Takeout and delivery, the salvation of casual dining chains during the pandemic, have morphed into the mystery of the moment: Can that level of business be maintained now that dining rooms are back in full swing?
In March, the CEO of Olive Garden’s parent company warned Wall Street that there was no way the boom could persist. “As we offer more capacity, and we see this in individual restaurants, the off-premise will start to fall off,” predicted Darden Restaurants chief Gene Lee. Coming from the head of the industry’s largest casual-dining operation, and one of the industry’s most respected leaders, the prediction snared attention, even if it didn’t jibe with analysts’ financial modeling.
Now Lee says he has a better read on which way the needle is moving, and he was quick to share his update with thge Street again.
“A lot of you guys disagreed with me,” Lee told financial analysts last week. “I think you were right. and I was wrong. This was stickier than what we thought.”
He explained that Darden’s to-go orders typically replace a home-cooked meal or provide someone at a workplace with something to eat; they are not a substitute for dining inside one of Darden’s restaurants. “There's no behavioral change there at all,” he said.
Lee also indicated that the consumers ordering takeout or big-order delivery (Darden has a $50 minimum on carted orders) were new to Darden’s brands, which include LongHorn Steakhouse, Cheddar’s Scratch Kitchen and Yard House.
He and other Darden executives clarified that there has been some erosion of off-premise business as dining rooms reopen, but the decrease was not as significant as expected. They characterized the decreases as slight.
In addition, “that decline is being more than offset by an increase in dine-in sales,” said CFO Raj Vennam.
For the fourth quarter ended May 30, off-premise business account for 33% of sales at Olive Garden, 19% at LongHorn and 16% at Cheddar's, according to President Rick Cardenas. Those three brands are Darden’s largest.
Despite his raised optimism about takeout and delivery, Lee shied away from new predictions about where off-premise business might end up for Darden’s operations.
“We're still in search of equilibrium, and we're not there yet,” he said. “And I don't know when we're going to be there--when we see consumers really get into what I would call a normative behavior pattern,
“We're still in the early innings. I think we still got a lot more upside.”