Olive Garden parent reels off positive comps, a host of surprises

Six of Darden Restaurants' seven multiunit brands posted positive comps for Q3. The how's and why's provided some surprises.

The parent company of Olive Garden and The Capital Grille pulled enough business away from smaller competitors during the quarter ended Feb. 25 to post same-store sales gains for all of its concepts except Cheddar’s, a recent addition to the fold.

The positive comps for Darden Restaurants’ brands ranged from 2.7% for Capital Grille to 0.2% for Bahama Breeze and Seasons 52. Olive Garden, Darden’s workhorse, posted a 2.2% increase, and Yard House, one of its fastest expanders, generated a 1.9% rise.

LongHorn Steakhouse notched a 2% upturn, and Eddie V’s, one of Darden’s priciest operations, reported a 2.7% gain.

The results proved Darden is continuing to find traction in casual dining, a segment struggling to pull out of a traffic slide. The sector has indeed improved, albeit slightly, said CEO Gene Lee.

“We are seeing a little bit of momentum there, a little uptick in traffic,” he told financial analysts.

In addition, patrons are spending more, Lee said. A gauge of the segment shows a 3% rise in the average check for roughly the last 90 days. “We’re trying to analyze whether that is the industry taking more pricing, is it a pullback on some discounting, is it change in promotional strategy,” he said. ”At this point, we really don’t have a good feel.”

He spoke at length about Olive Garden’s pullback on promotions, from nine a year to just six. In the current quarter, the fourth of Darden’s fiscal year, the Italian chain will forgo its Buy One, Take One offer, where customers who buy a meal for in-restaurant consumption can bring a second serving home for no extra cost.

Lee acknowledged that it’s one of Olive Garden’s strongest annual draws, but is no longer necessary this quarter because of the bargains that are now a fixed part of the 853-unit chain’s everyday menu.

The discontinuation of the deal was one of many surprises revealed during the analysts’ call by Darden, the industry’s largest operator of casual restaurants. Among the other revelations provided by Lee and his team were:

  • Labor cuts through simplicity: Any savings on labor for Darden’s brands will come from kitchen simplification, not any sort of device, said Lee. “I’m not so sure that there is a piece of equipment out there that’s going to help us improve, or any technology is going to help us,” he explained. “My belief will always be that it starts with your menu and it starts with all your processes and procedures as your products come in your back door. And that’s what we’re going to focus on.”
  • Increased dine-in traffic: Olive Garden’s in-store dining rose along with its takeout and catering business, the main source of the casual sector’s sales growth in recent months. Indeed, the chain is exploring ways of serving more on-premise guests. An early bird offer of two dinner entrees for $8.99 is a stab at filling seats during “really the only time when Olive Garden has some capacity,” said Lee.
  • Takeout boosts capacity: Takeout is also proving a successful way to bolster transactions when an Olive Garden is full. Lee cited the chain’s experience on Valentine’s Day, when “there is no room to dine at Olive Garden because we’re so busy. It’s our busiest takeout day of the year.”
  • Hesitation on delivery, a loud "go" on catering: Olive Garden is still reluctant to add delivery, though Lee acknowledged the chain is talking to third-party services while testing self-delivery in some locations. But he called catering “a huge opportunity,” with tickets averaging $300. Olive Garden is just starting to pursue that business, but the big orders were a significant contributor to Darden’s 11% growth in off-premise sales during the quarter, said Lee. He added that takeout, delivery and catering now account for 15% of Darden’s sales.
  • Appreciating the franchise model: For a company that hasn’t franchised, Darden appreciates the sales benefit of having local owner-operators. Cheddar’s 2.2% decline in comps was attributed to the weak performance of several dozen franchised units that were brought into the corporate fold in Q2. Darden discovered that “there’s a lot of emotion” to the relationship between franchisees and their staffs, and “when you remove them, you might have a little bit more turnover than you thought,” said Lee. “it’s going to take time to rebuild out and integrate those restaurants into a traditional corporate system. And I think that’s what we’re really going through."

    Darden owns and operates 1,733 casual-dining restaurants. This week it opened its eighth casual-dining concept, The Capital Burger, a burgercentric riff on the company's upscale Capital Grille steakhouse brand. 

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