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Turnaround report: Olive Garden on waivers

Sales are up, traffic is up, to-go orders are way up, and management is confident it’s hit the right formula for winning customers back to Olive Garden and keeping more of what they spend.  Is it time to take the Darden Restaurants workhorse off the list of chains still in need of a turnaround?

The evidence extends beyond the Americanized Italian chain’s 2.7 percent rise in same-store sales for the quarter ended Aug. 30.  Price increases accounted for only 1.3 points of the increase, with the rest of the uplift coming from customers’ switch to higher-ticketed items and, most important, a slight gain in guest counts. The quarter was the fourth in a row for which Olive Garden posted positive comps.

But what does that signal for the future? Darden management stressed to financial analysts yesterday that Olive Garden has stopped floundering with its menu, focusing on products like a burger, and started developing customer lures that don’t promise an out-of-concept experience. 

In corporate-ese: “Olive Garden's culinary strategy is to create menu items that leverage core brand equities,” said Darden CEO Gene Lee.

In straight language: It’s no longer trying to be either Fazoli’s or a Mario Batali-inspired high-end place, playing to customer whims or segment breezes.

Lee cited the example of Olive Garden’s new breadsticks sandwiches, which play off the chain’s longtime signature offer of thick, chewy bread logs provided at the start of a meal. He attributed a three-point jump in weekday lunch traffic to the new sandwiches, and hailed them as “the most successful new lunch platform since the introduction of the original soup, salad and breadsticks” option, another Olive Garden signature.

Lee noted that the chain is also figuring out how to address customers looking for convenience. He noted that Olive Garden is testing delivery service, and underscored the chain’s success in to-go sales. Takeout sales grew 18 percent during the quarter, and now account for 9.5 percent of a unit’s revenues, he said. In particular, the chain is selling far more large catering platters—40 percent more, he revealed.

And that’s without significant traction yet in online ordering, where the tickets tend to run about 20 percent higher than the tab for a phoned-in to-go order, the bulk of the chain’s off-premise business to date, Lee explained.

He also cited such encouraging glimmers of the future as the results of store remodels. Nineteen units have been refaced to date, and the ones with a readable track record have enjoyed a 7 percent uplift in sales.

Management also had good news on the cost side of Olive Garden’s P&L. They noted that less food is being wasted, a result in part from an initiative to simplify kitchen operations. They added that the simplification is also helping them offset an upswing in kitchen-wage rates, since fewer and less-skilled labor is needed.

Lee was asked in particular about the prospect of a steep climb in the minimum wage, a question posed amid organized labor’s push for a $15 pay floor. He all but shrugged at the question, explaining that the average wage across all Darden’s brands is already at $15 an hour.

So is Olive Garden set to come off the turnaround list? Four out of five doctors would recommend we wait a quarter.

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