Olive Garden executives watch commercials, too.
The brand is particularly aware of Chili’s returning to TV advertising for the first time in three years, which CEO Rick Cardenas referred to as “that one bar and grill competitor that seems to be ramping up a little bit.” Still, the executive said Olive Garden remains one of the top brands in “share of voice.” While Chili’s messages center around its 3 for Me value platform, Olive Garden’s is focused on abundance—more food, value, and refills.
“Whatever we do is going to elevate brand equity. It’s not going to be a deep discount and it’s going to be simple to operate,” Cardenas said during Darden’s Q1 earnings call. “And if it means that our traffic is at the lower end of our guide, then it’s at the lower end of our guide. We’re not going to do things that are going to impact us in the long term just for short term.”
Never Ending Pasta Bowl, which returns Monday, is a big part of the marketing strategy. The LTO will be priced at $13.99, the same as last year. It’s $3 more than pre-COVID, further proof that this isn’t a discount play from Olive Garden.
The promotion works for the Italian chain in multiple ways. First, Q2 is a seasonally low period for the brand because of children coming back to school. Secondly, it helps the brand learn more about its digital opportunities. The chain’s eClub members received an invitation to access the Never Ending Pasta Bowl this week ahead of everyone else. Olive Garden believes this is a way to drive profitable, sustainable traffic toward restaurants as opposed to guests being temporarily drawn to deep discounts.
“We think we’re getting back to more seasonal patterns,” Cardenas explained. “We look at our traffic trends versus pre-COVID. They’re fairly consistent across the last four quarters across most of our brand—actually, in most of our segments. And so we believe what we’re doing is getting us to exactly where we were before without a bunch of marketing at maybe slightly lower traffic levels because of that marketing. And so we’re going to stick to what we’re doing and see if the patterns dramatically change. And if they do, we have levers to pull that aren’t necessarily deep discounts.”
Darden’s consolidated same-store sales rose 5 percent in the second quarter year-over-year. That breaks down to LongHorn Steakhouse, 8.1 percent; Olive Garden, 6.1 percent; other business, 1.7 percent (Yard House, Seasons 52, Bahama Breeze, and Cheddar’s Scratch Kitchen); and fine dining, –2.8 percent ((Ruth’s Chris Steak House, Capital Grille, and Eddie V’s). The company stated that same-restaurant sales for the quarter outpaced the industry by 410 basis points and same-restaurant guest counts exceeded the industry by 430 basis points.
Out of all the brands, profit grew the most at Olive Garden ($262.3 million, up from $216.1 million) and LongHorn ($117.4 million, up from $92 million).
Here’s a look from Placer.ai at how Olive Garden and LongHorn compare to the rest of the industry:
Prices in Q1 were 6 percent higher year-over-year, but Darden expects to finish the fiscal calendar at 3.5 percent to 4 percent. Compared to before the pandemic, prices are 17-18 percent higher. However, CFO Raj Vennam said this is 600 to 700 basis points lower than Darden’s peer group. The chain doesn’t think the gap will get narrower and that’s because the company prices based on its own inflation and not the industry. Since Darden has industry-leading scale, its inflation is generally less than peers. In Q1, food and beverage expenses were 130 basis points lower compared to last year and 1 percent commodity inflation beat expectations. Labor costs were 40 basis points better than the year before, driven by productivity improvements.
Cardenas said customers “continue to be resilient” amid price hikes but added that they’re becoming more selective. Brands have seen softness in traffic from household incomes above $125,000, which disproportionately impacts Darden’s fine-dining segment. The CEO hypothesized that this could be because of increased international travel; Florida and California markets could be down in response to typical travelers opting to go outside of the country instead.
What’s not changing is the fact that customers seek value, Cardenas said. But that doesn’t always mean price.
“They’re making trade-offs and food away from home is one of the most difficult things they can give up,” the CEO said. “So again, what does that mean for our brands? We believe that operators who deliver on their brand promise and value will continue to be with consumers. And so we’re going to keep doing that. We’re going to deliver our promise. We’re going to execute our brands and we’re going to keep doing that and deliver value to our guests. And I’m confident we’re well-positioned for whatever we have to deal with. Thanks to the breadth of our portfolio and the outstanding team members in our restaurants who are committed to exceptional guest experiences.”
Darden reiterated its 2024 guidance, which envisions same-restaurant sales growth of 2.5 percent to 3.5 percent, inflation of 3 percent to 4 percent, total sales of $11.5 billion to $11.6 billion, total capital spending of $550 million to $600 million, and 50 new restaurants.
What will be the company’s plan if traffic is down more than forecasted? Darden is just going to stick to the playbook it’s been running since COVID started.
“We’re not going to give you too much information on what we would do,” Cardenas said. “But just understand that we believe that the best long-term health of our business is to keep our strategy of overall pricing below inflation, running better restaurants, and not getting into a huge deep discounting to buy guests. We think that brings in the guests that just come in that are a little bit less core to our business and we’re going to continue to operate our restaurants to drive one more visit from our core guests. And if that means that others start doing some heavy discounting, we’re going to stick to our strategy.”
Darden ended Q1 with 1,998 company-owned restaurants: 906 Olive Gardens, 562 LongHorns, 183 Cheddars, 86 Yard Houses, 77 Ruth’s Chrises, 64 Capital Grilles, 44 Seasons 52s, 42 Bahama Breezes, 30 Eddie V’s, and 4 Capital Burgers.