No matter how rough your start to the work week may have been, chances are it’s a walk in the park compared to what Paul Murphy will face when he starts his new job as CEO of the Red Robin Gourmet Burgers chain on Oct. 3.
The task of righting the operation is challenging enough. Traffic has been falling for more than a year, the result of cutting two restaurant-level staff positions without anticipating the fallout. The eliminated workers were responsible for clearing tables. With their departure, servers were supposed to shoulder the task, but that didn’t happen. Instead, wait times soared, and customers chose to walk rather than spend their Friday or Saturday night waiting 45 minutes for a chance to have a burger. Isn’t that a Shake Shack across the parking lot?
Even without that trigger, fundamentals were working against the brand. It had grown up as a shopping mall concept and a place to grab a burger and a few adult beverages before herding the kids to the latest Disney flick. Then e-commerce mortally wounded brick-and-mortar retailing, and video streaming did the same to the theater business. With its feeder businesses drying up, Red Robin was plucked.
But those challenges are the sort that have made Murphy’s career. Before taking the job at Red Robin, he was executive chairman of Noodles & Co., a concept founded on the principle that it would serve every kind of noodle known to man and woman. Then came the Pritikin and keto diet crazes, which essentially preached that pasta and other carbs were the devil’s handiwork. During Murphy’s tenure, Noodles actually found a silver bullet in the zoodle, a noodle-like strip of zucchini, which has a food cost just slightly higher than salt and water.
He worked similar magic at Del Taco, the Mexican chain that had been the perennial No. 2 in the quick-service Mexican segment to Taco Bell. That’s like saying Chris Jagger was second only to his brother Mick in their family’s talent ranking.
Yet Murphy left that operation in strong form, newly public and posting some of the strongest comp sales seen in the quick-service sector.
Still, daunting macro challenges are only the start of Murphy’s problems. The major complication is having a disgruntled shareholder that wants to buy the company and set it on a different turnaround plan than the one Red Robin’s management is pursuing. Vintage Capital Management had told Red Robin’s board that it wanted an active role in finding the casual chain’s next CEO, since it didn’t think the directors were up to the task. Instead, Vintage hadn’t even met Murphy by the time his appointment was announced.
In a letter sent two business days after the announcement, Vintage played Dale Carnegie and stated that it would give Murphy a chance. Then it flatly declared he was being paid too much under the knuckleheaded compensation package that the board had OK’d. Securities documents peg Murphy’s starting salary at $900,000 a year, with a $500,000 signing bonus.
Vintage barked that the deal provides Murphy with the money regardless of his success in turning Red Robin around. It seemed to miss that Murphy stands to make an additional $1 million if he hits his bonus targets.
The investor seemed particularly agitated about the severance package Murphy would collect if he’s sacked because Red Robin gets a new owner or board—the very goals Vintage is pursuing. It says the exit deal amounts to $9 million. In the letter, it raises the possibility that senior members of Red Robin may have similarly set themselves up for a comfy landing at shareholders’ expense in the event Vintage prevails.
Not mentioned is the reconstituted board of Red Robin and where the new directors’ allegiances may lie. Murphy will be one of four new directors dealing with Vintage and Red Robin’s core problems. The good news is that the three other newcomers—Torchy’s Tacos CEO G.J. Hart, former Jamba Juice CEO David Pace and onetime Dine Brands CFO Tom Conforti—are all experienced in turning around ailing chains. The issue is, whose turnaround vision is going to prevail?
All in all, it’s not a caretaker’s position that Murphy will shoulder come Oct. 3. The tenor will likely be dictated by how much of a chance Vintage gives the onetime Einstein Bros. CEO to right the operation, be it as an investor or an owner.
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