Olive Garden is shifting gears after same-store sales declined for a third consecutive quarter.
Same-store sales at the 900-unit casual-dining chain fell 2.9% in the period ended Aug. 25, driven by a significant traffic dropoff after July 4th. Overall, traffic was down more than 5% year over year. It was the first quarter in years in which Olive Garden trailed the industry on traffic.
Executives for owner Darden Restaurants cited a variety of reasons for the sudden slide, including weather, international travel, a rise in COVID cases, the Olympics and political upheaval.
Things have improved since then: Same-store sales climbed back to flat in August and are positive quarter-to-date. But the decline surprised Darden and prompted a series of efforts to turn the tide.
Near-term, Olive Garden will continue to sharpen its focus on value. It started its popular Never-Ending Pasta Bowl promotion earlier than usual this year and will offer it three weeks longer than planned, for instance. Customers have been ordering the $13.99 bottomless item at a slightly higher rate than last year, said Darden CEO Rick Cardenas. He added that the promotion tends to be popular across income brackets.
Meanwhile, an upcoming slate of advertising will emphasize Olive Garden’s menu prices. The chain has generally kept its prices lower than others and wants to do a better job of communicating that, especially to people who are less familiar with the brand.
“We've seen a little bit of a decline in the first-time guests at Olive Garden,” Cardenas told analysts Thursday. “So they might not realize that we've taken so much less pricing than everybody.”
Olive Garden is also hoping new menu items will give some of its regular customers more reasons to visit. It’s bringing back two fan favorites, Steak Gorgonzola Alfredo and Stuffed Chicken Marsala, that were removed from the menu during the pandemic. They’ve been reformulated with higher-quality ingredients and will be easier to prepare. The news of their return was met with “tremendous applause” from general managers at a conference in August, Cardenas said.
And in a longer-term bid to attract more customers, Olive Garden is adding on-demand delivery through a partnership with Uber. Starting with a pilot later this year, customers will be able to order delivery on Olive Garden’s website and app, and Uber Eats drivers will fulfill the orders. The company expects delivery to be an “incremental long-term sales driver” by allowing it to reach customers who want convenience, Cardenas said.
It represents a major shift for Olive Garden, which has long been opposed to delivery. It felt the service would interfere with operations and didn’t like the economics or the idea of a third party standing between itself and its customers.
At the same time, Cardenas acknowledged that delivery is something customers have been asking for. And Darden’s agreement with Uber is designed to avoid some of the perceived pitfalls of delivery. The direct integration will give Olive Garden control over the ordering experience and the order data. Drivers will pick up deliveries at the curb, which will limit disruptions in the restaurant. And managers will have the ability to throttle orders so the kitchen doesn’t get overwhelmed.
“We believe this partnership will allow us to protect our simple operating model,” Cardenas said. “Our teams execute great curbside to-go experience today, and we believe there will be no significant changes to our operators.”
Delivery customers will be charged a fee of about $7, he said, which will help keep delivery margins in line with those of Olive Garden’s pickup business. But menu prices will be the same for delivery as they are in the restaurant, and restaurant staff will get a share of the tip.
And in another appeal to customers’ growing appetite for convenience, Darden plans to work on speeding up service in its restaurants. Cardenas noted that full-service restaurants tend to score poorly on speed, which becomes a bigger disadvantage as consumers get more accustomed to convenience.
“The full-service restaurant category hasn't really gotten faster,” Cardenas said. “We believe that there's opportunities for us to speed up our experience without making the guests feel rushed.”
Cardenas provided few details about how Darden plans to do that, but indicated it will involve operations, some new technology and a bit of additional labor.
As for Olive Garden’s sister brands under Darden, LongHorn Steakhouse continued to outperform with same-store sales growth of 3.7%. Fine dining struggled mightily as same-store sales fell 6%, and same-store sales at Darden’s other chains fell 1.8%.
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