How Darden is Reaching Pre-COVID Staffing Levels

CEO Gene Lee said, 'There may not be enough service workers to staff every restaurant in America, but there's enough service workers out there to staff Darden's restaurants.'

December 17, 2021 Ben Coley

During a call with analysts Friday, Darden Restaurants CEO Gene Lee was posed a question that many have asked amid record-high staffing shortages and exoduses away from restaurants.

Is the casual-dining industry paying too little?

Predictably, Lee—who is retiring as CEO effective May 29—responded with a hard "no," with evidence to back up his claim. In March, Darden raised the starting wage of tipped and non-tipped employees to $10 per hour, including tipped income. The original plan was to reach $12 per hour to start 2023, but given strong sales performance in recent months, Darden pushed up the timeline to this January.

Although the $12 starting wage seems low, Lee says few in the company are actually at that level; the number more so represents an entry-level position in rural America. To the CEO’s point, the latest wage increase will raise Darden’s average pay to $20 per hour, including gratuities.

“In some major cities, you’re not hiring anybody for $12 an hour today,” Lee said during Darden’s Q2 earnings call. “Wage rates vary very, very, much depending on geography and overall demand. We have people in our environment that make $25 to $28 an hour in the back of house, and in some parts of the country, you’re doing that same job for $18 an hour.”

“I think casual dining is paying the appropriate rates in the marketplace based on supply and demand,” he continued. “I think our teams are doing a very, very good job of looking at the overall situation and ensuring we’re paying probably a little bit more than competitive wage in each market to ensure that our restaurants are fully staffed.”

The plan appears to be working. Across all of Darden’s brands, manager staffing levels are above historical norms and hourly-level staffing continues to increase. The improvements are in part due to a new hiring system that makes it easier to source talent, which frees up managers to focus on onboarding and training new employees.

Staffing is at 95 percent of pre-COVID levels, up from 90 at the end of November. And because of upgrades in productivity, Darden doesn’t believe it needs to reach 100 percent, a crucial victory considering the sluggish pace at which jobs are being filled. Food and drinking places still remain 750,000 jobs below where they were pre-pandemic, and only gained 11,000 in November. Job openings in accommodation and food services increased by more than 250,000 from September to October, according to the Bureau of Labor Statistics.

Olive Garden

Even with staffing issues, sales improved in Q2 for each of Darden’s restaurant segments.

The most-challenged areas for Darden are the lower-end brands where average check isn’t as high and volume tends to be higher. But Lee said, "There may not be enough service workers to staff every restaurant in America, but there's enough service workers out there to staff Darden's restaurants"

President and COO Rick Cardenas, who was announced as Darden’s new CEO Friday, believes that’s because of the company’s “incredible employment proposition.”

“When we make it an offer, people accept it, and that’s a great thing,” Cardenas said. “… As it relates to future need to increase our minimum guaranteed wage, the number that we have right now, $12, is the right thing for us. We’ll continue to monitor that and see where we need to increase wages on a market-by-market basis.”

Although Darden will continue to focus on restaurant and guest-facing technology to ease operations, Cardenas said the brand doesn’t plan to implement any innovation that would reduce the number of bodies needed.

“We’re a full-service restaurant company,” Cardenas said. “We’re going to maintain that to provide the service that our guests expect. We will bring in technology to help that, but not necessarily replace.”

Even with staffing issues, sales improved in Q2 for each of Darden’s restaurant segments. Olive Garden saw average weekly sales of $94,187 in the second quarter, versus $72,913 last year and $90,871 two years ago. Longhorn Steakhouse earned $78,330 in average weekly sales, up from $59,621 in the year-ago period, and an increase from $66,867 in Q2 2020.

For fine dining (Capital Grille, Eddie V’s), it was $164,859 in Q2 against $100,926 in 2021 and $147,668 in 2020, and for other business (Cheddar’s, Yard House, Seasons 52, Bahama Breeze), it was $101,489 versus $71,107 and $99,653.

Same-store sales lifted 61.6 percent at fine-dining concepts year-over-year, followed by 42.9 percent for other business, 31.2 percent for LongHorn, and 29.3 percent for Olive Garden.

Olive Garden’s experienced profit of $235.1 million in Q2, a boost from $175.1 million last year and $190.3 million in 2020. For LongHorn, it was $83.6 million, against $66.3 million in 2021 and $71.9 million in 2020. At the fine-dining brands, profit was $39.7 million, up from $20.4 million and $30.4 million the past two years, and for other business, it was $62.3 million, an increase from $39.2 million and $47.7 million.

Olive Garden ended Q2 with 879 restaurants, followed by LongHorn (539), Cheddar’s (172), Yard House (85), The Capital Grille (61), Seasons 52 (44), Bahama Breeze (42), and Eddie V’s (27).

Darden saw total inflation of 6 percent in Q2, including hourly wage inflation of almost 9 percent. The brand responded with 2 percent pricing in the quarter. Pricing in the back half of the fiscal year will approach 4 percent, resulting in a full-year fiscal 2022 increase of just under 3 percent.

CFO Raj Vennam said the increase covers most of what Darden considers structural and long-lasting impacts of the current inflationary environment, while it absorbs short-term effects. So far, restaurants haven’t received much resistance from guests.

“We continue to look at opportunities to manage costs better, and we’re focused on doing some of that before we taking pricing, but with that said, we preserved a lot of flexibility, and we’re tapping into some of that,” Venamm said. “We do believe we have more dry power if needed.”

In fiscal 2022, Darden projects 35 to 40 restaurant openings, $425 million in capital spending, inflation of roughly 5.5 percent, EBITDA between $1.55 billion to $1.6 billion, and total sales of roughly $9.55 billion to $9.7 billion.