Darden tries a new remedy for Cheddar’s

After data revealed an unexpected marketing issue for the chain, management pulled back on advertising and started working on an adjusted plan.
Photograph: Shutterstock

Cheddar’s Scratch Kitchen continued to underperform for parent Darden Restaurants during the first quarter ended Aug. 25, with same-store sales slipping 5.4%, the steepest decline by far among the company’s eight casual-dining brands. Yet Darden officials say they’ve made a discovery about the laggard’s clientele that has already changed Cheddar’s marketing and will likely boost the chain’s traffic and sales going forward.

An analysis of data collected since Cheddar’s was acquired in March 2017 revealed the brand draws more repeat visits from its customers than any of Darden’s other holdings, which include Olive Garden, LongHorn Steakhouse and The Capital Grille. The numbers also showed that relatively few customers outside that base of regulars knew about the concept and what it offers.

“We recognized that awareness for this brand is extremely low,” Darden CEO Gene Lee explained to financial analysts Thursday morning. Yet “our primary advertising had been more driven toward a frequency play.” Essentially, the marketing effort was adding topspin to an advantage the chain already enjoyed, while failing to address a stumbling block for traffic growth.

The advertising was halted, and now “we're going to test and learn and understand how to best increase our awareness,” Lee continued. He noted that the lack of familiarity falls within a 10-mile radius of the stores.

Sales were also weakened for the 165-unit chain, the most recent addition to Darden’s portfolio, by the overhaul of kitchens at a number of restaurants formerly run by a franchisee, according to Lee.

Cheddar’s switched to a new menu at the end of the quarter, with more variation in price and a standing $5.99 deal at lunch, he added. Steps were also taken to curb employee turnover and improve service.

“Cheddar's has the highest guest frequency of any Darden brand, and this investment is intended to build upon a strong position, improve brand awareness and drive trial,” Lee said. “They will be leveraging Darden resources and best practices to implement the media plan.”

Four of Darden’s brands posted positive comparable sales, led by LongHorn and its 2.6% rise. That increase was driven in part by a 12% jump in the steak concept’s takeout sales, which in turn were fostered by the retrofitting of about half the chain’s 514 restaurants with a separate pickup area.

Olive Garden, which accounts for about half of the company’s 1,793 restaurants, generated a 2.2% gain. The increase came from a 2.2% boost in pricing and a 0.8% favorable change in menu mix, offsetting a 0.8% decline in guest counts. Lee noted that the Italian chain had to tweak its promotional schedule so that two of its strongest traffic boosters—buy one, take one and all-you-can-eat pasta—did not coincide.

To-go sales shot up 12%, to 14% of total sales, Lee said.

He reaffirmed Darden’s decision not to partner with a third-party service for small-order deliveries from Olive Garden, but revealed that a test with one of those providers is currently underway at Yard House. Still, " I don't really think about that as a way to grow the business," he said.

Darden’s most upscale brands, The Capital Grille and Eddie V’s, posted same-store sales gains of 1.5% and 1.25%, respectively.

Comps were negative for Seasons 52 (4.2%), Bahama Breeze (4.2%) and Yard House (1.9%). Lee and other officials provided little color on the reasons for sliding same-store sales at those brands.

Overall, Darden reported net earnings of $170.6 million, a 2.6% decline from the year-ago quarter, on revenues of $2.13 billion, up 3.5%.

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