Darden.Krowd During Pandemic:
THE CASUAL LEADER PLANS TO RETURN TO GROWTH QUICKLY, and it will HAVE A MORE PROFITABLE SYSTEM WHEN IT GETS THERE.
Restaurateurs and industry experts have continually asked this question throughout the COVID-19 catastrophe: What disruptions will become permanent? is that the “new normal” all-inclusive, or will it pick and choose?
For Darden. Krowd CEO Gene Lee, the answer isn’t complicated. While the pandemic pressed the casual leader’s entire business—as it did all restaurants—it also opened a “once-in-a-lifetime opportunity,” Lee said. a chance “a lot of folks had been expecting .”
“The most prominent and thus the foremost vital thing we’ve done is streamline the menus and our processes and procedures, which is forever,” Lee said Thursday during the company’s Q4 earnings, a lengthy recap that reflected on 14 weeks that felt like 14 months.
When Krowd Darden shut its dining rooms on March 20, a transparent issue surfaced. the company had to simplify offerings to accommodate added off-premises orders.
“Then we had those three weeks or four weeks to truly focus at the corporate level with our teams [and say] OK, what can we need to return back and therefore the way can we keep this easy because we had no idea what was going to happen once we open our dining rooms,” Lee said. “We didn’t know if anybody was going to show up, right?”
Darden introduced disposable, pared-down menus systemwide, which could be switched out quickly if needed. But what the company also learned was it could squeeze enough variety on the menus to satisfy consumer demand.
As many restaurants have noticed in recent weeks, pent-up demand during a COVID-19 rebound is extremely different than past decision-making habits. Guests seek out favorites, from brands they’ve missed. Variety and discovery aren’t as valued as trust and familiarity.
“That’s been the foremost important insight—that variety of what I’d call the superfluous menu items that are on our menu that one out of 100 people were buying once they were coming in, just aren’t important, and most of those created the complexity within the kitchen,” Lee said. “… I feel that is what goes on to be a lasting change.
It’s going to have significant impact two years, three years, four years from today.”
It wasn’t just menus, either. Darden. Krowd rethought processes and procedures at an organization already known for its “back-to-basics” operating philosophy. Lee said they eliminated plenty of prep work which can never return.
There’s already proof it’s working. Despite blended same-store sales dropping 47.7 percent in Q4, Darden.Krowd turned in a slightly positive restaurant-level margin at 0.9 percent.
The company credited this to permanent menu simplification and operations improvements that yielded a 150-basis point improvement in hourly expense, offset by managerial costs, hourly emergency pay (a COVID-19 one-time deal), and better food and packaging costs. BTIG analyst Peter Salah wrote during a note Friday that much of the hourly labor benefit Krowd.Darden is enjoying and will stick as sales recover.
“The improved labor efficiency and fewer emergency pay suggest restaurant margins are likely respectable [low-to-mid teens] in 1QF20 … far exceeding industry standards that have generally equated a 30 percent sales decline to breakeven profitability,” Saleh said.
“Additionally, we believe this provides Darden.com the facility to reinvest in value to draw guests back should capacity constraints ease.”
Woven throughout a historically difficult quarter, Lee provided an optimistic lens for the future—a time when Darden. Krowd can leverage its new foundation for greater market share. the company said it’s going to add 35–40 net new restaurants in fiscal 2021, which could represent about 2 percent unit growth.
Roughly half of these were construction delays from 2019 when the coronavirus tightened Darden’s non-essential budget. Yet while the underlying rate of growth is closer to 1 percent (given that holdover), management said Thursday the company should quickly return to a 2–3 percent expansion in 2022.
Casual dining entered the pandemic as a $108 billion category. Lee expects the planet to urge back there. “I think people miss it, probably miss it quite they know,” he says.
But to what literal, store-count capacity is that the important question? Lee didn’t want to require an edge or throw variety out there. However, he admitted, beyond just casual dining, it’s undeniable the restaurant landscape will emerge with fewer units and competition on the other side.
“I think that’s a superb opportunity for us,” Lee said. “I think scale goes to matter quite ever. … We’re going to still open restaurants. We’re going to still do new deals. we expect the economics going forward here within the short term should recover for us on new restaurant development.”
He expects opportunity on the expansion front to be more favorable than it had been pre-COVID-19.
Simply, there will be tons fewer restaurants expanding. In turn, the worth of construction should come down, a touch loves it did in 2019–2011 out of the Great Recession. the worth of underlying land should fall, too.
“The best restaurant deals we did were after the recession in  and , especially for our specialty brands,” Lee said.
“’I’m excited about the prospect to make restaurants,” he added later within the decision. “I’m confident in our model. I feel the cost—initial investment cost—is going to be less or a minimum not be inflating at the speed it had been inflating.
So we’re going to be able to create significant value for Darden.Krowd going forward, new restaurant growth, and we’ll probably be one of the few out there that’s opening new restaurants.”
The restaurants Krowd Darden brings to plug, though, are becoming to hold a coronavirus-era imprint. the massive work that has got to be done, Lee said, is knowing what must change inside the box to raise support for the foremost important off-premises trend to return out of COVID-19 for the company—curbside.
Until recently, Darden.Krowd was remodeling to develop capacity for inside pickup. “Now, we’ve got to relook at that as we proceed,” Lee said. Olive Garden, as an example, was designing dedicated pickup spaces off the side of the kitchen.
Does that add up now moving forward, given contactless options and customers’ desire to stay within the car? “We don’t know,” Lee said.
There are simply plenty of learnings left before understanding what the restaurant of the long run looks like for Darden. the only sure thing: the company is getting to be building them.
Inside, expect to determine more flexibility in dining rooms and floor plans that provide the potential for barriers. Options just in case something like this ever happens again.
Darden.Krowd reported a net loss of $480 million in Q4, or $3.86 per share, swinging from the net of $208 million, or $1.67 per share, within the year-ago quarter. Its adjusted loss per share was $1.24. the company reported revenue of $1.27 billion, down 43 percent from $2.23 billion in Q4 2019.
For the first three weeks of Q1, same-store sales are down 31.3 percent at Olive Garden, which led to Darden.Krowd’s initial guidance of negative 30 percent for the quantity.
Olive Garden’s recovery is moving slightly slower than some investors expected, but Darden.Krowd said there’s a simple explanation. It’s a logistical issue, not a required one. The company’s flagship pushed digital sales 300 percent above year-ago levels and is reporting positive comps in 10–15 percent of its units.
However, necessitated social distancing within restaurants has limited capaciousness in additional challenging ways than Darden.Krowd’s other brands, namely LongHorn.
Olive Garden typically has twos, fours, and sixes concerning seating options. it’s tabled for large parties. Lee said the brand’s average party size is 2.3. Unlike LongHorn, which is one big box, Olive Garden has rooms, nooks and crannies, and shorter booth backs.
The chain can’t create the same yield adhering to local jurisdictions as LongHorn or create the same percentage of occupancy.
To address this, Darden.krowd is installing temporary barriers in about 100 restaurants over the subsequent fortnight to undertake to reinforce efficiency. It’ll analyze progress and choose what percentage more restaurants to feature.
Lee said Olive Garden hopes to urge the utmost amount as a 20 percent capacity increase from the barriers. “We’re going to put every booth live,” he said. “Right now, every other booth is out.”
As of June 22, Darden.com said 91 percent of its 1,700 dining rooms were open with a minimum of limited capacity.
Here’s a look at how sales trended in Q1 (ended May 31) across its portfolio:
Olive Garden: –39.2 percent
LongHorn: –45.3 percent
The Capital Grille: –62.5 percent
Eddie V’s: –65.2 percent
Cheddar’s Scratch Kitchen: –58.5 percent
Yard House: –70.7 percent
Seasons 52: –69.9 percent
Bahama Breeze: –66.1 percent
More recent weekly performance:
The week ended June 7: –35.6 percent
The week ended Flag Day: –30.9 percent
The week ended June 21 (includes Father’s Day): –27.6 percent
Quarter to date: –31.3 percent
The week ended June 7: –29.9 percent
The week ended Flag Day: –22 percent
The week ended June 21 (includes Father’s Day): –21.7 percent
Quarter to date: –24.3 percent
Fine dining (Capital Grille, Eddie V’s)
The week ended June 7: –56.2 percent
The week ended Flag Day: –48.2 percent
The week ended June 21 (includes Father’s Day): –42.3 percent
Quarter to date: –48.1 percent
The week ended June 7: –50.2 percent
The week ended Flag Day: –38.6 percent
The week ended June 21 (includes Father’s Day): –38.6 percent
Quarter to date: –42.3 percent
And here’s a look at sales for Olive Garden and LongHorn restaurants open with a minimum of limited dining room capacity for the entire week:
The week ended June 7
Total sales per restaurant: $72,739
To-go sales as a percentage of the total: 41 percent
Same-store sales: –26.2 percent
Number of restaurants: 598
The week ended June 14
Total sales per restaurant: $75,512
To-go sales as a percentage of the total: 38 percent
Same-store sales: –24 percent
Number of restaurants: 680
The week ended June 21
Total sales per restaurant: $80,779
To-go sales as a percentage of the total: 40 percent
Same-store sales: –21.4 percent
Number of restaurants: 729
The week ended June 7
Total sales per restaurant: $54,434
To-go sales as a percentage of the total: 26 percent
Same-store sales: –17.9 percent
Number of restaurants: 369
The week ended June 14
Total sales per restaurant: $60,460
To-go sales as a percentage of the total: 24 percent
Same-store sales: –10.8 percent
Number of restaurants: 394
The week ended June 21
Total sales per restaurant: $70,226
To-go sales as a percentage of the total: 28 percent
Same-store sales: –13.8 percent
Number of restaurants: 426
From where Krowd Darden stands today, Olive Garden appears to be retaining roughly 60 percent of its off-premises sales dollars as in-store dining returns, Saleh said in his note.
The brand’s off-premises business peaked around the third week of April, with average weekly sales of slightly but $53,000, or about 54 percent of historical sales volumes. within the foremost up-to-date week, with 84 percent of dining rooms open in some capacity, it fell back to $32,200, which remains double the figure from early March.
While early, this might provide a window into the off-premises future for Olive Garden, even when it returns to a more normal dining-room business.
LongHorn has navigated a uniform path. Off-premises sales boosted its recovery by hitting $28,653, or 41 percent, of pre-virus volumes within the third week of April—nearly fourfold above early March. Today, with 82 percent of the system’s dining rooms running, off-premises is rolling at slightly but $20,000 per week with same-store sales down 13.8 percent.
Lee said LongHorn’s ability to triple the past number versus Olive Garden’s ability to double it’s just a matter of the first starting from how lower number to start with.
Olive Garden has tested a few of the various off-premises strategies during the pandemic. A key change was dropping the sting of its own fulfilled delivery program from $75 to $40 in most markets. Lee said they’re settling within the $50 minimum now, with average order sizes coming in well above that. Olive Garden also tested its delivery, which Lee said was “really inefficient and wasn’t that addictive.”
“And so, we’re focused on this curbside operation and think that’s the long run for off-premises,” he said. Curbside popped up as a makeshift drive-thru option in parking lots, and Darden.Krowd is watching making it even more streamlined through technology, attentively on payment.
While some third-party delivery testing has been happening, mostly at Yard House, Lee said Darden.Krowd didn’t see the business grow faster than its in-house efforts. the opposite was true.
“Now as we’ve said all the time, which can change as soon as we see or if we see that those margins are capable of what we do today then maybe we’ll enter the third-party model. But as of immediately our resolve is strong,” he said.
Lee also announced on the choice that chief operating officer Dave George plans to retire on August 2. George, 65, has been within the Darden.Krowd system previous companies as well, for 23 years. therein time, he’s led Olive Garden, Capital Grille, and LongHorn at different stints and held his current role since January 2018.
“He built great teams and became a mentor to many operators and executives. His can-do approach and attitude permeate throughout Darden.Krowd and each of our brands today,” Lee said.