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Olive Garden_exterior_2016_cb.jpg Darden Restaurants Inc.

Darden CEO: Delivery hinges on data ownership

Gene Lee wants assurances sales info isn’t used against brands

While many restaurant brands are rushing into third-party delivery agreements to get a footprint in a growing space, casual-dining leader Darden Restaurants Inc. sees hurdles remaining, chiefly the ownership of customer data.

Gene Lee, president and CEO of the Orlando, Fla.-based parent to such brands as Olive Garden and LongHorn Steakhouse, said in its fourth-quarter earnings call Thursday that Darden is in test with all the third-party delivery companies of scale, but the company has yet to choose its providers.

“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.”

Lee said Darden considers its data one of its competitive advantages in the challenging casual-dining segment, where all but one of its brands saw same-store sales increase in the May 27-ended fourth quarter.

Off-premise sales have been especially helpful to Olive Garden, which saw that segment grow 9 percent in the fourth quarter to 13.8 percent of total sales. Lee said those off-premise sales could grow to 20 percent of total sales. For now, the brand is focused on large-party catering orders of more than $100, placed with 24-hour notice.

“I think it's trading out of grocery to some extent,” Lee said. “I think people are just thinking about convenience differently.”

Lee said that Darden, which has about 400 units in some kind of small-delivery test, needs the third-party delivery companies to answer other questions.

“How do we ensure that these delivery services will enhance our brands?” he asked. “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?”

Data and its accompanying insights have given Darden’s brands advantages in the competitive casual-dining market, Lee added.

“We'll continue to stay focused on that,” he said. “But we see an opportunity in a mature market to gain share.”

Blended same-restaurant sales from Darden's legacy brands increased 2.2 percent.

For the fourth quarter ended May 27, Darden’s net income increased 41 percent to $174.5 million, or $1.39 a share, from $123.8 million, or 98 cents a share, in the same period last year. Sales increased 10.3 percent to $2.2 billion, from $1.9 billion in the prior-year quarter.

Blended same-store sales from Darden's legacy brands increased 2.2 percent in the quarter. Same-store sales increased at all of Darden’s brands except for Cheddar’s Scratch Kitchen, which it acquired in April 2017:

Olive Garden, with 856 units, up 2.4 percent
Longhorn Steakhouse, with 504 units, up 2.4 percent
Yard House, with 72 units, up 1.4 percent
Capital Grille, with 58 units, up 2.6 percent
Seasons 52, with 42 units, up 0.4 percent
Bahama Breeze, with 39 units, up 0.6 percent
Eddie V’s, with 19 units, up 3.6 percent

Same-store sales for 156-unit Cheddar’s were down 4.7 percent in the quarter. Cheddar’s will move into the company’s blended same-store sales tally in the first quarter, said Ricardo Cardenas, Darden’s chief financial officer, so the company reduced its same-store sales growth guidance for fiscal 2019 to a range of 1 percent to 2 percent.

“The Cheddar's restaurants that we own and operate today were fragmented into three businesses a year ago, each with different systems, policies and pricing structures,” Lee said. “While same-restaurant sales declined 4.7 for the quarter, the original company restaurants were down 3.3 percent, while the acquired franchise restaurants were down 7 percent.”

Lee said the integration of Cheddar’s peaked in the fourth quarter, with the brand transitioning to Darden's proprietary point-of-sale system.

“As we pushed the integration process to completion, it became apparent the team was losing focus on the basic operating fundamentals,” he said. “Therefore, we decided to suspend marketing and promotional activities.”

Darden has more than 1,700 casual-dining restaurants.

Contact Ron Ruggless at [email protected]

Follow him on Twitter: @RonRuggless

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