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Olive Garden: Millennials drive 4Q sales

Darden concepts outperform the industry thanks to younger consumers and simplification

Olive Garden’s same-store sales increased 4.4 percent in the fourth quarter ended May 28, parent company Darden Restaurants Inc. said on Tuesday.

It was the 11th consecutive positive quarter for the casual-dining Italian chain, and arguably its best. Darden CEO Gene Lee said Olive Garden’s performance bested industry metrics by 590 basis points during the period.

The reason? Millennials apparently love the chain.

“Contrary to popular belief, Millennials still like going to restaurants,” Lee said during an earnings call. “Millennials still want to come to casual dining. Thirty percent of our guests are Millennials, compared to 24 percent of the overall population. So we over-index with Millennials.”

Six of Darden’s seven legacy brands reported same-store sales growth, while its eighth concept, Cheddar’s Scratch Kitchen, generated 1.3-percent same-store sales growth in its first five weeks under Darden ownership.

Darden’s best performing concepts were its largest, including Olive Garden and LongHorn Steakhouse.

Same-store sales at LongHorn Steakhouse increased 3.5 percent in the period, the 17th consecutive quarter of growth. Same-store sales rose 3.3 percent at Eddie V’s, 1.4 percent at Bahama Breeze, 0.5 percent at The Capital Grille and 0.1 percent at Yard House. Same-store sales fell 1.3 percent at Seasons 52.

The performance bested investors’ expectations, and Darden’s stock rose more than 5 percent on Tuesday, at one point hitting an all-time high of more than $95 a share.

The company generated strong sales mostly on traffic gains. Executives said they have kept menu price increases to a minimum in a bid to take market share. 

“We made the strategic choice to underprice to inflation, so we’re underpricing our competitors,” Lee said.

“We have some large competitors out there donating significant share,” he added. “We have a more compelling offer.” 

Traffic at Olive Garden increased 2 percent, while traffic at LongHorn Steakhouse rose 2.1 percent.

Darden has also simplified operations, Lee said, which has helped improve service and made the chains more desirable for consumers. LongHorn Steakhouse and Olive Garden started simplifying their operations three years ago.

“Don’t underestimate how simplifying the business helped us improve execution,” Lee said. “That’s been key to guest count growth. Better execution through simplicity.”

“We’ve made these restaurants easier for our managers to run,” he added.

In March, Darden agreed to buy Cheddar’s for $780 million. Cheddar’s has 140 locations, with $4.5 million in unit volume. Darden’s eight concepts now have nearly 1,700 locations, led by 846-unit Olive Garden and 490-unit LongHorn Steakhouse. 

Darden is “well on our way to integrating Cheddar’s,” Lee said, beginning with the implementation of the company’s point-of-sale system. Darden said it can find synergies between its system and Cheddar’s that would be worth $22 million to $27 million by the end of 2019. Darden also plans to be more aggressive in expansion than Cheddar’s has been in the past. 

“Cheddar’s is underpenetrated in its markets today,” Lee said. “They’ve historically been concerned about cannibalization. But we don’t believe that’s the right thought process. I’m not going to be afraid of cannibalization. We’ll continue to build these things out.”

He noted that volumes at Olive Garden “had to come down to get to almost $4 billion in sales.”

But expansion will depend more on finding employees than on finding sites.

“Sites aren’t a problem,” Lee said. “We can give Cheddar’s 30 sites, with our systems and what we have. Before Cheddar’s can grow, we need to make sure they’re culturally strong, with a strong bench of general managers who can run restaurants.”

Contact Jonathan Maze at [email protected]

Follow him on Twitter: @jonathanmaze

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