Olive Garden backs off promotions, citing better industry conditions

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Signs of overall improvement in the restaurant business prompted Olive Garden to back away from price promotions in the second quarter ended Nov. 25, dampening traffic but enabling the biggest of Darden Restaurants’ casual brands to post a same-store sales gain of 3.5%.

Comps were also positive for LongHorn Steakhouse (2.9%), The Capital Grille (3.7%) and Eddie V’s (0.9%), but negative for Yard House (-1.1%), Seasons 52 (-0.8%) and Bahama Breeze (-1.1%). 

Cheddar’s Scratch Kitchen, the newest and third-largest brand in Darden’s fold, continued to post negative results. Same-store sales for the 158-unit chain declined by 4% in Q2, after decreasing by the same amount for the prior quarter

Darden CEO Gene Lee acknowledged his disappointment with the results for Cheddar’s, which Darden acquired in April 2017 for $780 million. But he expressed encouragement about Cheddar’s guest satisfaction scores hitting an all-time high in Q2. He also noted that virtually every unit in the chain is now under new management. 

“For the first time, 98% have a managing partner in there. We’re stopping the churn,” Lee said. “We’re running these restaurants much better than we were six, nine months ago.”

The managers in place are all veteran Darden employees who are familiar with the company’s culture and management tools, a definite plus in integrating Cheddar’s, Lee asserted.

He said that Olive Garden’s 0.8% dip in traffic was expected because of a conscious decision to back away from price promotions. Management decided that bargains were not needed, given the state of the economy and trends emerging in the restaurant business. Unemployment is low, and consumers expect to keep their jobs and see their incomes grow. 

“Right now, we think the consumer is in a really good place,” Lee said. “It feels like it’s a really good market.”

Forgoing promotions enables the chain to foster a customer loyalty based on more than bargain prices, he explained. It also helps with margins. 

Yet Lee noted that Olive Garden could quickly introduce price promotions if conditions should change.

During Q2, the Italian chain ran only two promotions: Buy One Take One, whereby customers who order certain entrees to eat on-site can take a second serving home for no additional cost, and Never Ending Pasta Bowl, which allows patrons to get unlimited servings of most pastas.

To draw attention to the latter, Olive Garden again offered its Never Ending Pasta Pass, which a limited number of patrons can buy online for a triple-digit amount. This year’s version of the pass entitled a buyer to free pasta servings in an Olive Garden for a year. The 1,000 passes, priced at $300 each, sold out in less than a minute, Lee said. 

Asked by a financial analyst about Darden’s disinterest in offering small-order delivery, Lee said he’s still in a wait-and-see mode. Although a few of the company’s restaurants are testing partnerships with delivery specialists, the economics and guest satisfaction levels aren’t compelling, he explained. 

Instead, the company is focused on takeout and large-order delivery, which grew by 10% in the quarter and now account for 14.6% of sales, according to Darden.

The company opened 40 restaurants during the quarter. Overall, net income for the period hit $115.6 million, a 36.5% jump from the year-ago figure, on revenues of $1.97 billion, up 4.9%. 

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