Darden’s No. 1 enemy isn’t a competing restaurant chain. It’s deep discounting.
The Olive Garden and LongHorn Steakhouse parent won’t go down that road again. It’s a philosophy the company began before COVID when it reduced the number of LTOs and promotions it featured on TV.
The major distaste for discounting is a big reason why the company refuses to invest in a loyalty program. Firstly, the typical frequency of an Olive Garden guest is two to three times per year, so a rewards feature doesn’t quite make sense. CEO Rick Cardenas noted at Monday’s ICR Conference in Orlando Darden tested a multi-brand program to encourage customer movement between chains like Olive Garden and LongHorn. It worked over time, but the company wasn’t keen on using discounted offers to build sign-ups.
“We have other ways to capture that data and to use that data,” Cardenas said. “Our scale helps us do that. In fact, we know our systems help us do that.”
A good example of that scale is Darden’s fine-dining concepts: Capital Grille, Eddie V’s, and most recently, Ruth’s Chris Steak House. These brands take reservations, which require customers to submit information—valuable data that can be shared across the portfolio. Darden is also able to capture guest demographics via waitlists and through online ordering, a channel that’s significantly increased since 2020.
Darden’s top goal, according to Cardenas, is to incentivize customers to visit without a discount. One way is using a de facto loyalty program in which general managers and servers treat loyal guests differently inside restaurants. The company wants restaurant leaders to identify these customers. Cardenas says managers are better equipped to do so by being in the restaurant every day and watching.
“Top guests know GMs at Capital Grille,” Cardenas said. ” … I can tell you that the top LongHorn guests, the managers know who they are,” Cardenas said. “I think, probably, my guess is they probably don’t wait in line as long. I’m just saying, they probably don’t.”
While Darden remains steadfast on its limited promotional activity, competitors have been ramping up marketing efforts. Chili’s returned to TV in March 2023 after three years. The commercials had such an impact the brand decided to add four more weeks of advertising to its fiscal 2024 calendar. Bloomin’ Brands announced in November it planned to build marketing efforts as well. A recent promotional campaign focused on menu innovation and accessible price points, like Outback Steakhouse’s Steak ‘N Make LTO, showcasing a 6-ounce center-cut sirloin, fried shrimp, and two sides for $16.99.
Darden has been on the path of removing discounts for years, but that’s not to say it doesn’t have ways of marketing. Olive Garden is still one of the top three voices on TV within its space. But if the economy turns sideways unexpectedly, the company wouldn’t look to increase promotional activity to give it a lift. Instead, Olive Garden and others would focus on investing in guests and teams, mastering execution, pricing below inflation, and ridding itself of discounting-seeking customers.
“And so what we are banking on, is we’re going to continue to do what we’re doing,” Cardenas says. “Whatever competitors do, let them do it. We’re going to focus on running better restaurants, investing in food and service, price below inflation over the long run to improve our value proposition, and we believe that’s what’s going to drive sales. There is no silver bullet. What we’re talking about is really hard to do. We do it well and that’s what gives us a competitive advantage.”
Granted, Olive Garden has stuck with its Never-Ending Pasta Bowl. The promotion came back in 2022 after being gone for three years. However, it’s more of an outlier. The chain only brought it back because it met three strict criteria—elevate brand equity, simplicity, and no deep discount. The final tenet is particularly important; the Never-Ending Pasta Bowl is priced at $13.99, which is $3 higher than 2019.
The Italian giant didn’t change the price of the Never-Ending Pasta Bowl in 2023, “making it an even stronger value,” Cardenas said. In fact, demand was higher year-over-year, and the item experienced the highest refill rate on record. This promotion, although rare, helped Olive Garden surpass $5 billion in sales on a trailing 52-week basis for the first time in company history.
In Q2, Darden’s systemwide sales rose 9.7 percent to $2.7 billion, fueled by a same-store sales increase of 2.8 percent and the addition of 78 company-owned Ruth’s Chris Steak House stores and 45 net new locations. Olive Garden’s comps lifted 4.1 percent. The rest of the portfolio looked like this: LongHorn, 4.9 percent; fine dining, –1.7 percent; and other business (Yard House, Bahama Breeze, Cheddar’s Scratch Kitchen, and Seasons 52), –1.1 percent. Each concept saw increases in individual sales and profits in the second quarter year-over-year.
Darden’s position on deep discounting has given it long-term and sustainable traffic, said CFO Raj Vennam.
“Our core guest today is a healthier base,” Venamm said. “From that perspective, they’re not as sensitive as they would have been.”