Red Robin Gourmet Burgers is seeing delivery orders drop — a decrease in line with industry-wide trends but compounded by the restaurant’s turn away from virtual brands and its decision to shut down its partnership with MrBeast Burger.
The casual dining chain, which has more than 500 restaurants in the U.S. and Canada, shared in its second-quarter FY2023 financial results Thursday (Aug. 17) that customer traffic declined 6% year over year, and the delivery channel was hit hard — not only in terms of the number of sales, but also check size.
“Like many in the industry, we experienced the year-over-year sales declines in the off-premise portion of our business, and in the third-party delivery segment in particular,” Red Robin CEO G.J. Hart told analysts on a call.
“We observed the greatest change in consumer behavior in the third-party segment, with guest managing their check down by approximately 12% as compared to the second quarter of fiscal 2022,” Hart said.
The company noted in a filing with the U.S. Securities and Exchange Commission (SEC) that consumers have been shifting from delivery platforms — where the menu prices listed are higher than in restaurants — to on-premise dining, with the dine-in mix rising from 71% in Q2 2022 to 75% year over year.
Indeed, many restaurants have been noticing softness in their delivery businesses, with consumers choosing to skip the fees amid rising menu prices and ongoing economic challenges. Brands including Applebee’s, Domino’s Pizza and Cava have noted consumers shifting to pickup to manage their spending.
Consumers report the same. Data from PYMNTS’ study “Connected Dining: Rising Costs Push Consumers Toward Pickup,” for which we surveyed more than 2,100 U.S. consumers, revealed that more than half (48%) say they have been more likely to pick up their restaurant orders themselves rather than have them delivered due to inflation.
Red Robin, however, is accelerating this shift, by discontinuing its partnership with blockbuster virtual brand MrBeast Burger, which has been going through upheavals lately.
In June, its eponymous YouTube star shared that he was trying to step away from the company due to quality concerns, and later suing the ghost kitchen company behind the brand, Virtual Dining Concepts, only to be countersued for allegedly breaching his contract, with the influencer later dropping his suit, per Law360.
“[We] made the decision to exit the partnership with MrBeast Burger’s virtual brand,” Hart said. “This decision supports our operators by reducing complexity in our kitchens, allowing us to focus on executing great food hospitality under the Red Robin brand while driving more profitable sales.”
Notably, this decision will likely have a larger impact on Q3 delivery sales than it had on Q2, as it did not go into effect until the end of the quarter, according to Hart.
Consumers, for their part, do not feel great about virtual brands either for the most part, with many preferring to get their food from brick-and-mortar brands. Research from PYMNTS’ exclusive report, “Connected Dining: The Robot Will Take Your Order Now,” which drew from a survey of nearly 2,000 U.S. consumers, revealed that 48% were interested in virtual kitchens, leaving 52% disinterested.