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Last week, Red Robin released earnings and had its Q1 2009 conference call. It revealed pretty weak traffic comparables (-10%), and the stock price fell about $4. JP Morgan downgraded to neutral view on May 22 2009.
Much to do was made of the company’s decision to forego national cable advertising in Quarter One, preferring instead to do on line digital, direct mail, and in-restaurant marketing. Its marketing spend on a percentage of sales basis was up 30 bpts. Further, the company said it was returning to more product oriented marketing (steak sliders), and back to national cable TV spend, with a $600K increment over prior year.
I’m always interested in how media drives the business, and pulled up the following from the 2008 Investors presentation (7/2008) and the 2008 10K:

Year
2008
2007
Change
Restaurant AUV
$3231K
$3330K
-3.0%
EPS
$1.69 diluted
$1.82 diluted
-7.4%
Operating profit $
$45.2M
$52.6M
-14.1%
# weeks television
23
11
+109.1%
Average Quarter price/High Low
$43.58 to $7.49
$44.60 to $32.35

Clearly, a lot of factors were underway (recession, high commodity costs, structural lifestyle changes affecting casual dining) that affected the sector as a whole. But just turning on the spigot on television didn’t drive sales. With average 2008 year units of 400, they probably don’t have the penetration. Thus, spending $600K in incremental cable is like a shot in the dark, but the return to product marketing should help.
One very interesting factor is that franchisee ad fund contribution rates have fallen (see 2008 10K note below), making for a possible $11M ad fund negative impact.
National Media Advertising Campaign. In 2008, we expanded our national media advertising campaign that was started in 2007 by launching the campaign in February 2008 as compared to April 2007, and by airing more than double the number of weeks on-air in 2008 compared to 2007. This advertising campaign was funded by both company-owned and franchised restaurants that in 2008 contributed 1.5% of their sales to a national advertising fund, which was up from 1.0% in 2007. We believe the national media campaign helped to build brand awareness and brand equity in both new and existing markets.
Given the increased difficulty in measuring the effectiveness of national cable advertising in an environment where consumers are pulling back on retail and restaurant spending and our desire to reduce costs in this challenging environment, we will not run national cable advertising in 2009. This will result in reduced spending equal to approximately 0.25% of restaurant revenue in 2009. In 2009, our marketing strategy will be focused on expanding our national on-line and digital media advertising efforts as well as introducing a targeted direct mail campaign to support product specific news.
And finally, once again, other than one related question by Piper’s Nicole Miller Regan, there was almost no talk about the franchisees performance. RRGB isn’t actively seeking franchisees right now, but is losing franchise units via company repurchase. Its recent repurchase of 15 franchisees may have lowered the AUV base, making analysis difficult. See RRGB 2008 10K unit count table below:
Unit Data and Comparable Restaurant Sales
The following table details data pertaining to the number of restaurants for both company-owned and franchise locations for the years indicated.
2008
2007
2006
Company-owned:
Beginning of period
249
208
163
Opened during period
31
26
32
Acquired from franchisees
15
16
13
Closed during period
(1
)
(1
)
End of period
294
249
208
Franchised:
Beginning of period
135
139
136
Opened during period
10
14
16
Sold or closed during period
(16
)
(18
)
(13
)
End of period
129
135
139
Total number of Red Robin® restaurants
423
384
347
December 31, 2008, we acquired a restaurant that was managed by the Company under a management agreement with a franchisee.

Disclosure: we have no stock positions in this or any other chain restaurant operator.

Source: Red Robin Gourmet Burgers' Marketing Complications