Darden’s Gene Lee shows casual dining how it’s done

Olive Garden’s owner has thrived by simply focusing on doing a good job at its restaurants, says RB’s The Bottom Line.
Jonathan Maze

The Bottom Line

Darden Restaurants on Thursday reported that same-store sales improved at all but two of its concepts, including a 2.4% increase at Olive Garden in the period ended May 27, as my colleague Peter Romeo reported.

The numbers were surprising, and investors responded: Darden stock rose 15% on Thursday. After spending much of 2018 roughly holding serve, Darden’s stock is now up 13% on the year.

The stock also hit an all-time high and broke triple digits for the first time, closing at more than $107 a share.

Darden has been on a roll over the past three years, due in no small part to the efforts of its CEO, Gene Lee.

The eight-concept casual dining operator’s stock price has more than doubled since Lee was given the permanent CEO title in February 2015, providing a story of consistent sales performance that almost defies explanation.

Olive Garden, for instance, was supposed to be in a decline. It had older consumers. It specialized in pasta, meaning a growing number of customers cutting back on carbs or gluten would simply not go to the chain’s restaurants.

And, indeed, one simply needs to look at the performance of some of the chain’s competitors: Romano's Macaroni Grill filed for bankruptcy protection and has closed 60 locations since Lee took over at Darden.

Bravo Brio Restaurant Group, the owner of Olive Garden rivals Bravo Cucina Italiana and Brio Tuscan Grille, has struggled with weak sales for years. It had major financial problems that necessitated its sale earlier this year to the private-equity firm GP Investments, and there are analysts who believe the company will need to close locations.

Darden has done this with a pretty simple premise—a “back to basics” operating philosophy that theorizes restaurant companies can generate sales and traffic growth by offering good food and quality service in an inviting atmosphere.

Olive Garden has simplified its restaurants and its promotional calendar. It has used fewer discounts, relying on “everyday value” marketing while emphasizing lunch to improve sales that way.

But it has also focused more on its takeout business, which has increased considerably in recent years. Takeout now represents nearly 14% of Olive Garden sales. Few casual-dining restaurants can boast such levels.

The company’s other concepts have performed well, too, including LongHorn Steakhouse (same-store sales up 2.4%).

To be sure, Darden will have some work to do on its newest concept, Cheddar’s Scratch Kitchen, which saw same-store sales fall 4.7%. Cheddar’s, unlike Darden’s other concepts, operates in perhaps the most challenged sector in the restaurant industry: varied-menu casual dining. That will be Darden’s biggest test—and Peter, in his story yesterday, noted that Darden has a fix-it program for its newest concept.

Still, the strategies Darden has used to generate sales growth when consumers are departing casual-dining concepts can be used elsewhere. Make the restaurants run well. Simplify operations. Focus on takeout and what consumers want.

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