After logging Olive Garden’s sharpest quarterly jump in same-store sales since 2008, parent company Darden Restaurants revealed where it will focus resources in hopes of staying ahead in the casual-dining segment: winning at recruitment and retention.
“Moving forward, the biggest challenge for the industry is going to be the war on talent. That’s where we’re focused,” said CEO Gene Lee. “That’s where I think the winners will be focused.”
Although restaurant CEOs have been talking about the importance of talent for decades, Lee indicated that finding and retaining good employees has taken on newfound importance for his charge, whose holdings also include The Capital Grille, LongHorn Steakhouse and Cheddar’s Scratch Kitchen.
“We’re spending as much time talking about the employee proposition as we spend talking about the consumer proposition,” said Lee, apparently referring to casual dining’s struggle to maintain traffic.
Darden’s labor costs for the first quarter ended Aug. 26 rose year over year by 5%, though Lee said that figure does not reflect the company’s still-unrevealed initiatives to draw and retain talent. Rather, the increase was a reflection of rising compensation within Darden, which employs 180,000 people in total.
“Our retention rates are actually improving,” said Lee. “Part of that is we’re willing to make the pay decisions to keep our best people.We’re going to do what we need to do to keep our best team members.”
Yet an intensifying focus on labor doesn’t fully explain Olive Garden’s 5.3% rise in comps for Q1, according to Lee. Traffic on a same-store basis rose 1.5%.
Lee attributed the strong performance of the 858-unit brand to “a confluence” of factors, including marketing that resonated with customers, a highly successful run of the brand’s annual two-for-one promotion, and operational changes that were put in place long before the quarter.
“This is really about improving the fundamentals,” he said.
Lee noted that part of the back-to-basics strategy was an increased emphasis on value. During the quarter, Olive Garden’s average check crept upward as patrons traded up to bargains with a slightly higher ticket, he revealed. “We’d like to see that moderate a little bit as we go forward.”
He said categorically that Olive Garden will not follow a host of other casual chains into a partnership with third-party delivery services. Instead, the brand will continue to rely on takeout and self-delivery of orders exceeding $100 and placed 24 hours ahead of time.
"We’ll continue to look at whether $100 continues to be the right place for us,” Lee said. “We have no interest right now in delivering a $10 meal to an individual household.”
All but two of Darden’s other brands also generated positive comps for the quarter, ranging from 3.9% for The Capital Grille to 0.6% for Yard House. Lee noted that the period was a particularly strong one for Darden’s second-largest brand, 506-store LongHorn, which posted a 3.1% gain.
The exceptions were a 1.9% decline for Seasons 52 and a 4% drop for Cheddar’s, the most recent addition to the fold.
Lee stressed that Darden is committed to turning around Cheddar’s, whose problems he attributed in large part to labor issues. The concept’s operations and menu are complex, he explained, noting that the 157-unit chain has a far higher turnover rate than any other brand in the portfolio. Pressed for a timeline on a sales turnaround, Lee demurred, saying, “I want to see the retention levels at the hourly and management level get closer to the Darden norms first.”
Similarly, he declined to provide financial analysts participating in the post-results earning call with a schedule for Cheddar’s expansion.
“We will grow as fast as our human resources will allow us to grow,” he said.