E Casual Dining Caution: Is "Labor Lite" Workable?

Implications of Labor Lite in Casual Dining

As to the operational staffing role changes, if there isn’t an expeditor or a busser scheduled that means the server primarily must be doing that work going forward. Interestingly, Red Robin didn’t announce they were doubling the number of servers and contracting table coverage zones. Instead, the server, who has the responsibility of being the primary guest service and revenue interface to the guest, gets double or triple duty. Of course, at times management can step into expo, but loss of their flexibility is then assured.

Everyone reading this sees the potential problem. Red Robin got many labor/service-related questions from the normally pro-cost-reduction sell side analyst group in the November 2017 call, and there may be even more now that the more role changes were reported. Aside from real world experience, there are boatloads of academic studies that show keeping the server focused on the guest is critical. With the average check premium that casual dining guests pay versus other ways to get something to eat, the potential of service downturns exist.

A look at some numbers is illustrative:

Red Robin Corporate Key Operating Statistics[2]

Year

2011

2012

2013

2014

2015

2016

SSS

-1.0%

-.6%

-.4%

-.5%

-.4%

-3.4%

Labor %

33.8%

33.6%

33.5%

33.0%

32.6%

34.3%

Average Ticket, $

$11.88

$11.73

$12.17

$12.63

$12.99

$13.05

 

So, Red Robin’s average ticket (per person average) is less than its casual dining peers--$4 to $5 dollars or more lower. Part of that is due to very low alcohol sales. With flat to negative SSS, labor cost increases simply aren’t leveraged because the ticket is lower. And yes, then, with wage rate inflation and a lower average ticket base, labor cost percentage at Red Robin is higher than what we would hope.

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Disclosure: The author has no positions in any stocks mentioned.

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