Olive Garden delivers positive performance
April 6, 2016
by Monica Watrous
One key driver of Olive Garden's performance was its create-your-own Tour of Italy promotion.
ORLANDO, Fla. — The secret behind recent sales momentum at Olive Garden boils down to the basics, said Eugene Lee Jr., CEO of parent company Darden Restaurants, Inc.
|Eugene Lee Jr., CEO of Darden
“I think the overall experience inside an Olive Garden today is significantly better than it was 12 to 24 months ago,” Lee said during an April 5 earnings call with financial analysts. “One of the things that we’re focused on now is trying to keep things simple. We talk a lot about simple is hard, and doing simple things every single day is really hard, but that’s what’s given us the biggest lift in Olive Garden.
“Our teams are doing a great job creating great dining experiences, and we’re not having to rely on promotional activity to drive the business. We’re winning every single day at the nine square feet, and I believe that’s why we gained some momentum throughout the third quarter.”
For the third quarter ended Feb. 28, Darden net earnings were $105.8 million, equal to 83 cents per share on the common stock, down from $133.8 million, or $1.07 per share, for the prior-year period. Earnings results were weighed down by charges related to the early retirement of debt. Sales were $1.846 billion, up nearly 7 percent from year-ago sales of $1.731 billion.
US same-restaurant sales at Olive Garden.
On a comparable calendar basis, same-restaurant sales increased 4.2 percent for the quarter, led by a 4.9 percent increase in same-restaurant sales for Olive Garden, a 2.7 percent increase for LongHorn Steakhouse, and solid growth across the company’s specialty restaurant brands, which include The Capital Grille, Eddie V’s, Yard House, Seasons 52 and Bahama Breeze.
“This was our sixth consecutive quarter of same-restaurant sales growth at Olive Garden,” Lee said. “In addition, same-restaurant traffic was up 3 percent for the quarter. Key drivers of this performance include an improved guest experience delivered through proper staffing and the simplification of processes and procedures, culinary innovation that builds on the brand equities and flavor profiles that our loyal guests enjoy most, as seen with our successful flavor-filled pastas and create-your-own Tour of Italy promotions, and continuing to meet our guest needs for convenience with the national launch of large party catering delivery.
Olive Garden's OG To Go sales represent 10.5% of the restaurant's total sales.
“This is an enhancement of our successful OG To Go platform, which has experienced a two-year growth rate of over 40 percent. Year-to-date, OG To Go sales represent 10.5 percent of our total sales.”
The Italian casual dining chain also rolled out tabletop tablets, which have expedited service in the restaurants, reducing average table turn time by seven minutes, Lee said.
“But it does start with the basics of having a great host or hostess at the front door inviting guests in,” he added. “It starts with having service staff that has the appropriate size section, they have the right small wares and tools to do their jobs. And we have a simplified process in a kitchen where our chefs and cooks can prepare the food properly. I believe all of the little details that we’re doing is allowing us to steal market share at this point in time.”
Mr. Lee said Olive Garden's success hinges on a great staff, including friendly hosts and hostess greeting guests at the door.
Simplicity is central to plans to improve performance at LongHorn Steakhouse, which Mr. Lee said “has become too complex over time.”
“At the end of the day, what we’re doing in LongHorn today is we’re removing some consumers, some guests from the guest base that we are confident that we weren’t making any money on,” Lee said. “And they were a consumer that was buying a low-end steak, coming in with a $5 coupon, and that was all happening while we had a 45-minute wait outside the restaurant, people waiting to get in to pay full price for more of a higher-end experience in casual dining steak. So, we’re transitioning the positioning slightly, and we believe this is the right place to be.”
Despite Darden’s positive performance for the quarter, the company’s share price fell nearly 4 percent, closing at $64.80 on April 5, following the announcement Jeffrey C. Smith had stepped down as chairman and resigned from the board of directors. The board unanimously elected Charles M. Sonsteby, a current independent director, as Smith’s successor. Smith had served on the board of directors as chairman since October 2014.
Jeffrey C. Smith stepped down as chairman and resigned from Darden's board of directors.
“From the moment he walked into the boardroom, Jeff has been focused on helping Darden regain its leadership position in full-service dining, and we’re all grateful for his perspective he has brought to our business,” Lee said. “We have accomplished a number of extraordinary feats under his leadership, including improved operational excellence, disciplined strategic planning, and the spin-off of Four Corners Property Trust.
“On a personal note, I’ve appreciated and valued Jeff’s vision, constructive attitude, and counsel during the past 18 months. He’s been a wonderful partner for me and I wish him well in all his personal and professional endeavors.”