Lessons Learned at ICR: Fridays Gets Bar-Centric, and Darden Preps for a Recession

The biggest full-service brands are bracing for more changes.

January 2020 Rachel Pittman

When strategic communications and advisory company ICR hosts its annual conference, it's a chance for full-service industry giants to gather and talk about the past year—and set goals for the one ahead.

Whether it’s Denny’s discussing new updates, Darden laying out the facts of its surging business, or a number of other restaurant companies sharing recent successes and upcoming opportunities, the conference is a chance to glean valuable lessons from relevant experiences belonging to major players in the industry. Here’s what we learned from the first day of this year’s event.

TGI Fridays

When your brand is in need of rejuvenation, it’s OK to look backward to past success.

TGI Fridays traffic has struggled to gain footing over the last year. CEO Ray Blanchette knows the brand needs a facelift.

“I‘ve been involved in some restaurant turnarounds over my career … our domestic U.S. business is in need of rejuvenation,” Blanchette said Monday. “I think what we’ve done is spent time looking inward and looking for a fundamental truth about our business that we can talk about to reinvigorate our guest. For Fridays that’s fairly easy—if you ask people for a Fridays story it’s always a bar story.”

Traffic dropped 6.8 percent at franchised restaurants and 4.5 percent at corporate restaurants over the last 12 months, the company said. For Blanchette, the way to drive those visits back up is to restore the brand’s bar heritage.

Blanchette returned to lead Fridays after working at Carlson Restaurants Worldwide, (the brand’s former parent company) years ago, and then leaving to work with other brands for more than a decade. Other alums from the chain’s more successful years have also returned, infusing the company with old-yet-new talents who know the brand and are ready to turn it around.

Since joining Fridays, Blanchette bought on John Neitzel and Jim Mazany to run franchising and company stores, respectively.

Friday’s is split nearly down the middle when it comes to U.S. versus international locations; only 46 percent of the 831 units are domestic. Blanchette said that revenues come from four main channels—U.S. franchises, U.S. corporate stores, international franchises, and licensed branded products sold in retail.

TGI Fridays

TGI Fridays knows where its brand equity is: At the bar.

Within those U.S. restaurant channels, roughly 30 percent of sales are generated from the bar. Many goals for Fridays in 2020 and beyond center around alcoholic beverages, then. Blanchette said this means emphasizing new, value-driven drink options and happy hours.

Refocusing on bar tradition goes hand-in-hand with Fridays seasoned franchises—franchise owners within the system have an average 15 years of experience. But there’s a balance of past and future influences that’s also required.

Blanchette said that strengthening underperforming franchisees is another focus; for instance, in the brand’s important Boston market, 40 to 50 percent of existing directors of operations and general managers have been replaced over the last three months. Buying back some franchised locations is also part of this strengthening process. In January 2020, the chain bought back 36 stores altogether; 20 in Western markets and 16 on the East Coast.

Together with an added focus on delivery (roughly 13 percent of sales fall into the off-premises category now), boosting loyalty program membership, and launching new retail products, Fridays is leaning back into what made them successful in previous years, with the idea of leveraging past prosperity for future triumphs.

In November, GIF Holdings, LLC and Allegro Merger Corp. announced they signed a definitive agreement for “a business combination transaction,”—a move that would result in Fridays becoming a publicly listed company. At closing, TGIF’s holders received a combination of cash and stock valued at $30 million. Allegro assumed roughly $350 million of net debt.

Carlson sold TGI Fridays to Sentinel Capital Partners and TriArtisan Capital Partners for $800 million in 2014. Carlson bought the brand a decade after it was started, when it had just 11 stores.

Systemwide sales for the 12-month period that ended September 30 were about $2 billion. Average annual-unit volume was $2.7 million.

Blanchette was hired in October 2018 after nine months as CEO of Ruby Tuesday. He succeeded Aslam Khan, a Fridays franchisee.

Olive Garden

Olive Garden still has room to tweak with its menu.

Darden

Be realistic about the state of the industry, and about what your brand(s) do wrong and right.

Darden has a massive presence in the full-service industry: The family of restaurants boasts roughly 1,800 locations, featuring recognizable brands like Olive Garden and Longhorn Steakhouse.

The company’s size and firmly-established position within the industry doesn’t mean it isn’t greeted with challenges. CEO Gene Lee is already anticipating the effects of a widely predicted upcoming recession. Rather than worry about the potential setback, though, he’s realistic about preparing for it.

Why Darden is thriving in the labor crisis

“In this recession, closures will be greater this time than they were last time, but there will always be good ideas and well-positioned brands that will be able to add units,” he said Monday.

Lee added that human resources are the hardest to come by in the industry and its biggest challenge at the moment. Thus, Darden is focused on attracting, retaining, and engaging strong staff ahead of an economic slowdown. In addition to streamlining operations to make room for rising labor costs, Lee said more will be expected out of employees earning higher wages.

“We will retain people and they have to be better trained—if we’re going to pay some of our back-of-house people what we’re paying them, we’re going to ask them to do more. We haven’t gotten a lot of pushback on that,” Lee said.

The Darden executives are realistic about their company’s strongpoints and limitations as well as the industry's. Darden’s portfolio features a wide array of brands—meaning when one has a weak quarter, another restaurant’s success can downplay the other brand’s mistake. But, in spite of this, Darden’s individual brands have varying objectives.

Lee said Olive Garden has the potential to slim down the menu, which would streamline operations to free up more money for labor.

Cheddar’s Scratch Kitchen—which Darden acquired around three years ago—is in need of a more established company culture. Those at Darden know the brand’s identity and stable of strong team members need to be firmed up, and aren’t interested in rapid growth without this foundation first.

“We’re starting to finally have a Cheddar’s culture. We’re trying to build the foundation to do this for the long term. We are not in a hurry to just start adding units. Before I start focusing on day-to-day comps I want to see manager turnover south of 20 percent and employee turnover south of 80 percent,” Lee said.

And when it comes to third-party delivery, Darden isn’t afraid to skip smaller off-premises orders in favor of bigger catering sales. The company has been reticent to adopt third-party delivery and has developed in-house to-go programs instead. Cardenas reported that the average takeout order ticket price for Olive Garden is around $350. “We’d much rather do that delivery than $12 lasagna,” he added.

Furthermore, partnering with third-party services would take away some of the control over quality, accuracy, and promptness that Darden currently has over its off-premises operations. In the light of a possible recession, the company would rather leave behind small orders than take a risk on a system that could divert control and revenues from its portfolio of brands.

“We have business growing at double digits without it,” Lee said. “We’re willing to give up an occasion here or there.”

Denny's remodel program is ready for a 2.0 look.

Denny’s Corporation

Leave no stone unturned when it comes to updating a legacy brand.

Denny’s is in the middle stages of a brand revitalization, refranchising plan, and real estate strategy upgrade. The family-friendly diner chain is changing up its menu, store designs, business model, locations, and more, searching for stronger footholds for its legacy brand in 2020.

Denny’s CEO John Miller reported Monday that the brand achieved its ninth consecutive year of domestic system-wide same-store sales growth in fiscal 2019 at 2 percent (1.9 percent at company-run stores and 2 percent at domestic franchises). On a two-year basis, Denny’s comps are up 2.8 percent, comprised of 3.7 percent growth at company restaurants and 2.6 percent at franchises.

Over those nine years, 380 new stores have opened, putting Denny’s at just over 1,700 restaurants internationally. But the chain isn’t resting on those positive numbers.

The Denny’s Heritage model—a revamp that straddles the line between bright, updated color and nods to the brand’s longevity—was launched in 2014. By 2019’s end, about 80 percent of the Denny’s system had undergone some design updates, and now the company is rolling out Heritage 2.0, a new, even more modern remodel, the company announced/

Other elements of the guest experience have changed, too; around 80 percent of menu items have been improved or changed entirely since the revitalization’s beginnings, and, as of December 2019, roughly 89 percent of domestic restaurants are active with at least one delivery service. The top dayparts for these locations’ off-premises sales are late night and dinner, with 65 percent of online orders placed by a younger-skewing set of consumers aged 25-44.

“Our off-premises initiatives—our Denny’s On Demand platform—has allowed us to modernize the brand with increasing relevance among younger guests. Denny’s was the first of the family diner brands to launch online ordering with delivery where available,” Miller said.

But the changes Denny’s has made to its franchising and real estate strategies are arguably more landmark than its customer-facing updates. Its refranchising plan was announced in October 2018, with the goals of giving loyal, high-performing franchises the chance to quickly grow their holdings and also bring younger franchisees into the fold. The initial goal was to sell 115-125 company stores; as of December 2019, 113 units had been sold, and Miller said there’s the potential for a few more sales in 2020.

The 113 restaurants sold took Denny’s from 90 percent franchised to 96 percent, leaving 68 company stores across 11 states. The expected cost savings of the entire plan are anywhere from $11 million to $13 million.

The real estate strategy facelift is two-fold: Denny’s plans to sell between 25 and 30 percent of the roughly 95 properties it owns now, generating proceeds of around $30 million. Then, those proceeds will be used to replace the sold sites with higher quality real estate, upping the value of the brand’s total portfolio. As of Monday, six pieces of real estate have been sold and four new ones purchased, and more site swaps are on the way.

The company also announced preliminary Q4 results: Same-store sales lifted 1.7 percent, including a 0.5 percent at corporate units and 1.8 percent growth at franchise.

Ruth's Chris Steak House

Ruth's Chris is sticking to its core traits and operating practices.

Ruth’s Hospitality Group

If they’ve worked so far, don’t be afraid to continue relying on those strategies.

Boasting a 55-year history, Ruth’s Hospitality Group (Ruth’s Chris Steakhouse) knows the secret to its sauce by now.

Much of what still works for the brand was put into place long ago—for example, franchising, which isn’t the most common growth strategy for steakhouses—has been in place for Ruth’s since the 1970’s.

The brand’s continued success found through reliable, disciplined processes is perhaps the reason for its wariness to jump on every trend. When it comes to delivery, for instance, Ruth’s isn’t in any hurry to couple up with third-party services.

The company offers online ordering and delivery in 20 markets, but CEO Cheryl Henry said Monday that widespread delivery wasn’t a top priority for the steak chain.

“Delivery might not be as meaningful for this high human touch brand as it is for others. We have very specific guideposts about how we think about using tech and data,” she said.

Instead, the brand is focusing on maintaining its strict focus on operational excellence (case in point, broiler chefs across the system are recertified every 60 days), finishing up a 2014 revitalization plan, branching out to smaller markets, and continuing to grow at a slow and steady pace.

The 2014 revitalization plan—which emphasizes wider bar spaces in some of the older restaurants—is two-thirds of the way completed across Ruth’s 86 company and 73 franchised restaurants. The idea is to better accommodate the Gen X core customer base, a group that Henry said third-party demographics research showed to be the most cynical of today’s diners, and also a group in search of quality dining experiences that allow casual dress.

The target for new company units each year is three to five stores—which is not exactly accelerated growth. Franchising allows this “system growth without additional company capital,” Henry said. For 2020 and 2021, seven new leases have been signed, and the chain is pushing into less-employed markets with franchise owners; places like El Paso, Texas, Albuquerque, New Mexico, and Fort Wayne, Indiana, which, according to Henry, report $5 million in sales annually.

When it comes to why people visit Ruth’s Chris Steakhouse, not much has shifted over the years. The three top visit categories are special occasions, like birthdays and anniversaries, business dining (or private dining and catering), and just because (often motivated by the brand’s Tastemaker wine-pairing dinners and happy hour promotions). With the typical occasions still drawing diners, it makes sense that Ruth’s would stick with the recipe that has made it successful: a strong core of trained chefs and prime steaks, disciplined growth, and stringent financial management.