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Olive Garden suspends rehabs, eyes catering, delivery

Olive Garden is suspending its renovation program, a key part of the brand’s turnaround plan, to gauge the return on investment over a longer timeframe, parent company Darden Restaurants told investors yesterday.

Officials also revealed that a successful drive for takeout business wwill eventually be followed by a similar push for catering and delivery.

The disclosures came during Darden’s first conference call with financial analysts since a major stockholder led a complete replacement of the company’s board in October. The new “board has been engaged in the business from day one, and the management team and the board are working well together,” commented Gene Lee, who is serving as Darden’s CEO until a permanent chief is hired.

Lee provided a quick review of how all of Darden’s brands performed during the quarter ended Nov. 23.

LongHorn Steakhouses generated a 2.6 percent rise in comparable-store sales, and Yard House, the company’s current expansion vehicle, posted a 3.7 percent increase.

Seasons 52 snapped a run of negative comps, and The Capital Grille and Eddie V’s also posted positive same-store sales, said Lee, without disclosing the figures. But Bahama Breeze’s comps remained negative, he said.

Olive Garden’s same-store sales rose year-over-year by 0.5 percent, the first positive posting by the chain since May 2013, according to Lee.

Much of the discussion during the call was focused on Olive Garden, Darden’s main business since it sold Red Lobster this summer.

Lee called the suspension of Olive Garden’s reimaging program a “deferral,” and said it would last for at least six months.

“We have now completed 13 remodels, all with various investment levels and the results so far have been encouraging,” he said. 

“What we’re having difficulty reading is what level of investment is necessary to create the highest return on that invested capital,” he explained. The 13 units renovated so far, half within the last 60 days or so, required five or six different levels of investment.

“The performance between investment level A and investment level C is not that different,” Lee continued. “And that’s causing us to pause and to say, what is the right investment level that we need to make and get the appropriate return on that investment?”

The key objective, he said, is figuring out how to include 20 to 28 more seats at the best return.

To-go orders are currently the major drive of Olive Garden’s sales increases, Lee said. Take-out sales for the quarter outstripped the year-ago intake by 15 percent. Lee attributed that gain in large part to the adoption of online ordering.  He also noted that many of Olive Garden’s specialties, like lasagna, travel well and lend themselves to large orders.

The chain is now fielding 30,000 internet orders per week, and the charges for those orders are typically 30 percent higher than Olive Garden’s average ticket.

The chain intends to raise takeout sales to 12 percent of units’ average annual intake, from the current level of 8.6 percent.

“The next evolution is to get more into this catering and delivery type business, which we think is a huge opportunity,” said Lee.

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