Surging Darden Plans to Add 40–50 Restaurants in 2019
Darden’s strong close to fiscal 2018 soared its stock more than 15 percent Thursday to $107.06, its highest point since March 2009. Don’t expect that momentum to slow anytime soon. In fact, Darden said during a June 21 conference call that it plans to open 45–50 new restaurants in 2019—a pretty rare growth boom in today’s casual-dining arena.
The company did not specify where or which concepts would expand. But it’s a pretty vivid reminder of just strong Darden’s recent run of sales has been.
Profits hit $174.5 million in Q4, a sizable lift from the $123.8 million mark in the year-ago period. Sales rose 10.3 percent to $2.13 billion. Blended same-store sales were up 2.2 percent for the quarter.
Turning the spotlight to Olive Garden, where comps hiked 2.4 percent at the 856-unit brand, CEO Gene Lee said a strategy of “flawless execution of the guest experience and continued simplification in our restaurants; craveable Italian food and beverage that appeals to our loyal guests; marketing that reaches the right target at the right time on the right channel with the right message; and our ongoing commitment to improving convenience for our guest by focusing on the off-premise experience,” led the charge.
The off-premises conversation is an intriguing one for Darden. Sales grew 9 percent in that segment and represented 13.8 percent of total sales in the quarter at Olive Garden. The brand is up 50 percent in off-premises business over the last three years. Lee believes it could reach 20 percent in time. Catering and take-out are currently the main drivers, but what about delivery?
“We have met with and have tests going on with all the third-party delivery services of scale,” Lee said. “There continues to be significant hurdles that we need to work through, such as how do we ensure that these delivery services will enhance our brands, can it be flawlessly executed for our guests and our team members, can we create a sustainable incremental growth at scale that's additive to our company, can we agree on viable economics and lastly, can we ensure that we own the data.”
The latter note is a big topic in the space. Back in May, Red Robin CFO Guy Constant said the chain was looking at ways it could implement self-delivery to avoid the third-party data grab that often goes hand-in-hand with delivery. “That is one of the drawbacks of dealing with the aggregators is that they won't share that data, so it's hard for us to keep track of the guest as much as we would like, which is one of a number of reasons why we're testing the self-delivery proposition because we believe not only is it cheaper than using an aggregate but it gives us access to the data as well,” he said.
Lee said Darden needs “to really worth through” those aforementioned issues before partnering with one or two of its pilot organizations.
“We're still testing, doing small order self-delivery. We'll continue to analyze what the opportunity is there. We also recognize that we have 400-plus restaurants out there that are participating on a local basis with some of these companies,” he said. “Those aren't, what I would call, sanction tests, but they're part of what's happening. We think it's an interesting space.”
Olive Garden is doing some half a billion in takeout sales currently. How would delivery impact that? And what are the margin impacts? And, again, Darden doesn’t want to swap invaluable data for incremental sales it’s not exactly hurting for.
“These delivery services are net-neutral sites. However, their goal is to sell as much food as possible on their platform,” Lee said. “We want to ensure that we own our data, and our data is not used against us. And that's very, very important in this whole negotiation. We believe, on our platform, we talk about data being one of our competitive advantages.”
“We have, over the last decade, we have been behind a lot of trends because we've built our own proprietary systems so that we can own the data,” he added. “And we believe that's going to be key going forward. It's an important part of this negotiation.”
Darden simplified its promotional calendar at Olive Garden from nine to six this past year, including opting out of the popular Buy One, Take One Deal. The chain also continued to promote everyday value advertising and emphasized weekday lunch messaging to boost lunch trends. Lee said reducing the promotional calendar allowed Olive Garden’s management teams to focus on execution and drive guest satisfaction, and for corporate to enhance the brand overall by investing into Olive Garden, not into specific promotions.
“We believe this was a really important move in our simplification effort, and we believe it had no impact on our overall same-restaurant sales for the year or the quarter.”
“… I think that our team executed six promotions extremely well,” Lee added in the call. “They kept them fresh for a longer period of time. They used some innovative tactics to do that. And I want to continue to encourage them to be creative and to be able to run our promotions on a longer scale and try to reach more consumers through innovative— integrated marketing opportunities.”
Overall for Darden, sales grew 12.7 percent to $8.1 billion in fiscal 2018.