Even when dine-in returns to full strength, Darden will have the tech to slot in off-premises orders and have an even flow.
ICR was the same conference where somebody asked Lee what he thought of virtual brands, which he termed a “distraction” previously. Lee’s response was straightforward: Brand recognition matters.
Create one out of thin air and you’re suddenly going toe-to-toe with restaurants that have 30 years of history and $150 million advertising budgets (referencing Olive Garden).
Additionally, he said consumers were telling operators more and more they were tired of eating restaurant food at home, and wanted get back out and socialize with friends.
From a high level, that’s turned out to be true, as the restaurant industry posted its 16th consecutive week of positive same-store sales in the period ending July 4, according to Black Box Intelligence. Comps growth for each of the three weeks preceding July 4 were higher than any stretch during the eight weeks before that.
Less tangibly but equally intriguing, the number of mask mentions, per Black Box and its listening platforms, dropped by more than 70 percent in June compared with March in the Southeast and Southwest (Darden is based in Florida).
Lee said he isn’t sure where off-premises is going “to net out” for Darden. But he’s confident it’s going to be higher than it was pre-COVID. “And I think it’s something that’s part of our business we will have to pay a lot more attention to as we move forward.”
As it turns out, surprisingly to Darden brass, there’s hasn’t been much cannibalization with dine-in. Off-premises guests are using the restaurants as home-meal replacements; they’re not swapping the occasion with dine-in.
Simply, core dine-in users are doing both. Yet the kicker is loyal off-premises consumers are also suddenly going to Olive Garden more than before.
Darden achieved record restaurant-level EBITDA margin of 22.6 percent in Q4, announced late June—310 basis points above pre-COVID levels—and captured record quarterly EBITDA of $412 million. This was helped along by reduced labor and marketing expenses.
Olive Garden achieved $281.6 million in segment profit in Q4 and restaurant-level margins of 25.5 percent, both company records. And the chain broke its single-day sales record on Mother’s Day.
Olive Garden is pushing average-unit volumes north of $5 million alongside those 25 percent restaurant-level margins. Yet its same-store sales declined 4.9 percent in March, year-over-year (up 0.3 percent in April and 1 percent in May). The reason these are pulling in seemingly different red and black directions, Lee said in June, is because Darden isn’t “participating in giving away our food through third-party channels.” And Olive Garden isn’t discounting cash like some competitors through selling gift cards.
Darden has earned a reputation for this over the years—skirting trends and short-term levers in favor of driving profitable sales growth. The full picture instead of just the top line. This typically showed with Olive Garden’s innovation calendar, and its decision to push embedded, daily value over fleeting promotions.
Returning to off-premises, 64 percent of Olive Garden’s to-go orders were placed online in Q4. Fourteen percent of Darden’s total sales came as digital transactions.
CFO Rick Cardenas highlighted the long-term play at hand—the ability to remarket to consumers thanks to a pandemic data horde.
He said Olive Garden ran some TV buys it purchased previously. But not much else unfolded from a marketing standpoint. It did some digital as well “just to keep the digital marketing moving.”
“But we haven’t started focusing on those new customers and speaking directly to them,” he said.
When the time comes, Darden will have a chance to communicate with a wealth of consumers who weren’t coming to its brands before coronavirus.
And now the question becomes, who is this customer exactly?