Analysis of Management---Red Robin

Team 15

Christine Fukui Reyn Lowthorp

Jake Smith Andrew Yan

Table of Contents

1.0 Executive Summary ................................................................................................................ 1

2.0 Company, Industry, and Environment ................................................................................. 2

2.1 Analysis of Texas Roadhouse Corporation and Management ........................................ 2

2.1.1 Analysis of Corporation ................................................................................................. 2

2.1.2 Analysis of Management ............................................................................................... 4

2.2 Discussion of Competitive Environment ........................................................................... 6

2.2.1 Competition & Industry Environment ........................................................................... 6

2.2.2 Competitive Advantage ................................................................................................. 6

2.2.3 Customer Satisfaction & Demographic Appeal ............................................................. 8

2.3 Economic Climate and Outlook ......................................................................................... 9

2.3.1 Global Economy Outlook .............................................................................................. 9

2.3.2 United States Economic Outlook ................................................................................... 9

2.3.3 Food Service Industry Outlook .................................................................................... 10

2.4 Other Factors .................................................................................................................... 12

2.4.1 Licensing & Permits .................................................................................................... 12

2.4.2 Future Plans ................................................................................................................. 12

2.4.3 Coping with COVID .................................................................................................... 13

2.4.4 Labor Costs .................................................................................................................. 13

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1.0 Executive Summary

What would the American Dream look like if it was described in the form of a restaurant?

Envision enthusiastic servers, herds of cheerful families rolling in for dinner, children throwing

peanut shells on the floor, 6-ounce sirloin steaks with free bread rolls and buckets of peanuts…

envision Texas Roadhouse, Inc.

While the American chain restaurant sector is a highly competitive and evolving industry,

our team of financial analysts have evaluated Texas Roadhouse, Inc., as well as compared it to

its leading competitor, Bloomin’ Brands. We show why, despite the current unprecedented

economic environment, Texas Roadhouse is still considered a strong buy for potential investors.

Since the beginning, Texas Roadhouse has lived up to its motto “Legendary Food,

Legendary Service,” but how does it deliver on its promise? Our team particularly focuses on

Texas Roadhouse’s CEO and Chairman, Kent Taylor, to evaluate how his unique leadership and

business decisions have sculpted the path for success in comparison to large brand competitors,

and despite the volatile economic climate.

Texas Roadhouse faces a range of uphill battles when it comes to maintaining its brand

image. On top of an international pandemic that has made in-house eating virtually impossible,

consumer preferences continue to evolve, food delivery services remain on the rise, and labor

costs continue to surge; however, despite facing diversity, Texas Roadhouse continues to evolve

and adapt to the dynamic world of the restaurant business.

In the latter half of the report, we focus on the quantitative data as presented through

Texas Roadhouse’s financial statements. We compare the data to its rival, Bloomin’ Brands, a

company that has comparable market cap and profitability, but has nonetheless been struggling

to keep up. With Texas Roadhouse spending little to none on marketing and advertising, and

Bloomin’ Brands amping its marketing game, does the difference in success lie between their

varying business strategies, or is it simply the unmatched quality of food and service?

Through this analysis report, we dive deeper into the successes, challenges, and future

outlook of Texas Roadhouse. Please join us as we dissect and evaluate Texas Roadhouse’s secret

recipe to meaty earnings!

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2.0 Company, Industry, and Environment

2.1 Analysis of Texas Roadhouse Corporation and Management

2.1.1 Analysis of Corporation

Texas Roadhouse, Inc. is a Western-themed casual steakhouse that was founded in 1993

by Wayne Kent Taylor in Clarksville, Indiana. Currently, Taylor remains the CEO of Texas

Roadhouse, and the company is headquartered in Louisville, Kentucky. Taylor, who utilized his

past work experience, designed Texas Roadhouse with the envision of creating a “casual-dining

brand inspired by Texas.”1 The American chain restaurant is known for specializing in high

quality steak at relatively affordable prices and is ranked amongst one of the best casual-dining

chain restaurants in America. 2

Prior to establishing Texas Roadhouse, Taylor founded Buckhead Hickory Grill;

however, due to ownership and investment disputes, the restaurant startup failed. From his

experience with Buckhead Bar and Grill, Taylor has made it a point to maintain a majority of

firm control by refusing to “relinquish control to outside investors.” 3 Instead, Taylor has

resorted to franchise agreements with former employees and secured loans from banks when it

comes to financing business expansions. Taylor’s unique funding tactics proved to be successful

during the late 1990’s when, in 1999, Texas Roadhouse opened its 67th new location. In 2004,

Texas Roadhouse went public on the NASDAQ under the ticker symbol “TXRH”. 4 By this time,

its operations had expanded into over 162 restaurants in 32 states. In 2013 and 2015,

respectively, Texas Roadhouse continued expansion under two new dining concepts: Bubba’s

33, a chain sports bar, and Jaggers, a fast-casual sandwich and burger restaurant. In 2019, Texas

Roadhouse reported revenue of $2.8 billion and 611 operating restaurants worldwide. 5 Among

1 fundinguniverse.com, “Texas Roadhouse, Inc. History” 2 businessinsider.com, April 1, 2019, “From Olive Garden and Texas Roadhouse to Maggiano’s, these are America’s favorite restaurant chains 3 referenceforbusiness.com, “Texas Roadhouse, Inc. – Company Profile, Information, Business Description, History, Background Information on Texas Roadhouse, Inc.” 4 marketwatch.com, May 7,2004, “Texas Roadhouse files $230 mln IPO” 5 sec.gov, February 28, 2020, “2019 Form 10-K, Texas Roadhouse, Inc.”

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the 611 operating restaurants, 28 are run under Bubba’s 33, 2 are run under Jaggers, 97 are

franchise restaurants, and 28 are international. 6

In addition to being known for its affordable hand-cut steaks, Texas Roadhouse is

notorious for serving complimentary baked bread rolls and free buckets of in-shell peanuts.

According to Senior Director of Public and Government Relations, Travis Doster, “the idea of

peanuts and bread was to immediately give folks, especially families with their kids, something

to eat” and to “show hospitality and set the standard for their dining experience”. 7 In order to

maintain this hospitable and family- friendly image, Doster claims that Texas Roadhouse

“spends $20 million [just] in bread and peanuts every year”. 8

In addition to promoting community and family-based values, Texas Roadhouse also

commits itself to its mission statement “Legendary food, Legendary service”. Texas Roadhouse

provides “legendary food” to its customers by implementing trained bakers and meat cutters at

every restaurant location and creating all side menu items from scratch. 9 In addition to

specialized employees and original items, until 2020, Texas Roadhouse refused to provide

delivery services. Taylor’s argument was that, in order to maintain the level and quality of food,

he did not want to risk the potential of delivering lukewarm food to guests. 10 Despite this claim,

amidst the COVID-19 pandemic, Texas Roadhouse has turned to To-Go and Curbside Pickup

services to provide customers with ready-to-grill steak kits. 11

Furthermore, Texas Roadhouse provides “legendary services” to customers through the

notion that “happy employees make happy guests”. 12 Instead of spending money on marketing

and advertising, Texas Roadhouse invests its money in various employee initiatives and training

programs. In addition, the corporation strives itself on providing a fun work culture for

employees and guests through various activities such as line dancing and intercompany

competitions. Taylor’s investment in his own employees has proven to be successful as Texas

Roadhouse continues to dominate in consumer satisfaction, ranking number one for customer

6 Ibid. 7 nationalpeanutboard.org, “Free Peanuts Offer Real Value at Texas Roadhouse” 8 dnj.com, May 25, 2016, “Texas Roadhouse to build new restaurant in former Nobody’s spot” 9 observernews.net, October 3, 2018, “Hungry diners welcome Texas Roadhouse to Riverview” 10 youtube.com, July 30, 2019, “An Entrepreneurial Success Story: A Conversation with Texas Roadhouse’s Kent

Taylor” 11 Arun Sinh, December 5, 2006, “Sweet Spot: How to Maximize Marketing for Business Growth” 12 wjla.com, July 6, 2018, “New Survey: Texas Roadhouse and Chik-fil-A rule in customer satisfaction”

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satisfaction on the American Customer Satisfaction Index’s restaurant report. 13 Aside from its

top ranking, Texas Roadhouse notes that “70% of diners are repeat customers”, showing that the

chain restaurant has an extremely loyal fan base. 14

2.1.2 Analysis of Management

Wayne Kent Taylor is the founder, CEO, President and Chairman of Texas Roadhouse,

Inc. While Taylor makes the majority of business decisions, such as menu items and restaurant

locations, with over 600 restaurant locations, Taylor has been required to heavily rely on General

Managers to help run Texas Roadhouse locations worldwide. In 2019, Texas Roadhouse reported

that it employed approximately 67,900 people; 2,526 belonging to management and 682

belonging to executive and administrative personnel. 15 Taylor states that “while the additional

investments [in increased labor] create short-term pressure, [he] believes the long-term sales

benefit is worth it”. 16

In order to manage a large-scale business operation, Taylor has implemented a

“managing partner model”. This performance-based compensation model allows managers to

pay a $25,000 buy-in fee in exchange for a $45,000 base salary and an additional 10% of the

restaurant’s profit, leaving managing partners with an estimated salary of $130,000 to

$140,000.17 Aside from its highly competitive salary, the program incentivizes general managers

to boost profitability and customer satisfaction. In addition to implementing an ownership

mentality, this model also acts as “one of [Texas Roadhouses’] most important sustainability

assets…[as] managers are incentivized to “reduce waste, conserve energy, and run lean

restaurants”. 18 The model has proven to work in several different aspects and continues to drive

the business’s success.

Even though Taylor must rely on General Managers to run his restaurants, every Fall,

Taylor goes on a six-week tour to all of his operating restaurants to engage with and assess

13 fsrmagazine.com, June 2019, “Once Again, Texas Roadhouse Has the Most Satisfied Customers” 14 digital.hbs.edu, December 8, 2015, “Texas Roadhouse: The Recipe for a Successful Affordable Steakhouse” 15 sec.gov, February 28, 2020, “2019 Form 10-K, Texas Roadhouse, Inc.” 15 Ibid. 16 youtube.com, July 30, 2019, “An Entrepreneurial Success Story: A Conversation with Texas Roadhouse’s Kent

Taylor” 17 Ibid. 18 sec.gov, February 28, 2020, “2019 Form 10-K, Texas Roadhouse, Inc.”

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managers and employees. Taylor does this to get an overall impression for each restaurant’s

vibe; whether customers seem satisfied, or if employees seem well-trained and equipped. 19

Ultimately, if Taylor feels that a particular restaurant is not up to par with the brand’s standards,

Taylor has the power to replace that location’s manager and rehabilitate the restaurant’s

operations.

Despite the fact that Taylor retains a majority of influencing power over Texas

Roadhouse, he makes sure to invest in and take care of his people. In the early 2000s, Taylor

implemented Andy's outreach program, which is a charitable fund geared toward employees in

need. The fund, which is funded by voluntary employee payroll deductions, has raised over $10

million for employees and has an 85% participation rate. 20 In addition, amidst the COVID-19

pandemic, Taylor has committed to giving up his annual salary and bonus to pay the chain’s

front-line employees. 21

19 youtube.com, July 30, 2019, “An Entrepreneurial Success Story: A Conversation with Texas Roadhouse’s Kent Taylor” 20 Ibid. 21 local21news.com, March 26, 2020, “Texas Roadhouse CEO give up salary to pay front-line employees during COVID-19 outbreak”

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2.2 Discussion of Competitive Environment

2.2.1 Competition & Industry Environment

As a restaurant chain in the crowded American-style casual dining space, Texas

Roadhouse has many competitors. Its direct competitors are other large casual dining chains that

serve similar cuisine. Competitors include Bloomin’ Brands [Outback Steakhouse] (NASDAQ:

BLMN), Dine Brands Global [Applebee’s] (NYSE:DIN), and Brinker International [Chili’s]

(NYSE: EAT). As of May 1, 2020, Texas Roadhouse’s market capitalization was 3.2 billion,

compared to a market cap of 911 million for Bloomin’ Brands, 9.2 billion for Darden and 737

million for Brinker. 22

Texas Roadhouse has been a market standout in recent years. Revenue from restaurant

sales have been increasing year after year – from $1,791,446 in 2015 to $2,734,177 in 2019, and

sales increased by 12.2% between 2018 and 2019. 23 The increase is partially due to new

restaurant locations, but year-on-year same-store sales also increased – by 4.8% – over the same

time period. 24 In proportion to sales, net income saw a similar increase – by 10.3% between

2018 and 2019.

In comparison, the casual dining restaurant industry has struggled. None of the

aforementioned competitors have revenue or net income growth that compare to Texas

Roadhouse’s numbers. For example, Bloomin’ Brands saw a 0.3% increase in sales over the past

year – which still happens to be an improvement over their past years of decreasing sales

numbers. 25

2.2.2 Competitive Advantage

Texas Roadhouse’s ability to stay consistent is almost unmatched in today’s fast-moving

restaurant industry. The chain has stuck with the same 1990’s diner aesthetic since it opened,

complete with Western-themed decorations, sawdust carpets, and the same flashing neon logo.

Texas Roadhouse features a straightforward menu with simple dishes, while also including

everything imaginable when it comes to American-style cuisine. The menu features items such

22 finance.yahoo.com 23 sec.gov, February 28, 2020, “2019 Form 10-K, Texas Roadhouse, Inc.” 24 fool.com, May 3, 2018, “In a Hyper-Competitive Restaurant Industry, Texas Roadhouse is Winning” 25 sec.gov, February 26, 2020, “2019 Form 10-K, Bloomin’ Brands, Inc.”

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as steaks, ribs, burgers, and BBQ chicken at an affordable price. By maintaining an “old-school”

aesthetic, the chain is able to stay authentic to its roots.

Perhaps as part of the old-school philosophy, Texas Roadhouse has made a series of

puzzling decisions in recent years. First off, Texas Roadhouse is contrarian on labor. Brinker

International made the news in 2017 when it attempted to save $12 million by laying off staff. 26

In contrast, Texas Roadhouse’s management has been deliberately raising staffing levels year

after year. 27 The chain spent 15% more on labor in 2019 compared to 2018. 28 The increase is

meant to stimulate sales, but it’s also a clear attempt to maintain a culture that prides itself in

“legendary service”, much like fast food restaurant Chick-fil-A.29

Secondly, when it comes to food delivery, Texas Roadhouse takes a similar stance as

chains like In-N-Out. 30 In today’s world, companies like Doordash & Grubhub have become a

large part of the American dining landscape, however, Texas Roadhouse has a history of firmly

resisting these companies. When asked during an earnings call why he refused to do delivery,

Taylor was quoted saying “we encourage all of our competitors to do as much delivery as they

can so they can deliver lukewarm food to their people”. 31 The reason given by management –

The chain’s restaurant locations have no problem bringing people in, and delivery would result

in many more orders which could negatively impact in-store operations.32

While delivery appears to be a hard “no”, Texas Roadhouse realizes that it still has to

adapt to the evolving restaurant industry. In order to keep up, the company has been investing

heavily in other technology aspects. It recently added a mobile app which just premiered in all

locations in 2018. 33 The app enables customers to order, pay, and streamlines the food pickup

process. To-go sales have increased every year since its premiere while dine-in sales increase as

well, showing that the addition of a pickup option is not coming at the expense of traditional

26 bizjournals.com, January 25, 2017, “Chili’s spending $6M to cut staff; expects $12M in annual savings” 27 restaurantbusinessonline.com, July 30, 2019, “How does Texas Roadhouse Stay a Front-Runner?” 28 Ibid. 29 businessinsider.com, June 26, 2019, “Chik-fil-A is taking over America by offering the best customer service in fast food” 30 foodandwine.com, November 12, 2015, “In-N-Out Doesn’t Want Anyone Delivering Their Burgers to Your Doorstep” 31 nrn.com, August 1, 2017, “At Texas Roadhouse, delivery is a no-go” 32 Ibid. 33 resaurantbusinessonline.com, August 2, 2017, “Texas Roadhouse’s Contrarian View of Delivery”

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dine-in. 34 The existing mobile app and pickup infrastructure will certainly benefit the company

while COVID-19 is active.

2.2.3 Customer Satisfaction & Demographic Appeal

Texas Roadhouse maintains the coveted #1 ranking in customer satisfaction among all

large casual dining chains, according to the 2019 American Customer Satisfaction Index. 35

Among the factors that drove the high rating – consistent menu offerings, friendly customer

service, and the mobile app, which ranked “best in class for quality”. 36

One major issue within the casual dining industry is expanding broad appeal to all

customers, especially the 18-34 demographic, or millennials. Applebee’s, a competitor,

spectacularly failed in its 2017 rebrand. 37 Their attempt to modernize their logo, dining space,

and menu to bring in a younger crowd only turned off their older, more consistent demographic.

The rebrand accelerated a closure of 130 Applebee’s restaurants, forcing their executives to

admit their mistake and return to its original branding less than a year later. 38

In contrast, 2016 survey by YouGov found that Texas Roadhouse was the casual dining

restaurant ranked #1 among millennials. 39 Millennials gave high marks to the company’s

customer service and they seem to prefer that the chain is old-school yet trendy. When asked

about how he plans to appeal to millennials and the older demographic alike, Texas Roadhouse’s

president said they are “we’re just doing the same things… just focusing on the basics”. 40 All

the numbers show that it seems to be working so far.

34 Ibid. 35 fsrmagazine.com, June 2019, “Once Again, Texas Roadhouse Has the Most Satisfied Customers” 36 Ibid. 37 npr.org, August 15, 2017, “Applebee’s Gives Up On Millennials After Failed Rebranding Efforts” 38 qz.com, August 16, 2017, “Applebee’s tried to be cool, failed, and now it’s moving on with its life” 39 today.yougov.com, April 15, 2016, “Texas Roadhouse & BJ’S Top Millennial Satisfaction Levels” 40 fsrmagazine.com, July 2017, “Why Texas Roadhouse is Sizzling Right Now”

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2.3 Economic Climate and Outlook

2.3.1 Global Economy Outlook

With the strong emergence of COVID-19 in the first quarter of 2020, the global economy

has taken a major hit. According to the International Money Fund (IMF) March 2020 report, the

shock is very large; the crisis is like no other. Fostered by the containment measures, the output

loss will likely dwarf the losses that triggered the global financial crisis experienced in 2008-

2009.41 In addition, the severity and duration of the shock is unknown, which further increases

the uncertainty of the full economic effect. Normally, economic policies are used to encourage

economic activity by stimulating aggregate demand. However, with this global health crisis in

effect, the main goal for policymakers is to contain the spread of the virus. As a result,

stimulating the global economy is a much more challenging feat for policymakers. 42

Goldman Sachs estimates that, since January, the global GDP has fallen 16%.43

However, it also speculates that the economy has bottomed out due to beneficial lockdown

efforts, after which the economy will begin to recover. This optimistic economic prediction is

grounded in suggested evidence that more effective treatment options, warmer temperatures, and

low-cost hygiene measures will curb infection rates significantly.44 In turn, businesses will begin

to reopen, thereby sparking the global economic recovery.

While the majority of Texas Roadhouse’s 611 locations are in the United States, 28 of

them are in foreign countries. With this in mind, advanced economies and developing

economies are expected to drop 6.1% and 1% in 2020 and 2021, respectively. In total, World

economic output is expected to drop 3% in 2020, which is followed by an increase of 5.8% in

2021.45

2.3.2 United States Economic Outlook

Like the global economy, the effect of the coronavirus is extremely widespread.

According to The Conference Board, the US economy will contract between 3.6% and 7.4% in

41 imf.org, April 14, 2020, “World Economic Outlook, April 2020: The Great Lockdown” 42 Ibid. 43 businessinsider.com, May 4, 2020, “Goldman Sachs says the global economy has likely bottomed out already as coronavirus lockdown efforts payoff” 44 Ibid. 45 Ibid.

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2020. In addition, real consumer spending is expected to drop 8.3%.46 The second quarter of

2020 is predicted to be the most detrimental to the US economy because many experts believe

that this is when the coronavirus cases will peak. More specifically, it predicts that GDP and

consumer spending will drop 33.3% and 40%, respectively. After the peak, the US GDP is

expected to immaterially recover in the 3rd quarter (0.1%), which is then followed by a needed

27.4% jump in the 4th quarter. 47

These figures are subjective predictions due to the uncertainty of the effect of COVID-19.

According to Deloitte Insights, the response of economic policymakers and public health

authorities will largely determine how things turn out. Before the virus, the economy looked to

be doing moderately well, even despite supply chain issues in China. However, the steep decline

in sectors such as travel, leisure, and hospitality, along with the decline in durable goods

purchases and factory production, will push demand and GDP into a tailspin. 48

In response to the near-collapse of the services industry, the United States government

has subsidized hundreds of thousands of companies with loans and other help. However, it may

not be enough. According to an executive in the meatpacking industry, “Our agriculture

economy is challenged with poultry, pork, and beef processing plants closed due to COVID-19

cases or impaired due to employees afraid to work side-by-side with other employees.” 49 This

behavior is seen in other sectors of the economy as well. Fear of infection will continue to slow

the recovery of the economy. According to Kevin Hassett, the senior economic adviser to

Donald Trump, the jobless rate in the US could spike to between 16% and 20% by June. 50

2.3.3 Food Service Industry Outlook

In the current economic climate, the food service industry has taken a rather large hit.

Due to the social distancing initiatives, takeout and delivery are the only options available for

consumers. Most restaurant workers have been laid off or furloughed in order for the restaurants

to stay afloat during this turbulent time. However, the proportion of customers using pick-up

46 conference-board.org, April 9, 2020, “The Conference Board Economic Forecast for the U.S. Economy” 47 Ibid 48 deloitte.com, March 27, 2020, “United States Economic Forecast” 49 marketwatch.com, May 5, 2020, “Service side of the U.S. economy crashes in April to recession levels, ISM

shows” 50 theguardian.com, April 30, 2020, “Another 3.6 million Americans lose jobs as US unemployment continues to

grow”

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and delivery options has remained remarkably consistent. According to Restaurant.org, the

quarantine has caused consumers to have pent-up demand for restaurants, even when most orders

are off-premises.51

As Texas Roadhouse’s menu consists of over 50% steak dishes, the trend of beef prices is

crucial. The virus has caused many serious problems in the meat distribution sector. According

to the United States Department of Agriculture (USDA), slower beef demand and potentially

slower rates of slaughter are expected to pressure cattle prices.52 Many slaughterhouses are

shutting down, which is disrupting the pork, poultry, and beef supply chains tremendously. Due

to these disruptions, the shortage of meat is causing prices to surge. More specifically, as these

processing plants are being forced to close, millions of pounds of meat will disappear from the

supply chain. As a result of this issue, it is expected that beef prices will climb 1% to 2% this

year, poultry as much as 1.5% and pork between 2% and 3%.53 In order for this trend to level off,

the plants need to begin reopening, which would begin the recovery of the meat shortage in the

supply chain.

51 restaurant.org, April 28, 2020, “Pent-up demand for restaurants remains strong” 52 ers.usda.gov, April 20, 2020, “Livestock, Dairy and Poultry Outlook, April 2020” 53 abcnews.go.com, April 27, 2020, “Virus is expected to reduce meat selection and raise prices”

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2.4 Other Factors

2.4.1 Licensing & Permits

All corporations are affected by regulations that may evade the portrayal of financial

statements. For Texas Roadhouse, it includes licensing and permits. Texas Roadhouse is required

to have licenses for the following: alcoholic beverage control, menu labeling on nutrition, health

and safety, sanitation, healthcare, building and fire codes, environmental laws, and land use. This

is particularly important with respect to the corporation’s alcohol sales, which accounted for

approximately eleven percent of sales in the year 2013. As of 2015, Texas Roadhouse paid $125

million in “liquor liability insurance coverage”. One way that Texas Roadhouse is different from

its competition is that it emphasizes expansion through company-owned stores instead of

franchising. While Chili’s, Darden, and Buffalo Wild Wings franchises around 50% of their

locations, Texas Roadhouse only franchises around 18%. This makes company decisions and

policies easier to implement and provides more sound structure and uniformity. 54

2.4.2 Future Plans

Texas Roadhouse’s plans for 2020 include opening thirty new restaurant locations. Of the

thirty new locations, Texas Roadhouse plans to open seven new Bubba’s 33 locations and two

new Jaggers locations. 55 In addition, it plans on opening lunch hours, compared to its previous

dinner-only hours, for all Bubba’s 33 locations. In 2019, Texas Roadhouse tested this strategy on

one of its Bubba’s 33 locations and “saw impressive comparable sales growth of 8.8%, 2.5% of

which was contributed by the lunch introduction”. 56 Despite impressive results, Texas

Roadhouse noted that it may not move forward with further expansion of Bubba’s 33 if it fails to

contribute to the corporation’s overall growth in an incremental way.

In addition to new domestic locations., Texas Roadhouse intends on expanding its foreign

presence into Southeast Asia, namely in China, the Philippines, and Taiwan. As reported in the

2019 Annual Report, it intends on opening as many as eight new locations internationally. 57

54 marketrealist.com, January 2, 2015, “Pivotal Government Regulations that Affect Texas Roadhouse” 55 sec.gov, February 28, 2020, “2019 Form 10-K, Texas Roadhouse, Inc.” 56 fool.com, November 26, 2019, “Texas Roadhouse Delivered a Meaty Set of Earnings, but Can Investors Expect Even More?” 57 sec.gov, February 28, 2020, “2019 Form 10-K, Texas Roadhouse, Inc.”

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In terms of menu pricing, the company has traditionally raised its prices “in tandem with

inflation”, so we can expect prices to rise by around 2%, unless this figure grows due to the

economic dilemma following the COVID-19 outbreak. 58

2.4.3 Coping with COVID

The recent outbreak of COVID-19 has sent many businesses into a downward spiral, and

many have gone out of business; however, Taylor remains optimistic about the future of his

business. In response to the outbreak, Taylor announced on FOX News that he is giving up his

2020 salary to pay his employees. He noted that initially, Texas Roadhouse operated with a mere

10% of its staff. Taylor has improved this issue by “moving the dining room into the parking lot

and now we’re doing curbside and now we do family packs and now we’re selling ready-to-grill

meat,” he told Fox News. 59 He also mentioned that this strategy has brought back another 40%

of his labor force. Furthermore, he described newly designed “sneeze guards”, temperature tests

and symptom surveys, which will be implemented once locations begin to reopen. Theses strict

steps will reassure families that Texas Roadhouse is following all necessary protocol to safely

reopen restaurants.

2.4.4 Labor Costs

As Texas Roadhouse continues to expand its business locations, its labor cost,

specifically at the hourly wage, has also been rising. With close to 68,000 employees, Texas

Roadhouse continues to face “ongoing labor pressures and increases in state-mandated wage

rates”. 60 Given that labor costs represent a major portion of its expenses, Texas Roadhouse may

need to offset the increase in other areas such as menu price adjustments which may implicate a

ripple effect. Despite pressure on profits, CFO Tonya Robinson said that “[Texas Roadhouse]

[will] be building in some additional growth in hours above and beyond what traffic growth

would maybe generate” in hopes that it will deliver a competitive edge in customer service and

employee job satisfaction. 61 In addition to rising labor costs, the pressure of competitive hourly

58 fool.com, November 26, 2019, “Texas Roadhouse Delivered a Meaty Set of Earnings, but Can Investors Expect Even More?” 59 foxnews.com, April 3, 2020, “Texas Roadhouse CEO gives up salary to pay workers amid Coronavirus crisis” 60 sec.gov, February 28, 2020, “2019 Form 10-K, Texas Roadhouse, Inc.” 61 restaurantbusinessonline.com, April 30, 2019, “Texas Roadhouse’s Profits Slip on Rising Labor Costs”

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wages for quality employees in the services industry continues to threaten Texas Roadhouse’s

employee turnover rate. Despite backlash, Taylor reports that “[he] is proud of the operators who

continue to be committed to actively protecting the guest experience and taking care of the

employees in this very competitive labor market”. 62 While in the past Taylor appeared

unphased by labor cost issues, today, the issue remains in the air amidst the COVID19 pandemic.

62 louisvillefuture.com, April 30, 2019, “Texas Roadhouse shares fall sharply on rising labor costs”