He added that Cheddar’s turnover trends, at the team member and manager level, improved throughout Q1 and are now above industry norms, although still below Darden’s metrics.
For perspective, LongHorn’s team member turnover during the quarter was 68 percent compared to about 120 percent for casual dining. Management turnover was 13 percent versus 36 percent for the category.
Near the end of the quarter, Cheddar’s also introduced a new menu with more price diversity within categories, and launched Quick Pick Lunch Combos starting at $5.99. Lee said the latter led to higher value and intent to return ratings compared to last year.
The key to all this, however, is that Cheddar’s is still a work in progress from a foundational perspective. There’s runway ahead. Lee said operations and staffing improvements are setting the chain up to start increasing working media spend and, in turn, drive trial.
“They will be leveraging Darden resources and best practices to implement the media plan,” Lee said.
Because Darden is Darden and not a single-concept operator scrapping with the day to day, it can play the long game with Cheddar’s. The brand represents less than 8 percent of Darden’s overall business.
Lee said he’s “resolute in the fact that I want to fix this and fix it right for the long term.”
“I think this is still a huge opportunity,” he said. “And as much urgency as I’m putting behind it, I’m more concerned about doing it right.”
Guest satisfaction scores have grown across the board as employee staffing levels improve. “There’s still opportunity there,” Lee said. “I will say that the divergence—the differential between the better operating stores and the ones with challenges—is still too great. We’ve got to close that gap down.”
Cheddar’s won’t grow in any significant way, either, until the human-resources conversation evolves further. The company is opening five or six a year right now, but doesn’t plan to accelerate until “the management depth continues to build,” Lee said.
“I’m focused on really, really getting great managing partners in these restaurants,” he said. “And I know when we do that, our likelihood of success increases dramatically.”
The state of the industry
Lee, as is often the case during quarterly calls, was asked about the state of the business. In particular casual dining. He said it’s surprising to see the field comping negative considering unemployment remains at all-time lows and there continues to be strong wage growth, which, historically, has been a positive for restaurants.
“I personally believe that there’s some uncertainty entering into the consumer, and it’s impacting their confidence,” Lee said. “How long? Now I’ve got to believe there, with all the media attention around what’s happening, how long does this continue, this environment continues? So there’s nothing structural that we see that’s changed out there other than there appears to be a little bit more uncertainty today than there was.”
What should restaurants do?
“We need to create compelling guest experience and come up with and reinforce our value propositions,” Lee said.
For Darden specifically, this means rethinking how it goes to market with brands not named Olive Garden and LongHorn, and how it advertises those smaller chains in different channels to compete more effectively.
Lee said the industry is seeing added strength in limited service. “There’s no doubt about that,” he said.
“And you think about there is good income growth on the lower end of the curve, and those folks seem to be trading or dining out a little bit more frequently,” Lee added. “And I don’t know where people are trading out of in casual when you look at a 10-year period. That’s been a big question. I’m not sure we’ve had, as a industry, an answer.”
On the ever-present topic of discounting, Lee said, Darden will continue to use whatever levers it can to grow its business. When it looks at incentives, it doesn’t view at them as one piece; rather the overall advertising program.
“What is going on from a television standpoint? What’s going on from a digital and online [standpoint] What are we doing from an incentive standpoint?” he said.
“We have multiple ways to put incentives out there. And so we have a lot of leverage that we can pull over time depending on the environment, and we will use those appropriately to drive our business in a profitable way.”
One lever won’t be delivery. Lee said Darden’s thoughts “haven’t evolved at all” on the subject. (Lee said last quarter Darden wasn't missing out on anything). While the cost burden appears to be shifting from the company to the consumer, Lee said, Darden still has ample concerns. How much of the overall experience are you willing to dedicate toward convenience? Darden isn’t comfortable with that equation just yet.
“Our job is to create a compelling off-premises experience right now that, with so much value, the consumer is willing to come and get it. That seems to be working for us, and we're going to continue to focus on that,” he said.
