There are two ways to look at any pain point, and that’s the case with Darden and labor.
First, the rough side, which is a sounding-board subject for restaurants: Regulation by outside parties, perhaps not invested in the success of the business, are putting up costly roadblocks that make it difficult to create more and higher paying jobs. Add those barriers to the 3.5 percent unemployment rate in September—the 19th consecutive month at or below 4 percent and the lowest since May 1969—and it places an even stronger focus on the need to deliver elevated guest experience. Yet how do you do so with fewer employees?
That’s where the other edge of this debate surfaces for Darden. CEO Gene Lee said last year labor was the No. 1 challenge facing restaurants. It also presented the greatest chance for differentiation in recent memory. Lee called it “the war for talent,” where brands that can hire, train, and retrain frontline employees to bring their concepts to life are going to win.
While the work pool continued to shrink, Lee said, Darden put even more emphasis on hiring the “best possible people” and that its retention rates, despite the odds, were actually improving.
“And I think part of that is because that we’re willing to make the appropriate pay decisions to keep our people and that’s what we’ve instructed our operations teams to do,” he said. “I firmly believe that to win in this environment, you’re going to have great team members.”
Just glance at this data from industry insights platform TDn2K. It illustrates the matter to a tee.
Brands that consistently outperformed their peers had same-store sales growth 4.4 percentage points higher than the rest of the field over the last two years. While the lagging restaurants experienced declining sales, year-over-year, leading chains achieved an impressive 3.3 percent growth in comps.
TDn2K added that top performers in the study excelled at employee retention, especially of their management employees. Those same thriving restaurants reported management turnover rates 10 percentage points lower than their segment peers, on average. Retention rates at the non-management level were also better.
How it breaks down:
The top-performing brands
- Comp sales: 3.3 percent
- Management turnover versus segment: negative 4 percent
- Comp sales: Negative 1.1 percent
- Management turnover versus segment: 6 percent
- Comp sales: Plus 4.4 percent
- Management turnover versus segment: Negative 10 percent.
This past quarter (Q1 2020), Lee spotlighted LongHorn’s performance. Team member turnover was 68 percent (it’s about 120 percent for casual dining as a segment). Management turnover was 13 percent (versus 36 percent). And this has been one of the pulsing problems with Cheddar’s Scratch Kitchen since Darden bought the brand more than two years ago. Not surprisingly, Cheddar’s is Darden’s most challenged chain at the moment, with same-store sales of negative 5.4 percent in Q1—its ninth straight red period.
The 165-unit family-dining brand didn’t have a certified trainer program and its staffing levels were below Darden norms at sale. They’ve worked on improving systems ever since, picking managing partners, adding tools like discount forecasting, and putting in best practices to staff busy times and get leaders on the floor when needed. Managing the shoulders to peak the peaks.
It’s like Texas Roadhouse CEO Kent Taylor often likes to point out: Restaurants with better traffic tend to have more employees. It’s not always as complex as it seems.
In job site Indeed’s Top 50 workplace list this year, which features Fortune 500 Index companies with at least 100 reviews, Darden came in at No. 44. The only restaurant brand higher was Starbucks (No. 33). That’s pretty good company.
As far as Darden falling into the category of “top-performing” brands TDn2K referenced, there’s no debate. The company’s total sales, even with Cheddar’s integration challenges, increased 5.3 percent to $8.51 billion in 2019, year-over-year, driven by the addition of 39 net new restaurants and blended same-store sales of 2.5 percent.
In the first quarter of fiscal 2020, 867-unit Olive Garden, which accounts for more than half of Darden’s net business, reported comps of 2.2 percent—its 20th consecutive period of growth. According to Knapp-Track (excluding Darden), the concept’s same-store sales gap versus casual-dining competitors was 340 basis points. On a two-year basis, Olive Garden’s total sales are up nearly 10 percent, which sails the industry benchmark by 840 basis points.
LongHorn’s Q1 comps hiked 2.6 percent to give the 514-unit steakhouse 26 consecutive quarters of growth. On a two-year basis, the brand’s total sales are up 11 percent—outperforming that same benchmark by 940 basis points.
An interesting note from a growth perspective: Darden operated just 480 total restaurants in 2000 (469 Olive Garden and 11 Bahama Breeze locations).
By 2008, with the addition of LongHorn, The Capital Grille, and Seasons 52, the number was up to 1,020. Eddie V’s joined the comp in 2012, Yard House in 2013, and Cheddar’s in 2017.
But in less than two decades, Olive Garden ballooned from 469 units to 867. LongHorn jumped from 305 to 514 in the past 11. Overall, Darden’s total portfolio grew 272 percent.
Yet where does this labor conversation really begin?
The investment pays
There are some 185,000 employees at Darden, making it one of the 40 largest private employers in America. This past fiscal year, the company invested another $15 million in initiatives directly benefiting its workforce on top of the $20 million annual figure it made in 2018.
Per calendar year, the company said, it spends more than $40 million on training for team members.
Across all of its brands, hourly employees earn, on average, more than $16 per hour. And Darden pays employees on a weekly basis instead of bi-weekly.
About half of Darden’s 6,300 restaurant managers are promoted from its hourly ranks, and 90 percent of its 1,785 general managers and managing partners (the most influential roles in the organization) are promoted from within. On the same token, 90 percent of Darden’s 213 director of operations, it said, who oversee six to 12 restaurants apiece, are internal promotions.
“For some, a job at Darden is the start of a career with our company,” Lee wrote in a recent letter to shareholders. “For others, it enables them to further their education and eventually pursue a career elsewhere. Whatever the case, we know that the skills and experience we provide will help our team members not only grow and succeed within Darden, but wherever their career paths take them.”
Darden’s restaurant labor was 32.6 percent of costs ($2,771.1 in millions) in the fiscal year that ended May 26. The 1.2 percent increase from last year came from inflation and a 0.2 percent hit from workplace reinvestment costs, partially offset by a 0.6 percent lift from pricing leverage, and a 0.8 percent impact from sales leverage and improved productivity. That’s really not a bad hike all things considering.
Of Darden’s 185,000 workers, about 170,000 are hourly restaurant personnel (the remaining were management located in-store or in the field, or at its Orlando support center).
The company said its executives average 15 years with Darden. GMs and managing partners 13 years.
Darden’s benefits include access to dental and vision coverage, life insurance, critical illness and accident insurance, short-term disability insurance, and a number of discounts including dining in restaurants, wireless phone service, and computer loans.
Also, workers who are 21 and older can begin contributing to a 401(k) plan. After a year of employment, Darden matches 401(k) contributions and employees are eligible to participate in the company’s Employee Stock Purchase Plan.
Darden was recently named one of the “Best Employers for Diversity” by Forbes in 2019. Roughly 51 percent of the company’s restaurant team members are minorities and 55 percent are female.
Here’s a look at how that compares, using TDn2K’s People Report for full-service dining as a model.
Restaurant team members: 54 percent/Industry average: 53 percent
Hourly: 55 percent/Industry average: 54 percent
Manager: Hourly: 41 percent/Industry average: 41 percent
GM/managing partner: 31 percent/Industry average: 28 percent
Director of operations: 24 percent/Industry average: 19 percent
Corporate team members: 51 percent/Corporate workplace average: 48 percent
Individual contributor: 55 percent/Corporate workplace average: 49 percent
Manager: 55 percent/Corporate workplace average: 39 percent
Director and above: 37 percent/Corporate workplace average: 23 percent
People of color (African American, Asian, Hispanic, Native American, Pacific Islander, two or more races)
Restaurant team members: 50 percent/Industry average: 52 percent
Hourly: 51 percent/Industry average: 52 percent
Manager: Hourly: 33 percent/Industry average: 36 percent
GM/managing partner: 25 percent/Industry average: 24 percent
Director of operations: 18 percent/Industry average: 19 percent
Corporate team members: 35 percent/Corporate workplace average: 31 percent
Individual contributor: 43 percent/Corporate workplace average: 33 percent
Manager: 25 percent/Corporate workplace average: 24 percent
Director and above: 23 percent/Corporate workplace average: 15 percent
More on training, and the GM benefit
Darden has a “Learning and Employee Development Team” that works in tandem with each concept’s training head. Along with operations execs, they develop materials that include a 10- to-12-week program for management trainees and continuing development courses for all levels of leadership. While it varies by brand, it includes leadership training, restaurant business management, and culinary skills.
On average, new employees receive 40–80 hours of training through video and hands-on instruction. Darden said it weaves company values and expected behaviors throughout the curriculum to set itself apart, and “reinforce that how we treat our guests—and how we treat each other—is as important as the specifics of the job itself.”
It also uses a “highly structured” program for new openings, including deploying training teams that drop down a week and half prior, and remain on-site for up to three weeks after.
Darden boasts performance measurement and incentive compensation programs for management-level employees, it added. “We believe that our leadership position, strong results-oriented culture and various short-term and long-term incentive programs, including stock-based compensation, enhances our ability to attract and retain highly motivated restaurant managers,” the company said.
Base salary for GMs in limited-service brands was 6 percent lower on average in 2018 than in 2008. For GMs in full-service concepts, it was a whopping 11 percent lower than a decade ago.
There are a multitude of reasons why this is critical, from trying to weather cyclical turnover rates to making sure employees are engaged and able to deliver superior guest experience. It’s also a cost issue.
According to TDn2K, the price of replacing a single restaurant GM is about $14,000. There are hard costs related to separation, replacement, and hiring. It also applies to the manager leaving as well as the new employee.
Store wide, The National Restaurant Association estimates turnover costs $2,000 per employee. Let’s say it takes 100 people to staff an Olive Garden (it’s 60–120 hourly employees typically). If we go by the 120 percent average figure, that’s $240,000 per restaurant, or $208 million across the 867-unit chain yearly. Of course, that’s far from an exact science (not close really given the part-time considerations, etc., and Olive Garden is not at the top end of the metric) but it provides a hypothetical look into how massive of an issue this is, and how big of a boon it can provide if you drastically beat the average, like LongHorn has.
In other terms, the investment on the back end is well worth it.
Other points to keep employees in the fold, per TDn2K:
- Higher compensation
- Improving poor work-life balance (based on data from GM Connect, a product created by Gallup in partnership with TDn2K, only 11 percent of GMs surveyed said their job allows them to spend enough quality time with family and friends).
- Immediate promotion
The company, studying GM pay at 10-year intervals for the last few years, found that leaders are receiving less compensation today than they earned 10 years ago, once pay is adjusted for inflation. To that latter point, base salary for GMs in limited-service brands was 6 percent lower on average in 2018 than in 2008. For GMs in full-service concepts, it was a whopping 11 percent lower than a decade ago.
And back on the regulation concern. Data shows mandated pressures on hourly employee labor costs. Minimum wage increases and the Affordable Care Act, for example, require financial resources be allocated to that segment of the population. Labor costs associated with managers, however, have moved at a slower pace.
This conversation only gets more complicated as you stretch across Darden’s 1,785-unit footprint.
The company is subject to federal and state minimum wage laws and other rules governing things like overtime, tip credits, working conditions, safety standards, and hiring and employment practices.
Since 1995, Darden has had a “top rate alternative commitment” with the IRS. The requirements, which include increased educational and other efforts in each restaurant to increase the reporting compliance of employees with respect to cash tips, are applied systemwide. This, the company said, reduces the likelihood of potential employer-only FICA tax assessments related to cash tips that are unreported by employees at Darden’s covered units.
Benefits to separate
We all know by now that money isn’t the sole factor for employee happiness, although it’s probably still the headliner. A study from research and consulting firm Y-Pulse, which surveyed 1,400 restaurant workers aged 18–34, found that 80 percent of respondents said they were willing to pay more to visit ethically responsible companies.
In 1999, Darden established a program called “Darden Dimes” to aid fellow employees. It provides short-term grants to workers experiencing financial need caused by unexpected emergencies or natural disasters. Participating team members donate as little as 10 cents from each paycheck to the fund, which grants more than $1.5 Million annually, the company said.
This mirrors some other restaurant programs out there. Shake Shack, for example, has a HUG (Help Us Give) platform it launched in late fiscal 2017 that, similarly, provides employees a way to take care of each other through tax-deductible payroll and other one-time contributions.
“With thousands of leadership positions across our restaurants, we provide a pathway and training for thousands of individuals across the country to advance from entry-level jobs into management roles,” Darden said. “In addition, our geographic footprint often puts us in a position to offer our restaurant team members jobs in their current roles when personal circumstances require relocation. This is one of the reasons Darden enjoys the lowest annual turnover rates for hourly team members in the industry.”
The company’s Darden Restaurants Inc. Foundation focuses its philanthropic efforts on community programs where its employees and customers live, which goes a long way to unchaining its chains and connecting with loyal guests. Employees at Darden’s support center are eligible for 16 hours per calendar year of paid time for approved community service activities during scheduled work hours.
Last year, the foundation awarded about $3.9 million in grants to national organizations as well as local nonprofits.
Additionally, it grew its partnership with Feeding America thanks to a $2 million grant, marking a total of $7.8 million Darden has contributed over the past nine years.
Darden’s Harvest program, established 2003, enables each restaurant to collect surplus food and prepare it for donation. Last year, Darden offered up about 7.5 million pounds of food, or 6.2 million meals.
The company also supports the National Restaurant Association Education Foundation’s ProStart program (a national high school platform that introduces students to the restaurant industry) with $250,000 annually. That aids the Opportunity Youth-Restaurant Ready program, too, which encourages disconnected young people to pursue a path to employment.
Lastly, Darden’s foundation provided $500,000 in 2019 to the American Red Cross’ Annual Disaster Giving Program.
As you can see, community engagement is a powerful lever to separate from other companies in the casual space. And younger workers, Gen Z in particular, want to engage with an organization that speaks to their beliefs and tribal mentality. Gen Z often think of themselves as a brand. Social media posts. Labels. The ability to create their own trend. So, while it’s key for restaurants to build brands and products around this generation, like Taco Bell does, the same can be said of fostering a work environment.
The Bureau of Labor Statistics estimates that the number of teenagers in the labor force will drop by 600,000 during a decade-long span ending in 2026.
Consider this: A third of all working U.S. teenagers are restaurant employees. That’s 1.7 million people who might just be visiting your company short-term and aren’t quite as dollar focused as older workers. And word gets out. They know how to pass along a company’s message and their personal experience quickly, effectively, unfiltered, and to the same people you might hope to hire down the road.
The number of restaurant employees between the ages of 16 and 19 years old has ticked up to pre-2007 levels, right before the financial crisis, per CNBC. However, the labor force participation rate of teens has stagnated since 2016.
Restaurants have pulled from other industries, like retail, which has been plagued by closures over the past decade. The Department of Labor’s Bureau of Labor Statistics’ 1.7 million teen number in 2018 was the same figure as 2007. You have to also remember that in the past decade, per the Bureau of Labor Statistics, the number of restaurants jumped close to 16 percent.
The result is what Chipotle chief restaurant officer Scott Boatwright called a “talent crisis.” The same pool, but more restaurants competing for quality employees.
From 2010–2017, restaurants accounted for one out of every seven new jobs, according to The Wall Street Journal. There are a lot of concepts, a lot of job growth, and yet the same number of teenage employees as 12 years ago.
Can you afford then to shortchange benefits, especially those not tied directly to money, like flexibility and work-life balance? Especially if you can’t compete on wage rate?
Restaurants have an edge on many industries in this gig economy, which is one reason 30 percent of the eating and drinking place workforce are part-year employees, compared to 18 percent of the total U.S. workforce. Darden touts this benefit often. “Many of our team members join Darden because we offer flexible work schedules and we work to accommodate their additional responsibilities,” the company said. “So, it is not uncommon to find servers, bartenders and culinary team members who have been with our company for 15, 20 … even 40 years.”
In 2007, 41.3 percent of teens held a job. Last year, it was 35.1 percent. The Bureau of Labor Statistics also estimates that the number of teenagers in the labor force will drop by 600,000 during a decade-long span ending in 2026.
This isn’t just a conversation for young workers anymore. Another way to look at it is that teens used to outnumber adults aged 55 years or older in the industry 3 to 1. It’s now 2 to 1, according to the National Restaurant Association. And that older demographic rose by a staggering 70 percent between 2007–2018. People are living longer and need to work more to sustain their lifestyles as health-care costs and other financial needs surface. Adults 65 years or older are predicted to be the fastest-growing component of the American workforce over the next decade, according to The Bureau of Labor Statistics.
While all of this unfolds, the National Restaurant Association pegged the number of hospitality vacancies at 1 million last year.
In sum, it’s key for restaurants to identify every labor category they can draw from, which areas to focus on, and how best to position the company to compete at the highest level, with the leading brands. That’s, as Lee said, where the winners will turn a crisis into an opportunity.
“The low level of unemployment in the United States is resulting in aggressive competition for talent, wage inflation, and pressure to improve benefits and workplace conditions to remain competitive,” Darden said.
Darden’s management structure varies by brand and restaurant size. At Olive Garden, each unit is led by a general manager. At LongHorn, the restaurants are directed by managing partners. The concept also has three to five additional managers and employs between 60–120 hourly team members, most of whom are part-time workers.
The restaurant GMs (or managing partners in LongHorn’s case) report to a director of operations responsible for about seven to 10 restaurants. Those directors report back to an SVP of operations who oversees roughly 100 locations.
Cheddar’s, like LongHorn, has managing partners who employ two to six managers and 75–175 hourly employees. They also report to a director of ops responsible for five to 10 stores, and that person communicates with a SVP of operations overseeing about 90 locations.
Yard House and Bahama Breeze are each led by a GM. The Capital Grille, Seasons 52, and Eddie V’s have managing partners. All use two to eight managers. Yard House and The Capital Grille added one executive chef per locations plus one to two sous chefs, and Bahama Breeze employs one to three culinary managers. It takes between 65–200 hourly team members to staff Darden’s smaller brands, with GMs or managing partners reporting to directors of operators who hold operational duties for three to 10 restaurants.