Dive Brief:

• Red Robin is adding Donatos pizza to approximately 120 restaurants by the end of this year, which would bring the partnership that began in 2018 into more than 200 locations.
• According to a press release, 41 Red Robin locations added Donatos pizza to the menu in Q2 2021, including in six new states — Idaho, New Mexico, Utah, Nevada, Oregon and Washington. The companies plan to grow on the East Coast in Maryland and Virginia in Q3 and California toward the end of the year.
• Donatos pizza helped boost Red Robin's off-premise business, which grew by triple digits during the pandemic and in Q1 this year made up nearly 42% of food and beverage sales. Its restaurants offering Donatos outperformed other restaurants by 300 basis points, Red Robin CEO Paul Murphy said during the earnings call.

Dive Insight:

Integrating a delivery-friendly menu offering like pizza helped Red Robin stay afloat during the pandemic, which otherwise devastated the casual dining segment. Donatos locations, in particular, are consistently outperforming non-pizza locations, Red Robin Chief Concept Officer Jonathan Muhtar said in a statement. Red Robin expects its annual Donatos pizza sales to top $60 million and pizza profitability to exceed $25 million by 2023.  

Red Robin's off-premise growth — fueled by several factors from changing diner behavior during the pandemic to this partnership — has caused the company to refine its restaurant prototype to better execute that side of the business along with its traditional dine-in business. 

Even though Red Robin has integrated Donatos into some of its marketing promotions, the company features Donatos as a standalone delivery brand in third-party marketplaces, so it functions essentially as a virtual brand alongside three other delivery-only brands at the chain. These brands are creating new awareness for the legacy burger company. During the company's Q1 call last month, Red Robin CEO Paul Murphy said 70% of guests had never ordered online from Red Robin before. 

"We are activating an entirely new audience through this [delivery] channel," he said.  

Murphy is also optimistic about Donatos lifting Red Robin's catering business, which currently represents 1% of its sales mix.

"Combined with the ongoing growth of Donatos and other virtual brands, we see catering as a growth driver for Red Robin as people return to office environments," he said on the Q1 call.

Red Robin isn't the only casual dining brand leveraging virtual brands to boost its off-premise business and build back lost sales. Bloomin' Brands, Applebee's, Chili's and Denny's rolled out their own delivery-only options within the last 12 months. Also, Chili's parent company Brinker expects its It's Just Wings brand to generate $150 million in annualized sales.

Red Robin may have an advantage with Donatos' brand equity. Donatos Pizza has been around since 1963 and has a strong presence with more than 160 locations in 10 states. That's not to say it isn't facing challenges, however. Some Red Robin locations have had to reduce hours because of labor shortages, which could pose a particular problem to locations that also manage added volumes from virtual brands.