As the calendar flips on a tumultuous year for full-service restaurants, operators are starting to plot where COVID-19 innovation falls into the 2021 picture. What impulse and survival reactions will endure?
Darden CEO Gene Lee, speaking on technology in particular, believes the answer lies between guest feedback and the danger of allowing buzzing trends to eclipse decades of equity.
Put plainly, Darden is looking at technology as an off-premises enabler, not an in-store game-changer. The Olive Garden and LongHorn parent implemented QR codes, for example, to allow customers to pull up menus on mobile devices—a common COVID-19 response tactic. Guests pushed back. “They don’t like that,” Lee said Friday during the company’s Q2 review. “And so that trend I don’t think is going to take place in-restaurant.”
Darden’s digital investments, however, have been abundant throughout the crisis, and were mounting ahead of it. They just flowed through a different lens than some other chains. Virtual brands?
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“I think the question I would ask is, who owns a virtual brand? Is the kitchen or just DoorDash, on the virtual brand?” Lee said of Darden electing to sit that movement out.
Where the big change is taking shape for Darden concerns a tectonic shift in guest behavior, but one that tweaks a former model for convenience rather than replace a standard, like dine-in service.
Curbside is reimagining takeout as restaurants knew it.
The idea of people parking, getting out of their car, going into the restaurant, grabbing food, and leaving, was disrupted by a virus defined by crowd avoidance. It’s gone wayward for a variety of reasons, Lee said. One, there’s a perceived safety risk of stepping inside any business. Secondly, once you experience the convenience of getting food brought outside, it’s tough to go back. And so Darden is zeroing in on this guardrail as it prepares for a year Lee said is essentially impossible to forecast.
The current question around consumer demand is whether it’s “going to come back all at once or is it going to come back over a period of time, as more and more people get comfortable,” Lee said.
“You think about the different demographics out there today, and are people going to, as soon as they are vaccinated say, OK, I can get out and move on, or are they still going to be cautious? And that to us is the unknown,” he added.
Regardless, Darden will be ready. In recent weeks, the company “played” with some handheld devices to see if it can get orders quicker.
“I think that kiosk has played a major role in a lot of our brands,” Lee said. “It’s enabled our servers to, in a non-pandemic time, be able to use that device to get orders in. It really does a great job on payment.”
The option rate on the latter was “extremely high” as consumers grew used to it, he added.
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But again, most of the tech-fueled changes materialized outside the four walls. In Q2, which ended November 29, Darden rolled “Curbside I’m Here,” which allows users to notify restaurants they’ve arrived by tapping a link embedded in a text message.
In response, operators spent less time on the phone and more focused on ensuring orders were accurate and on-time, Lee said.
Additionally, Darden introduced “Wait List Visibility”—a feature that enables guests to see their place on the waiting list using their phone, no matter if they checked in online or in person.
Darden is working on other initiatives, too, including streamlining online checkout and adding additional mobile payment options to provide convenience.
Lee said COVID-19 shoved Darden’s technology forward faster than originally planned. Yet the real disruption, to Lee’s earlier point, is how Darden handles off-premises business, “which has been a big part of our growth historically the last five years as we capture the convenience trend,” he said.
Events of the past 10 or so months simply provided clarity. For Darden, it’s going to be a curbside trajectory, and it’s going to be technologically enabled versus someone coming to the restaurant and getting out for pickup.
Before coronavirus, Darden was on the pathway to developing consumer-facing spaces to handle off-premises where the consumer came into the building. One case being a recent Orlando prototype that featured a full dedicated off-premises area, almost like a fast casual.
Now, Darden is considering how it can develop ways to adapt current facilities to make that space non-consumer facing and closer to the kitchen, which should actually cost less long-term. He called the Orlando feature “not necessary” anymore. “Our team is working real hard to figure out what these adjustments will look like, they will target those investments in the high volume off-premise locations and they’ll react and get that done over the next couple of years,” Lee said.
Over the years, Lee has never been a firm believer in trying to gain efficiency on the service side. While that sounds like an outlier statement these days, it’s about as Darden DNA as it gets. “I mean, I think every time you say you’re going to gain efficiency there, you’re really saying you’re going to cut service,” he said. “And we are a full-service restaurant.”
With handhelds and technology in-store, Darden is thinking more about speed of service for guests than saving money.
“I am committed to keeping the service levels up,” Lee said. “I think service is a big part of the value equation. That’s a differentiator when you come into our restaurant versus go into a fast casual or fast-food [place]. We’ve got to provide a service.”
“… you want to do a better than your competitors and you want to earn your business that way,” he added. “So I see the technology solution more as a benefit to the consumer, not a benefit to us from a cost standpoint.
This is an important trigger for Darden, and full-service brands in general, Lee said. The reason being not all of today’s trends can persist forever. And if restaurants bend too far into contactless, they might just fall in—which is not necessarily a good thing when battling with brands that define value by the dollar point.
To illustrate, Olive Garden and LongHorn launched refreshed websites and continue to think about digital storefronts. That won’t go away, but the fact more than 55 percent of off-premises sales in Q2 were fully digital transactions (where guests ordered and paid online) almost surely will. At Olive Garden, 20 percent of total sales in the period were digital.
Off-premises business lifted 83 percent to 39 percent of the business for Darden’s flagship. LongHorn bumped off-premises more than 175 percent to 22 percent of the business.
“We believe we’re an on-premise restaurant company,” Lee said. “We strongly believe the demand for in-restaurant dining is going to come back really strong. There’ll be some fall-off on the off-premises occasion. I think people have a lot of fatigue with that right now.”
Long-term, though, Lee doesn’t see convenience ceding as much ground. Yet it’s the positioning that matters. Darden plans to look at its portfolio as developing brands as on-premise restaurants that drive an auxiliary business. In this case, the off-premises occasion. “But you’ve developed the brand in a box and we create a great in-restaurant experience,” he said.
Darden’s focus today is to accelerate the checkout process on an online order. And something it doesn’t talk about often is its growing email database and figuring out how to interact with guests digitally. There are currently 25 million addresses in Darden’s marketing chest. And if there was ever proof the company has whitespace to leverage social interactions, it came this past week when Taylor Swift mentioned Olive Garden in her latest album, “Evermore.”
“All of a sudden, when Taylor Swift drops our name in a song, our brand becomes very, very relevant,” Lee said. “It’s a 40-plus year-old brand that’s all of a sudden relevant with her audience. And our team was working around the clock to capitalize on that activity.”
Results, dining-room closures, a challenging future
In Q2, Darden reported adjusted earnings of 74 cents per share versus $1.12 in the year-ago quarter. Total sales came in at $1.66 billion, a 19.4 percent year-over-year drop thanks to blended negative same-store sales of 20.6 percent.
Sales at Olive Garden fell 19 percent to $829.5 million as comps slid 19.9 percent. LongHorn’s business declined 8.9 percent, year-over-year, to $407.4 million, with same-store sales decreasing 11.1 percent. Fine dining (Capital Grille, Eddie V’s) comps fell 31 percent and other business (Cheddar’s, Yard House, Seasons 52, Bahama Breeze) 28.6 percent.
A key block to circle in Q2 was the final two weeks. That period hit same-store sales by about 200 basis points as Darden quickly went from 97 percent open dining rooms in the middle of the quarter to only 80 percent at exit. Today, about 77 percent of Darden’s restaurants are operating with at least partial dining room capacity.
Darden estimated the two-week downward shift negatively impacted operating income by $15 million.
Given recent COVID-19 case spikes, Darden said it could experience further dining-room closures and increased capacity restrictions in Q3. Also, this period is historically Darden’s peak seasonal sales quarter thanks to Christmas, New Year’s, and Valentine’s Day, as well as travel time. So the gap between Q3 this year and last will likely be wider.
Darden expects total sales to range between 65 and 70 percent of prior-year levels, resulting in total sales between $1.53 billion and $1.65 billion.
“Our teams have been operating in this environment for 10 months, and they have become very adept at adjusting to the ever-changing COVID restrictions, but it’s still not easy. That’s why we remain committed to our simplified operations, including streamlined menus, processes and procedures which continue to strengthen our execution, and our guest satisfaction metrics confirm that our restaurant teams are doing a great job delivering exceptional guest experience in this challenging environment,” Lee said.
The COVID-19 rollercoaster is clear on a week-to-week basis:
Same-store sales
Week ended November 8:
- Darden: –23.4 percent
- Olive Garden: –21.9 percent
- LongHorn: –12 percent
Week ended November 15
- Darden: –23.3 percent
- Olive Garden: –22.5 percent
- LongHorn: –12.1 percent
Week ended November 22
- Darden: –29.1 percent
- Olive Garden: –27.3 percent
- LongHorn: –18.5 percent
Week ended November 29
- Darden: –34 percent
- Olive Garden: –34.9 percent
- LongHorn: –22.9 percent
Week ended December 6
- Darden: –33.4 percent
- Olive Garden: –31.1 percent
- LongHorn: –19.5 percent
Week ended December 13
- Darden: –36.9 percent
- Olive Garden: –32.6 percent
- LongHorn: –23.3 percent
Percentage of restaurants open with at least limited dining-room capacity for the entire week
- November 8: 92 percent
- November 15: 91.7 percent
- November 22: 80.9 percent
- November 29: 79.7 percent
- December 6: 79.7 percent
- December 13: 75.4 percent
Sales for Olive Garden and LongHorn restaurants open with at least limited dining—om capacity for the entire week, including to-go sales, for the weeks ended November 8 through December 13:
Olive Garden
Week ended November 8
- Total sales per restaurant: $75,492
- To-go sales as percentage of total: 34.4 percent
- Same-store sales: –19.1 percent
- Number of restaurants: 792
Week ended November 15
- Total sales per restaurant: $77,098
- To-go sales as percentage of total: 34.8 percent
- Same-store sales: –19.7 percent
- Number of restaurants: 789
Week ended November 22
- Total sales per restaurant: $71,495
- To-go sales as percentage of total: 36.4 percent
- Same-store sales: –19.8 percent
- Number of restaurants: 668
Week ended November 29
- Total sales per restaurant: $59,282
- To-go sales as percentage of total: 34 percent
- Same-store sales: –25.6 percent
- Number of restaurants: 652
Week ended December 6
- Total sales per restaurant: $75,851
- To-go sales as percentage of total: 36.6 percent
- Same-store sales: –21.8 percent
- Number of restaurants: 648
Week ended December 13
- Total sales per restaurant: $80,740
- To-go sales as percentage of total: 36.8 percent
- Same-store sales: –23.3 percent
- Number of restaurants: 612
LongHorn
Week ended November 8
- Total sales per restaurant: $62,447
- To-go sales as percentage of total: 21.8 percent
- Same-store sales: –10.5 percent
- Number of restaurants: 498
Week ended November 15
- Total sales per restaurant: $63,179
- To-go sales as percentage of total: 22.1 percent
- Same-store sales: –10.6 percent
- Number of restaurants: 498
Week ended November 22
- Total sales per restaurant: $58,541
- To-go sales as percentage of total: 23.6 percent
- Same-store sales: –15.3 percent
- Number of restaurants: 470
Week ended November 29
- Total sales per restaurant: $46,544
- To-go sales as percentage of total: 21.5 percent
- Same-store sales: –18.2 percent
- Number of restaurants: 468
Week ended December 6
- Total sales per restaurant: $60,165
- To-go sales as percentage of total: 23.6 percent
- Same-store sales: –14.7 percent
- Number of restaurants: 467
Week ended December 13
- Total sales per restaurant: $63,448
- To-go sales as percentage of total: 23.5 percent
- Same-store sales: –17.4 percent
- Number of restaurants: 436
Darden announced before the call Lee would assume chairman of the board duties in addition to his CEO role. CFO Rick Cardenas was also promoted to president and chief operating officer and Raj Vennam CFO.
Lee said the moves won’t change his involvement on the day-to-day and are designed to create growth and opportunities “for our people.”
On the topic of growth in a post-COVID-19 landscape, Lee said Darden’s cost-saving efforts should enable it expand, especially with Olive Garden, deeper than considered pre-pandemic. Because of these improvements, he added, Olive Garden should be able to handle cannibalization better while still providing a compelling return on investment.
