At LongHorn, smaller menu yields more sales

A “back to basics” approach helps most of Darden’s casual-dining concepts generate sales.

Less was more for LongHorn Steakhouse this fall.

Same-store sales at the steakhouse increased 3.8% in the quarter ended Nov. 26, parent company Darden Restaurants said on Tuesday.

At LongHorn, however, the increase came even though the chain has spent the past couple of years taking items off of its menu. The company has, over time, eliminated nearly 30% of its offerings.

The simplification helped the chain improve operations, Darden CEO Gene Lee said on the company’s earnings call Tuesday. It also allowed LongHorn to improve quality.

“We had a lot of items on our menu that were duplicative in the need they were filling,” Lee said. ‘We removed them. That helps us operate much more efficiently.

“Our menus had grown too complicated, too complex. We had items that continue to work and do the same things over and over again.”

LongHorn has historically been a simple operation, one that concentrates on cooking steaks correctly and getting food out quicker, Lee said.

“We had a lot of menu items not working hard for us,” he said. “As we simplify our operation, we’re executing at a high level.”

The 500-unit steak chain was one of six of Darden concepts that reported an increase in same-store sales in the most recent quarter, Darden’s fiscal second period.

The company’s flagship, Olive Garden, reported a 3% increase in the period. Other chains to report an increase included The Capital Grille (3.8%), Eddie V’s (6.8%), Yard House (2%) and Bahama Breeze (2.5%).

Same-store sales declined 0.5% at Seasons 52 and 2% at Darden’s newest chain, Cheddar’s Scratch Kitchen.

Improving same-store sales helped Darden’s sales in the quarter increase 14.6% to $1.88 billion, though much of that growth came from the addition of Cheddar’s. Earnings per share increased 10.9% in the period to 71 cents.

Investors cheered the sales performance. Stock in the company increased more than 5% through early afternoon trading.

Darden under Lee has concentrated on improving operations, simplifying the business inside of restaurants to lure more customers.

At Olive Garden, the quarter was the chain’s 13th straight with positive same-store sales. The 849-unit chain outperformed its casual-dining competitors by 400 basis points in the period.

That’s actually a smaller gap than in previous quarters, suggesting competitors are catching up. But Lee said that’s ultimately better for the company.

“We prefer to operate in an environment with a stronger industry,” Lee said. “If your gap shrinks a little bit, that’s OK with us.”

Lee also said that casual-dining chains that are well positioned in the market will continue to do well. “There’s a deviation in performance between people doing well and people who aren’t,” Lee said.

One thing that has worked with Olive Garden has been takeout. To-go orders at the chain increased 12%, and have been growing at a strong clip for the past four years.

That’s a trend Lee believes will continue, even as the chain itself has been slow to jump on the delivery bandwagon.

“This could be 20% of our business,” Lee said. “Our type of food just travels so well.”

While most of Darden’s concepts performed well in the period, one that didn’t was Cheddar’s, which Darden paid $780 million to buy earlier this year.

Yet Lee said such challenges were unsurprising. For one thing, most chains Darden has acquired struggled after the acquisition as they were integrated into the system.

“LongHorn had only one negative year in its 30-year history,” Lee said. “That was during its integration into Darden.”

Lee said, for instance, that 10 locations are transitioning to a new point-of-sale system every week, with training of staff beforehand. Payroll is also being transitioned. And the company has transitioned the chain’s distribution network to Darden’s.

At the same time, Cheddar’s also recently acquired two large franchisees operating 54 locations, and must integrate those locations into the company. Those locations represent 35% of the system, Lee said.

Lee said that those former franchisee units took down the chain’s same-store sales by 100 basis points.

The biggest of those acquisitions, of 45 locations, had some different menu items and different prices. That move alone hurt Cheddar’s average check.

“These are great restaurants and great people,” Lee said. “The franchise system was just run a little bit independently of the core company-owned restaurants. There’s going to be some effort and energy to get them to the operating standard of company restaurants.”

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