Inside the Steak-Fueled Evolution of LongHorn
LongHorn Steakhouse headed into 2019 as a tighter, more operationally sound concept. It spent the previous year slicing its menu more than 30 percent, removing complexity throughout the system, increasing the size of steaks, and investing heavy in quality.
If it sounds simple, it’s supposed to. Darden’s M.O. is the type of playbook many restaurateurs preach, but few actually execute. “To ensure they deliver on quality,” CEO Gene Lee said straightforwardly earlier in the year, “LongHorn continues to focus on cooking steaks correctly.”
This past quarter—Q4 of fiscal 2019—it was LongHorn, not Olive Garden that carried Darden’s top-line sales banner. The 514-unit chain’s same-store sales climbed 3.3 percent, which marked the best result among Darden’s nine brands (Olive Garden 2.4 percent; Capital Grille 2.9 percent; Eddie V’s 2 percent; Cheddar’s negative 3.2 percent; Yard House negative 1.4 percent; Seasons 52 negative 2.1 percent; and Bahama Breeze negative 1.9 percent).
LongHorn’s comp comprised of 1.2 percent in menu mix, 1.9 percent in pricing, and 0.3 percent in same-restaurant traffic.
The chain has now put together 25 consecutive quarters of same-store sales gains. The only negative run was during Darden’s integration of the brand post-RARE sale. For 2019, LongHorn grew total sales 6.3 percent to $1.8 billion, which outperformed Knapp-Track industry benchmarks by 470 basis points.
To explain the momentum, Lee brought up long-term initiatives ignited about four years ago. After a two-year stint as chief operations officer of Ruby Tuesday, Todd Burrowes returned to LongHorn as president in July 2015. He served as EVP of operations at the steakhouse from May 2008–June 2013 and was a member of Darden’s team since 2002.
Burrowes’ homecoming ran alongside Darden’s early efforts into a full-throttle simplification project, or back-to-basics operating model, as the company calls it. In 2014, when Darden began the process in earnest, it was designed around a rather uncomplicated point: Grow guest counts with better execution through simplification. A focus on food, service, atmosphere and stronger employee engagement.
When Lee stressed this mantra following Darden’s Q4 report, it sounded pretty similar to comments made four years ago, which, arguably, is why it’s been successful. “The LongHorn team continues to successfully execute their long-term strategy of investing in the quality of the guest experience, simplifying operations to drive execution, and leveraging a unique culture to increase team member engagement,” Lee said.
As this mantra matured into day-to-day operational muscle memory, LongHorn ratcheted up performance. It’s worked to create promotions that leverage core menu items that shift mix favorably. LongHorn benefits from a strong add-on sales business, which isn’t Olive Garden’s wheelhouse. But that fact, along with an effective promotional construct, likely wouldn’t have been possible without first nurturing LongHorn’s “core” through menu reduction and better execution. Without trimming offerings and bulk, and improving cooking techniques, consistency, quality, and delivery, would LongHorn even have a core to pull from? Or at least one guests easily recognize? Would those items be worth calling out in marketing?
An example of how this is working: In the third quarter, LongHorn saw inflation tick up, mainly due to beef. Cost of sales as a percentage was unfavorable at LongHorn compared to the rest of Darden’s concepts, by about 10 basis points. What needed to be considered, though, CFO Rick Cardenas pointed out, was that LongHorn’s quality efforts were pushing more customers toward higher-end steaks, which have a higher cost of sales. A T-bone steak versus a sirloin, and so on. LongHorn’s investments shifted the conversation, and the brand was in the midst of an adjustment period. Yet that was clear proof Darden’s efforts pushed customers where the company wanted.
Menu simplification is another delicate process that often sounds easier in the boardroom than on the restaurant floor. It requires data and a feel for what items, past just how they’re moving, can be cut without damaging traffic trends too strongly.
Lee once explained the process, saying it came down to the “art of being able to put a menu together that covers all the significant areas that your guests want to be covered without having a lot of products doing or working in the same ways, and ensuring that you have unique, interesting products in each of those categories.”
“And if you do that, I think that you can artfully create a menu that meets the consumer needs but yet allows you to simplify your execution so that you can execute that product at a really, really high level,” he added.
It’s curating a refined menu, executed flawlessly that also hits on every possible area a consumer might want to experience. Essentially, removing duplicity with similar products and providing an opportunity for guests to eat what they want without having two choices in the same area. The result is a critical guest-value proposition restaurants need to get right. You want to offer variety but you don’t want to bottleneck the back of the house to the point where quality suffers.
If you look at LongHorn’s, “You Can’t Fake Steak,” campaign, you see the personality developing, and what kind of guest the chain wants to serve. An offbeat example is the chain’s annual Grill Us Hotline (at 1-855-LH-GRILL) were people can call in and get some advice. One past suggestion on how to cook multiple steaks at once: Set up temperature zones on the grill. Designate a "hot zone," and heat it to 500 degrees Fahrenheit. Then, create a "warm zone" on a quarter of the grill, and set the temperature between 100 and 150 degrees Fahrenheit. When a steak reaches the right temperature, move it to the "warm zone" so it stays hot but doesn't get overcooked.
Knowing that customer allows LongHorn to hone in on its affinity-inspiring traits as opposed to bloating offerings with an “all things to all people” mindset that weighed down so many casual-dining leaders in recent years.
In Q3, Lee said, LongHorn achieved a record high steaks cooked correctly score. The fact that’s a metric at Darden tells the story.
LongHorn also introduced a “Grill Masters Legends” program that honors employees who have grilled more than a million steaks. Once again, if a company is going to preach a certain DNA, it needs to flow throughout the organization with tangible examples.
Additionally, LongHorn was honored by insights platform TDn2K with a 2019 Best Practices Award for its “results in hourly and management retention, compensation, diversity, year-over-year improvement and initiatives in the areas of community involvement and sustainable business practices.” The Cheesecake Factory, fast casual City Barbeque, J. Gilbert’s, NORMS Restaurants, and Wendy’s were the other winners.
LongHorn still has room to grow on all these initiatives, Lee said. It recently launched a new beverage program “that brought their focus on quality, simplicity, and culture to life,” he said. The goal is to grow beverage sales, but also to push even further into the core focus. Alcoholic beverages accounted for 9.6 percent of sales at LongHorn in 2018. Average checks were about $21.50 overall.
Currently, the company promotes the platform with the tagline, “Yeah, Your Steak Has a Favorite Drink.”
New and exclusive options were added to pair with steaks. LongHorn linked with Knob Creek to find its own 120-proof signature barrel of bourbon. It’s aged nine years and can’t be tried anywhere else. Proprietary experiences in an ultra-crowded category are key to Darden’s overall approach.
LongHorn calls it out as, “We Know Steak And What To Do With It.” It’s a snug fit to the recent investments.
LongHorn’s platform features drinks suggestions for every steak option, like the Outlaw Ribeye with a LongHorn Old Fashioned (using the Knob Creek bourbon). Or a new Three Dons Margarita that includes Anejo, Blanco, and Reposado tequilas, and is suggested for Flo’s Filet.
LongHorn also has a 5 Under $5.99 daily drink deal that includes Jack & Coke, a Texas Margarita, Spicy Chicken Bites, and Fried Pickles under the price point.
Take it out, don't lose anything
One direction similar to Olive Garden is LongHorn’s take on off-premises. Essentially, skip third-party delivery in favor of driving demand through in-restaurant experiences. And then have to-go orders mirror the four-wall execution. LongHorn added a dedicated to-go area in 40 percent of its restaurants, which boosted timeliness and order accuracy. Likewise, Olive Garden recently opened a new prototype in Orlando that features a full dedicated off-premises area.
These kinds of spaces present attachment opportunities. Lee prefers that approach to the deep end of what he called “an immature business.” He said third-party delivery seems, in the early stages at least, more margin destructive than incremental.
LongHorn and Olive Garden would rather serve demand by investing in off-premises offerings that are compelling because the value and quality is appealing. “I think when you do that it helps create the demand for the off-premises visit,” Lee said.
Also, Darden isn’t comfortable passing along the cost to customers. Lee asked, “what percentage is the consumer long term willing to pay of their overall check to have that convenience?” Until Darden knows the answer, it won’t factor the added burden into its value message.
Growth wise, LongHorn has enjoyed a steady climb under Darden. LongHorn was brought into the company’s portfolio in 2007 when Darden, which also owned Red Lobster at the time, purchased RARE Hospitality International Inc. for about $1.2 billion plus debt. RARE operated LongHorn and the higher-end Capital Grille. The deal propelled Darden into the steakhouse business after the closure and sale of its struggling Smokey Bones barbecue restaurants. There were 287 LongHorn restaurants and 28 Capital Grille restaurants at the time. Lee was RARE's president and chief operating officer.
The year before the sale, RARE's profit dropped about 24 percent to $39.4 million on $986.9 million in revenue. In Q2 of 2007, its profit decreased 24 percent to $10.2 million on $269.2 million in revenue
Here’s how the curve has evolved since:
- 2008: 305
- 2009: 321
- 2010: 331
- 2011: 354
- 2012: 386
- 2013: 430
- 2014: 464
- 2015: 480
- 2016: 481
- 2017: 490
- 2018: 504
- 2019: 514
Darden’s strategy has long been to take a small box and maximize it, and then build one nearby. Between 2010–2015, LongHorn broke into a lot of new territories. Lee said those markets are starting to mature nicely, which is no easy task. “Going in and being the fourth or fifth steakhouse in a marketplace, it’s really tough to break in and get into the consumer routines,” he said. “And over time, we know that LongHorn will build loyalty in those years in their 3- to 10-year cycle. So there’s a lot of momentum in that piece of the business also.”