Recovery of the full-service restaurant market may take some time, according to one of its leading players, Olive Garden and LongHorn Steakhouse parent Darden Restaurants, but ”this category will get back to the size it once was,” CEO Gene Lee assured Wall Street this morning. Yet as he readily attested, Darden itself will come out of the pandemic with significant lasting changes, the results of using the crisis as a virtually reset of some operations.
Here are the areas where COVID-triggered changes are likely to remain in place for Darden’s holdings, which also include The Capital Grille, Yard House, Cheddar’s Scratch Kitchen, Bahama Breeze and Seasons 52.
Back-of-house operations: Like many chain operators, Darden streamlined the menu of its brands to ease their transition to off-premise-only operations and a reliance on skeleton staff. “We had a chance to look at all our processes and procedures, and were able to simplify and eliminate a lot of prep work that we'll never get back into the business,” said Lee. “It’s been much easier, as we build the on-premise business back up, to reimagine what the operation in the back of the house looks like versus trying to reimagine it why you're operating. And we're really thrilled with the results so far.”
Off-premise priorities: The off-premise focus for Olive Garden going forward is more likely to be on takeout, and curbside pickup in particular, rather than delivery, Lee told financial analysts. Overall, the brand’s off-premise sales have increased by 300%, he explained. As for delivery, “that opportunity will always be there,” Lee continued. But he revealed that Olive Garden found “the sweet spot” to be the large-order delivery service the chain had offered before the pandemic, where guests had to place an order of at least $75, and no later than 5 p.m. the day before. It experimented with waiving those requirements during the crisis, but “where we're settling in right now is $50 minimum, still the 5:00 call the day before,”said Lee.
Self-delivery vs. third parties: Darden had been a holdout against the use of services such as DoorDash and UberEats before the pandemic, but seemed to be wavering when the crisis erupted. It also disclosed at the time that it would give self-delivery of small orders a try. Neither initiative generated the results to change Darden’s pre-COVID mindset. “We did test doing our own delivery, [but] found it really inefficient,” said Lee. As for outside delivery partners, “we really didn't see that the third-party delivery grew faster than our own to-go business. We are not anticipating launching a third-party delivery model.”
Development and expansion: Darden is still planning to open 35 to 40 restaurants during its current fiscal year. The surge in off-premise sales and other effects of the pandemic has “really changed our philosophy on new restaurant development at this point,” said Lee. Part of that is the impact on costs. “There'll be a lot less people growing, so I think the cost of construction should come down just like it did in '09, '10 and '11. I think the cost of the underlying land should come down significantly.” The new buildings themselves might also function differently, though Darden isn’t convinced yet, he continued. “We have been developing in Olive Garden more of a dedicated pickup space off the side of the kitchen that we're really happy with, but that might not be the way we want to go going forward.” It depends on how sales break down by off-premise and on-premise as dining rooms reopen, he explained.
Capacity caps: Once the state limits a restaurant’s dining-room capacity to 25%, increases in the cap really don’t matter, Lee asserted. “The only thing that matters is there's six feet of social distancing required,” he explained. “Once you're past 25% occupancy, the six-foot restriction on social distancing trumps any other restriction because you can't get to 50%. The company plans to install barriers in 100 stores over the next two weeks to see what effect that will have on capacity, he added.
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