Darden attributed Olive Garden’s performance to its geographic footprint and guest demographics being more sensitive to increased COVID case counts. Also, the brand has implemented significantly less marketing and promotional activity.
Marketing spend was $44 million lower, or about 50 percent down from pre-COVID levels. Cardenas said Darden is going to wait for equilibrium in the economic environment before investing more in that areas of business.
“We just want to find the right time to continue to increase that, but it probably won't get all the way back to pre-COVID levels, but we'll see where equilibrium comes,” Cardenas said.
Discounting as a way to improve sales doesn’t appear to be on the table either, with Darden believing it’s better to provide a high-quality experience that consumers are willing to pay for.
“We took out all discounting out of Olive Garden and all of our brands at COVID,” Cardenas said. “I mean we haven't added that back. Others have started to add that back, but we are continuing to maintain our strategy of keeping the discounts out of our brand. Again, as the environment changes, if the environment changes, we will consider anything, but we have a lot of options.”
This is how it shook out for the other brands:
- Sales: $510.7 million
- Profit: $104.6 million
- AWS: $76,101
- Sales: $612.7 million
- Profit: $111.5 million
- AWS: $87,671
Fine Dining (Capital Grille, Eddie V’s)
- Sales: $188.4 million
- Profit: $46.7 million
- AWS: $177,847
- Sales: $208.2 million
- Profit: $47.7 million
- AWS: $181,951
Other Business (Capital Burger, Cheddar’s, Yard House, Seasons 52, Bahama Breeze)
- Sales: $478.1 million
- Profit: $69.5 million
- AWS: $109,129
- Sales: $485.4 million
- Profit: $67.2 million
- AWS: $106,193
For Q3, food and beverage costs were 270 basis points higher, fueled by 11 percent commodity inflation, as well as investments in food quality, portion size, and pricing below inflation. Restaurant labor was 50 basis points higher, driven by more than 9 percent wage inflation and higher sick pay and overtime.
Darden’s pricing was 3.7 percent in Q3, and it’s projected to be roughly 6 percent in Q4. That would put pricing at just over 3 percent for the full fiscal 2022, which is well below the company’s expected 6 percent inflation for the year.
“If you actually look back to what we've done over the last few quarters and actually last couple of years, we've taken very little pricing,” CFO Raj Vennam said. “We said all along that we wanted to preserve the flexibility. We approach pricing very conservatively. And so we've been trying to hold off on pricing as much as the inflation would have dictated. And I think where we are now is 6 percent. While 6 percent seems high in terms of how historically we price, considering the environment and considering what we're pricing over two years, we don't think it's too much.”
For fiscal 2022, Darden projects $9.55 billion to $9.62 billion in sales compared to $7.81 billion in 2020, and 29-30 percent in comps growth, versus a drop of 11 percent two years ago. Commodity inflation is expected to be 9 percent and restaurant labor inflation is predicted to be between 6-6.5 percent, including hourly wage inflation approaching 9 percent. The company also projects 35 restaurant openings.
Darden's consolidated same-store sales rose 38.1 percent year-over-year, including 29.9 percent for Olive Garden, 31.6 percent for LongHorn, 85.8 percent for fine dining, and 55.2 percent for the other businesses.
Olive Garden ended Q3 with 881 restaurants followed by LongHorn (539), Cheddar’s (173), Yard House (85), The Capital Grille (61), Seasons 52 (44), Bahama Breeze (42), Eddie V’s (27), The Capital Burger (3).