So, someone admitted it. A company spoke up and said that its industry is so changed and oversaturated, that it is time to change.
A total pole-axing.
Last night, one of the great retail and restaurant growth stories, Red Robin Gourmet Burgers (RRGB) , admitted what we all thought: you can't just keep putting up terrific burger joints or any other restaurant anymore and expect that the customers will come and the growth will be there. So, the company intends to stop growth until it figures out what to do, how to keep costs down and get more guests to come into its stores.
And, what happens when an operator comes out and says what we all think, that there are too many restaurants out there? The company loses a quarter of its value for speaking the truth.
And we wonder why there is so much cannibalization: you can only please Wall Street if you keep growing stores, even as it isn't working anymore.
So a statement about not putting up more stores -- "this decision will give us needed time to test new approaches to inform future growth" -- is booed by analysts. They are unwilling to back any company perceived to be having an existential crisis, when the reality is that they are all having existential crises, except perhaps McDonald's (MCD) and Restaurant Brands (QSR) , the owner of Burger King.
Now, Red Robin did throw the kitchen sink at you. It told you that rising food costs are an issue, but not as much as the "unprecedented rate" of minimum wage growth.
Management questioned the ability to continue to raise prices, something that is supposed to be a given in this business. After all, aren't slight price increases the secret of the success of casual dining? Looks like the limit's been reached.
Most important, management questioned an overall trend that I think is unstoppable: the desire to take food out of the restaurant and not stick around for that drink, where a lot of money is made.
It has always bugged me that no restaurant chain ever seems willing to recognize what I see at Bar San Miguel every night: when people take out food or have it delivered, it really does impact, or let's just say it, hurt profitability.
Red Robin says that it has a 2.5% decline in dine-in but a 40% increase in off-premise. All I can say is that these figures, while easily rationalized as positive by many, can end up being dreadful if this trend continues.
That's because you have that terrible combination of rising rents, rising labor costs, rising food costs, and too much competition. You need the magic elixir of alcohol to beat the numbers. But that's what's really being cut back, and no restaurant is ever willing to come out and say: "look, we kill it on mixed drinks and we make fortunes on beer, and we don't make much off the food at all, so we can't keep have this trend continue."
Instead, they use terms like "category volatility," which is how Red Robin chooses to frame the issue.
And, of course, here is what it all comes down to: Millennials have figured it out. They love the burgers, the burgers can travel, they can buy a six-pack at the grocery store, grab a Red Robin on the way home or have it delivered, and sit there and watch Netflix (NFLX) or play video games and have a grand old inexpensive time.
It's a nightmare for any restaurateur. And it's just beginning.