Darden Eschews Third-Party Aggregators To ‘Drive Profitable Sales Growth’

Darden Eschews Third-Party Aggregators To ‘Drive Profitable Sales Growth’

June 24, 2021 at 04:45PM

Darden Restaurants’ sales are on the rise, though not quickly enough for some. The company, which owns Olive Garden and Longhorn Steakhouse, as well as a handful of other full-service restaurant brands (both casual and fine dining) reported Thursday (June 24) that its same-restaurant sales were up 90 percent year over year for the three months ending May 30. Compared to pre-pandemic levels in 2019, however, Darden’s sales were down half a percent.

This two-year growth was lower than some of the figures most recently reported by competitors. For instance, in the first three weeks April 2021, Chili’s and Maggiano’s parent company Brinker reported on April 28, sales were actually up 6 percent from pre-pandemic levels. In the same week, Outback Steakhouse owner Bloomin’ Brands reported that U.S. sales that month were up about 13 percent relative to 2019.

When asked about the reason for this discrepancy, Darden chairman and Chief Executive Officer Gene Lee told analysts it is “because we’re not participating and giving away our food through third-party channels, we’re not … discounting our cash like others are through selling gift cards. We’re running a business here to try to drive profitable sales growth.”

Pointing to the company’s 25 percent restaurant-level margins in the quarter (compared to 14 percent in Brinker’s most recent quarter, 19 percent for Bloomin’ Brands), Lee added, “Guys, you’ve got to get off this.”

Lee’s dismissal of third-party delivery is consistent with the company’s previously stated intentions to rely primarily on on-premises dining. The company’s off-premises sales are mostly through onsite pickup channels, though there are limited delivery options. Responding to a question about third-party delivery apps on a call in September 2020, Lee said, “We don’t see a big upside there,” though he noted that the company would continue to evaluate in-house delivery, a subject that has not come up since.

While the bulk of the company’s technology investments are going towards improving off-premises ordering, Darden is also looking to digitally upgrade the on-premises dining experience. The company is seeing increased sales through its tabletop tablets, with almost half of payments through digital channels, and updating its point-of-sale (POS) system, which Lee called, “a pretty old system that we developed years ago.”

Additionally, though well over half of United States adults are fully vaccinated, and a significant portion of those who are not vaccinated are not terribly concerned about the contagion risks of indoor dining, Lee believes that the on-premises channel has a ways to go before it reaches its full post-pandemic strength. He noted that consumers in states that had more severe lockdowns during the height of the pandemic are still trickling back into restaurants slowly.

“I’ve spent a lot of time in the Northeast, the last couple of weeks — it’s still very quiet compared to what I see in Georgia and Florida when I travel,” said Lee. “So we already still have the opportunity to increase and ease in these marketplaces … I think we still got another six to nine months to understand, if we don’t have any more problems with COVID, what are going to be the normal behaviors that are going to develop out of this.”

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