Much of what has taken place at LongHorn Steakhouse in recent years counteracts the casual-dining playbook of old. Simplify and shrink the menu, but improve loyalty and accelerate same-store sales. Historically those results just don’t co-exist in the same battlefield.
“It’s the art, not the science,” Darden CEO Gene Lee said during a June 26 conference call.
Darden is, undoubtedly, the king of simplification in the restaurant world. It’s an ethos the brand ignited about four years ago, and the results have continued to front the field ever since. LongHorn was brought into Darden’s portfolio in 2007 when the Olive Garden parent, which also owned Red Lobster at the time, purchased RARE Hospitality International Inc. for about $1.2 billion plus debt. RARE operated LongHorn and the higher-end Capital Grille. The deal propelled Darden full-force into the steakhouse business after the closure and sale of its struggling Smokey Bones barbecue restaurants. There were 287 LongHorn restaurants and 28 Capital Grille restaurants at the time. Lee was RARE's president and chief operating officer.
The year before the sale, RARE's profit dropped about 24 percent to $39.4 million on $986.9 million in revenue. In Q2 of 2007, its profit decreased 24 percent to $10.2 million on $269.2 million in revenue.
LongHorn just posted same-store sales gains of 2.4 percent in Q4, which gave the 504-unit brand 21 consecutive quarters of positive momentum. The only negative full year of comps sales came during Darden’s integration of the brand. The Capital Grille, by the way, reported same-store sales gains of 2.6 percent, and has grown to 58 units under Darden's umbrella.
It’s impressive, as Hugh Gordon Gooding from Stephens, Inc. pointed out during the call, Darden’s ability to generate such a streak of gains despite what it’s taken away from the offerings. The menu is down more than 30 percent in the past year or so, and still Darden lifted total sales 4.9 percent, about four times the rate of growth for the industry (excluding Darden) this past quarter. Same-restaurant guest counts outperformed industry benchmarks by 280 basis points. Lee even said Darden is preparing to take the chain to California in the next 24 months.
This past quarter, Lee said LongHorn reduced additional core menu offerings (he didn’t provide the number exactly) and further simplified operating processes. Additionally, limited-time offers were made less complicated and easier for teams to implement.
“This continuous improvement is resulting in better execution. Finally, our emphasis on the culture and focus on team member engagement continues to pay off as evidenced by LongHorn's industry-leading retention rates at both the manager and hourly team member level,” he said.
LongHorn’s segment sales also grew in Q4, driven by positive same-restaurant sales and net new restaurants. Segment profit margin was 19 percent. Adjusting for the workforce investments, LongHorn’s segment profit margin would have been 30 basis points higher than last year. Same-store sales are showing 6 percent growth on a two-year stack.
“I really like our margin structure compared to the other steakhouse players. So sometimes the headline ‘same-restaurant sales number’ is not the entire piece of the puzzle. You've got to look at the whole business model,” Lee said. “… You have to remember in LongHorn, these are very small boxes [and] our strategy is that we maximize the box and then we build another restaurant 3 miles down the road, and that's how we ended up with 45 restaurants in Atlanta, Georgia.”
Taking a deeper look into the simplification process, Lee said Darden views the process “from the back door to the table.”
It’s broken down in the following areas:
“How do we simplify all the prep procedures? How do we simplify the processes between the grill and the expediting station, and how do we quickly get that food to the table?” Lee said.
Returning to his earlier sentiment, Lee said simplifying a menu comes down to the “art of being able to put a menu together that covers all the significant areas that your guests want to be covered without having a lot of products doing or working in the same ways, and ensuring that you have unique, interesting products in each of those categories.”
“And if you do that, I think that you can artfully create a menu that meets the consumer needs but yet allows you to simplify your execution so that you can execute that product at a really, really high level,” Lee said.
He referenced similar success at Hillstone Restaurant Group, the 1977-founded company that runs Houston’s, Hillstone, and 13 other polished brands.
Lee said, just like Darden is aiming for, Hillstone showcases a limited menu, executed flawlessly, while also hitting every possible area a consumer might want to experience.
“I think that's what we're trying to do is remove the duplicity in our menus with similar products, really providing an opportunity for our guest to eat what they want but without having two choices in the same particular area,” he said. “And that's what we're focused on.”
Lee added that there’s still work to be done, but it all comes down to presenting a product executed the way it’s designed to be executed, and delivered hot and flavorful.
“That’s what were excessively focused on,” he said.