to shareholders for management changes.

Since Carley became CEO in September, Red Robin has been evaluating a number of improvements to build sales and enhance the brand. One was the systemwide rollout last month of the Red Royalty frequent-diner program. Members receive extras throughout the year, including a free entrée on cardholders’ birthdays.

Additionally, Red Robin now is offering Happy Hour specials at about 60% of company-owned restaurants on weekdays, the chain confirmed. The chain says the idea is to increase awareness of Red Robin’s full-service bar. According to sources, Red Robin this spring will introduce an all-new drink menu with new specialty cocktails.

Promoting high-margin cocktails through Happy Hour promotions is an increasingly appealing tactic for casual-dining chains. Ruby Tuesday EVP Kimberly Grant told analysts during the chain’s recent earnings call that its investments in bar programs are helping it move alcohol sales from 9% of tthe total to its goal of 12%. Technomic recently forecast a 2.3% sales increase for cocktails this year.

Separately, P.F. Chang’s is rolling Happy Hour to its restaurants, and Chili’s is testing the idea at several units in Western Michigan.

4 Responses to Needing a Hit, Red Robin Bringing Back Prime Chophouse

  1. i’m racking my brain trying to figure out why red robin would adopt such a convoluted pricing strategy, but it just doesn’t make sense. a price reduction at the beginning of an lto can be an effective way to generate buzz and trial; one at the end of an lto can drive repeat visits — but one in the middle just seems like a way to confuse customers — or worse, piss them off.

    it seems like a smarter strategy would be to promote and leverage the chain’s new frequent-diner program but offering the special price to members — and/or to reward members for spreading the word to non-members about the lto.

    i understand management’s desire to prove to its board that they’re shaking things up, but a convoluted promo like this doesn’t seem to demonstrate a good understanding of how to build consumer relationships and the brand — maybe i’m missing something??

    — denise lee yohn

  2. I have to absolutely agree with Denise. In all my years of marketing with-in the restaurant industry I have not heard of such a lame, complex scheme. I go in the first week and try the burger at 9 bucks and love it. I go back 2 weeks later and only have to pay 7? Why did I pay 9 in the first place? With marketing strategy like this I have to agree that changes need to be made from the top down. Market this burger at 9 for the entire promotion and show consistency and integrity in pricing and product.

  3. Most of my companies work is in the restaurant industry. None of the brand strategy or brand building research that we have ever conducted would support 3 changes in a price point. They would be conducting a price elasticity study to measure the ideal price to charge to get people in without impacting demand. Their promo strategy will create confusion and frustration both externally and internally. Just imagine their poor servers who are going to have to deal with the wrath of unhappy consumers. Red Robin should focus on executing a strategy that gives consumers a reason that they should really care about the brand. If they did this, they would not have to worry about changing prices three times.

  4. Bruce Davis

    At Red Robin now doing this text. Poor service and poor food elsewhere + the TV $6.99 Tavern burgur/bottomless fries promo brought me in the door. Must say impressed with food quality, food tastes, food presentation and service quick and on the spot. Allentown Airport Rd a great model if not typical. Only evening happy hour would make it perfect as only offered before IronPigs games currently. Also I agree with pricing comments above. Everyone hates a bait and switch offer on pricing.