Darden Restaurants CEO Gene Lee had plenty to talk about during the Olive Garden operator’s quarterly call with financial analysts Friday, from how the company is dealing with dining-room limits to its five-year technology strategy and how his role will change after current CFO Rick Cardenas moves up to president next month. But he did find time to explain how Taylor Swift had helped the management team keep the operation fresh.
“When Taylor Swift drops our name in a song, our brand becomes very, very relevant,” said Lee, referring to the mention of Olive Garden in a tune the pop star issued last week. “It’s a 40-year-old band that becomes relevant to her audience.”
Other efforts to keep Olive Garden and its sister Darden’s concepts relevant figured large in Lee and Cardenas’ comments during the call. They revealed that the Italian chain—Darden’s workhorse—has just added a new technology feature that allows curbside-pickup customers to alert a unit of their arrival by hitting a link embedded in a text sent ahead of time to their phones. Lee said the next big area of focus technology-wise will be on quickening the checkout process for guests who order and pay for meals online, a channel that now accounts for 55% of the company’s sales.
Sales were clipped appreciably by government shutdowns of dining rooms in recent weeks. Cardenas said the new limitations cost the company about $15 million in operating income during the last two weeks of Darden’s fiscal second quarter, which ended on Nov. 29. At the start of November, the dining rooms of 56 Darden restaurants were closed, across a total of 1,818 in total. By the end of the month, the count had soared to 208, with 23% of the company’s units operating under some type of capacity restriction, compared with just 10% being restricted at the start of the period.
The service cutbacks depressed Olive Garden’s same-store sales for the period to -19.9%. The next-biggest concept in Darden’s portfolio, LongHorn Steakhouse, posted a comparable decline of 11.1%. Darden’s fine-dining group, which includes The Capital Grille and Eddie V’s, generated negative comps of 30.1%. While new dine-in capacity limits were a major factor, “we believe guests modified their behavior in advance of the holidays,” Lee commented.
The drop-offs from year-ago sales levels deepened to 32.6% for Olive Garden and 23.3% for LongHorn for the week ended Dec. 13. But Lee and Cardenas noted that costs have also been significantly reduced, the unexpected result of service shutdowns and the forced recast of the business into a to-go-only operation early in the pandemic. “As we brought our menus down, we learned a lot about guest behavior and what our guests want to buy without a nudge from us,” said Lee. “We believe that the business model from a cost side is much stronger than it was pre-pandemic.”
That factor, in turn, will likely help Olive Garden open more restaurants than it had anticipated before the crisis erupted. Lee and Cardenas explained that a lower restaurant-level cost structure should enable Olive Garden to penetrate smaller markets. With costs ratcheted down, the lower sales potentials of those markets would not impede the chain from hitting attractive returns on investments. Plus, “we thnk we could handle the cannibalization a little bit better,” Lee said. The chain currently extends to 874 locations.
Lee said the experience of operating under the pandemic had also helped the company prioritize its technology plans. For instance, it learned that customers did not appreciate technology that affected the in-store dining experience. When Darden tried using QR codes so customers could call up contactless menus on their smartphones, guests pushed back. He ventured a projection that technology will largely be embraced by customer and operator alike for takeout and delivery.
Among the innovations that Darden has recently embraced is Curbside I’m Here, an enhancement that allows curbside-pickup customers to alert a restaurant to their arrival without having to call or text.
“The big one we’re working on right now is how to accelerate the checkout process on an online order,” Lee said. Longer range, “we are working on a technology roadmap [for] the next five years to figure out where we want to invest.”
Friday’s analyst call followed an announcement by Darden that Lee will add the role of board chairman to his current duties as CEO on Jan. 4. At that time, he will cede his title as president to Cardenas, who will also assume the job of COO.
How will that change Lee’s role and the direction of the company?
“Don’t read anything into it, other than we’re creating opportunities for our people,” said Lee. “I plan to be as involved operationally as I’ve ever been--that’s my strength.”
Cardenas’ promotion will provide the finance chief with more operational experience, Lee continued. Plus, it provides top management with “an extra set of hands to look at things a little differently” by “ giving Rick the time to look across the organization for increased synergies.”
Those discoveries are not likely to include virtual concepts or ghost kitchens, Lee indicated. “We believe that we’re an on-premise restaurant company,” he said.
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