Why Cheddar’s Could Be Darden's Sleeping Giant

As Darden pushed the integration process forward, Lee said, Cheddar’s lost focus on basic operating fundamentals. In response, Darden suspended marketing and promotional activities even though it was rolling over a heavy period of incentives the year prior to, and immediately after, Darden closed the acquisition. That kind of decision is probably one a smaller restaurant group doesn’t make. But Darden’s overall performance is steady enough to play the long-term game when others are moving checkers pieces around the board.

Cheddar’s units weren’t fully staffed. Scheduling was a mess. These are major concerns for any chain, but definitely for a company that hangs its hat on adding labor instead of pulling it out when complications arise. Lee once said brands that can “hire, train, and retain frontline employees to bring their brands to life are going to win.” He added, “the dynamics inside the industry are changing dramatically. And I think that's where we're focused and that's where I think the winners will be focused—on how do they continue to invest in their team members and how to ensure you're properly staffed to execute against this increased demand.”

So this was an issue gnawing at Darden’s management since it was such a departure from the norm.

They’ve come a long way. For the first time, Lee said, Cheddar’s manager and training pipeline is now on par with its other brands (Olive Garden, LongHorn, Seasons 52, Yard House, Bahama Breeze, Eddie V’s, and The Capital Grill). This addresses another serious setback in the integration process: turnover. Lee said nearly 100 percent of Cheddar’s units finally have a general manager or managing partner. Previously, the brand didn’t even have a certified trainer program. The basic goal of having every hired employee go through a solid platform wasn’t there.

Cheddar’s now has reporting tools that include discount forecasting and food-waste management. They’re focusing on staffing levels, including making sure managers are present in the kitchen, lobby, and dining room during peak periods, Lee said.

And it’s paying off with customers.

“Ensuring managers are consistently engaged in the service experiences led to meaningful improvement and key guest satisfaction measures, including overall ratings, speed, and service metrics,” he added.

Last quarter, also for the first time, Cheddar’s boosted its guest satisfaction scores. “We're seeing significant improvement on Friday and Saturday night now that we have managers positioned in the right place. Our throughput is up significantly,” Lee said. “We're closing the gap on same-restaurant sales on those nights.”

To that point in December, guest satisfaction scores rose six straight months and were at the highest they’ve been since Darden acquired Cheddar’s.

As much as this labor issue was a learning curve for Cheddar’s, it was for Darden, too. Lee said they’ve spent a lot of time picking who should be the managing partners of these restaurants. And that took familiarity. “As we continue to learn the people, learn their capabilities, our teams will start making better decisions on who they decide to leave the unit with,” Lee said. Deciding who should run individual restaurants has had the biggest impact on Cheddar’s overall success.

This was true at the top as well.

John Wilkerson was named president of Cheddar’s in July. He’s been in the Darden system for 25 years, most recently serving as president of Bahama Breeze. He began as an hourly crew member at Red Lobster before entering Darden’s manager in training program and eventually being promoted to GM.

This switch took place after then-Cheddar’s president Ian Baines stepped aside. Baines was Cheddar’s CEO before Darden’s acquisition of the brand, and the former CEO and president of Smokey Bones—a concept Darden sold in 2010. He also worked at Brinker International and held the CEO post at Uno Restaurant Holdings in 2013. Baines was with Cheddar’s since 2014.

This staffing process needed to undergo some healthy attrition. Lee said some of Cheddar’s management was tethered to the old guard. “They had worked with them before and when you make those changes, folks leave,” he said. The result—Cheddar’s struggled with expectations at the team member and management level early on. As the company came in and started implementing its structure and processes, expectations rose. And that wasn’t going to fit with every past employee.

Cheddar’s also has had to learn how to use the tech and tools Darden typically leverages.

At Olive Garden, for example, Darden uses scale to underprice the competition while devising productivity enhancements on the operations side to offset inflation. That simply wasn’t feasible at Cheddar’s, and it’s been dragging results.

But that’s changing, Lee said, and Darden still has some levers to pull with Cheddar’s. More productivity enhancements, but also mobile ordering, which Cheddar’s has not implemented. “And we will turn those kind of things on and those big sales-building initiatives on when we feel it's the right time,” CFO Rick Cardenas said on the call. “We've got the team in place. They are trained and they're ready to execute flawlessly. We don't like to do anything until we are ready to execute perfectly. And we've got a little bit of ways to go before we get there.”

Cheddar’s reported negative guest counts recently although productivity is improving. Typically those two arrows point in the same direction, for better or worse. This is a sign Darden is rebuilding Cheddar’s from the ground up instead of trying to pulse incentives so it can generate sales in the short-term. That day will come when the brand is ready, Cardenas said.

Darden hasn’t even tested some of these sales-driving levers with Cheddar’s, let alone appreciate them. The reason being the company is still focused on simplifying operations and improving the core menu. Last quarter, Darden said Cheddar’s was working on culinary process improvements that would be phased in over time—all intended to boost quality, consistency, and speed of service. Not all that unlike the efforts taking hold at LongHorn as it cuts back menu size in favor of execution.

Returning to the Olive Garden note, Cheddar’s guest is really pretty similar, the company said. So Darden can learn from the 860-unit brand’s successes to decide how and when to move the needle on certain tools, like off-premises. Olive Garden and Cheddar’s are both value-based brands that drive results from loyalty and consumer preference. They skew abundant and consistent on the value side.

With Olive Garden over the past year or so, Darden cut back incentives and focused on everyday platforms, like Cucina Mia!, Lunch Duos, Early Dinner Duos, and a recent Giant Italian Classics menu. It created a menu platform guests could use for all occasions—a promotional construct they can count on and upgrade within. Not one they forget until the latest deal hits. Can Darden do the same with Cheddar’s? There’s no reason to think otherwise.

It’s always worth remembering as well that Darden tends to take its time with integrations of fresh brands. For LongHorn, which Darden bought in 2007 when it purchased RARE Hospitality International Inc. for about $1.2 billion plus debt (The Capital Grille was also in RARE’s portfolio), it dragged through a year of negative comp sales. It never did again. The steakhouse just generated its 24th consecutive quarter of same-store sales growth. Lee said Yard House also took a couple of years to get its labor figured out.

“I will say that I am very excited about where the management team is, I'm excited about what they're focusing on, I'm excited about what they have accomplished,” Lee said of Cheddar’s.