The company's fine-dining concepts increased sales 24 percent versus pre-COVID.
The fine-dining segment was crippled by the onset of the COVID-19 pandemic in March 2020.
High-margin desserts and starters, beverage add-ons, multi-layered meals, and the overall experiential atmosphere were stripped away in favor of an unfamiliar off-premises model. Upscale concepts found it difficult to adjust. In the spring of 2020, a Datassential survey of 400-plus operators found only 56 percent of fine-dining brands were open for delivery and carryout, compared to casual dining (64 percent), midscale (75 percent), fast casual (87 percent), and fast food (90 percent).
In the week ending March 27, 2020, average guest checks dropped 43 percent, according to Black Box Intelligence. Datassential also found that on average, sales declined 82 percent among fine-dining operators and 72 percent had to lay off 75 percent or more.
A year and a half later, COVID remains present with the spread of the Delta variant, and staffing shortages place pressure on breadth of service, but the crucial fact is that restaurants across the country have flung their doors open, and fine dining is witnessing a resurgence as consumers rush in.
Fine-dining concepts under Darden Restaurants—The Capital Grille, Eddie V’s, and Seasons 52— captured $168.8 million in Q1 sales (May 31 through August 29), a 24 percent increase versus pre-COVID despite this period traditionally being the slowest all year. Average weekly sales were $148,372, up from $79,223 in 2021 and $131,757 in 2020. These concepts also saw a profit of $33.5 million in the quarter, versus $10.2 million and $20.3 million in 2021 and 2020, respectively. Fine dining had the largest sales outperformance versus Darden’s expectations, along with LongHorn, which saw sales lift 20.6 percent against pre-COVID.
“I never thought in my wildest dreams I'd see the kind of absolute numbers that we saw this summer in fine dining, which has been fantastic,” Darden CEO Gene Lee said during the company’s Q1 earnings call.
Mobile location analytics platform Placer.ai found that all of Darden’s upscale brands increased their guest visits compared to pre-pandemic figures. In July, visits soared 32.5 percent at Eddie V’s, 29.7 percent at the Capital Grille, and 17.1 percent at Seasons 52. Even with the rapid rise of COVID, visits remained positive in August. The Capital Grille grew visits 15 percent during the month versus two years ago, while Eddie V’s saw a 12 percent rise and Seasons 52 witnessed a 1.4 percent bump.
The only other Darden brand experiencing similar success is LongHorn, which saw visits skyrocket 34.1 percent in July compared to 2019, and 17.1 percent in August. Bahama Breeze also saw a 4.2 percent uptick in August. Olive Garden’s visits dropped 5.3 percent during the month and Yard House and Cheddar’s Scratch Kitchen saw decreases of 9.5 percent and 10.2 percent, respectively.
Lee noted there’s still a heavy drag on fine dining in major cities—the company is still down 40 percent in three Manhattan stores—but the uptick in suburban locales has accelerated. The executive attributed the increase to business travelers stuck at home using fine dining more on the weekend. Lee also said Darden has seen a lot of cancellations of larger parties or gatherings inside fine-dining restaurants in the past six to eight weeks because of customer hesitancy, but he added that he expects a robust holiday season if the Delta variant is under control.
“Sunday has become a legitimate sales day in fine dining, which was really pre-COVID kind of a throw away day unless you're in a convention city and a convention starts on Sunday,” Lee said. "But Sundays are real legitimate day now."
Sales lifts at Darden’s are reflective of the entire sector. Fine dining has remained the best-performing segment for sales growth for several weeks in a row, according to Black Box Intelligence.
Other brands within the casual-dining industry have recognized the shift. Cracker Barrel noted during its recent call with analysts that sales fell below expectations in its fourth quarter, with comps sinking 6.8 percent compared to 2019. CEO Sandy Cochran gave several reasons for the slowed pace, with staffing shortages and the Delta variant being obvious scapegoats. But she also pointed toward “a general consumer preference coming out of the pandemic for more celebratory higher check occasions than we are known for.”
Although the consumer trend hasn’t helped Cracker Barrel, upscale chains have reaped the benefits. J. Alexander’s, which was sold to Logan’s Roadhouse parent SPB Hospitality for $220 million, saw net sales increase 6 percent, 7 percent, and 15 percent in April, May, and June, compared to 2019. For the entire second quarter, the company earned $68.1 million in net sales, up from $27.6 million in 2020.
During a call with analysts in early August, Ruth’s Chris Steak House CEO Cheryl Henry described it as a “pent-up celebratory occasion” that people have been missing for months. For Ruth’s, Q2 same-store sales lifted 7.5 percent for franchises and 17.5 percent for company-run restaurants compared to pre-COVID numbers. In July, systemwide comps increased 17 percent versus 2019.
“They've known Ruth's,” Henry said during the company’s earnings call in August. “It hasn't necessarily been in their lives during the pandemic. So, when they're coming in, they're making that decision to truly celebrate and build check.”
For Darden in particular, one key to fine dining’s growth has been adequate staffing. The company recently launched a new talent acquisition system that helps increase the number of candidates by allowing them to apply and schedule interviews in five minutes or less. Darden is netting more than 1,000 new team members per week, and employment is at roughly 90 percent of pre-COVID levels.
The company has leveraged competitive pay to attract workers. At the ICR Conference in January, Lee said a server at The Capital Grille makes well over $40 per hour.
“Our team members are the heart and soul of our business, and we are constantly focused on our employment proposition,” Lee said. “The investments we have made and continue to make in our people are helping us retain and attract top talent, and I'm confident in our ability to address our staffing needs.”