Olive Garden Super-Sizes its Value Promise | Sapore magazine
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Olive Garden
The 12-ounce Giant Meatball with Spaghetti at Olive Garden.

Olive Garden Super-Sizes its Value Promise

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A new giant menu is further proof the Darden flagship knows exactly who its customer is.
By Danny Klein April 2019 Chain Restaurants

One of Olive Garden’s biggest menu moves in recent months wasn’t anything fresh or revolutionary. It was a bulked-up version of a classic—Chicken Alfredo, but now with 50 percent more chicken. This aligns with a broader value strategy for Olive Garden that’s also been super-sized lately.

Olive Garden has long used scale to underprice competitors, relying instead on productivity enhancements on the operations side to offset inflation. But over the past couple of quarters it’s seen same-store sales rise from check average, and mainly from menu mix. In Q3 of fiscal 2019 that ended February 24, the brand reported comps gains of 4.3 percent, marking the 18th consecutive period of growth. Comparable guests counts grew 0.1 percent. Yet it was the 1.8 percent pricing and 2.4 percent mix breakdown that really drove optimism.

The reason being, consumer preference pushed the result. It’s hard to understate how valuable that is to Olive Garden, especially given where it’s shifted strategy. The brand reduced incentives for much of 2019 (this is one reason mix improved) in favor of building a promotional construct that allows guests the chance to upgrade within Olive Garden’s everyday menu. And it’s one stuffed with value across all occasions. Meanwhile, Olive Garden’s added mix has come from entrees, not the add-on sales side, which fuels the “back-to-basics” mindset Darden is famous for. This mix hasn’t extended the meal period or complicated execution. Olive Garden, in response, can still improve throughput as check averages lift—a goal that began in earnest four years ago across Darden’s portfolio, which now includes LongHorn Steakhouse, Cheddar’s, Capital Grille, Eddie V’s, Yard House, Seasons 52, and Bahama Breeze.

Olive Garden’s value ratings soared to record levels in Q3, Lee said. It comes down to an everyday value message over a fleeting one, and there are a few ways Olive Garden has nurtured this.

But before diving into some, there is always one true indicator of whether or not a restaurant’s menu is working: Did they ditch the setup or give guests more of the same?

Olive Garden just unleashed its latest promotion, the Giant Italian Classics menu, on April 1. There are four dishes in the lineup, including a 12-ounce Giant Meatball with Spaghetti, which comes topped with meat sauce; an 11.5-inch long Giant Chicken Parmigiana, served with fettuccine Alfredo; Giant Four-Cheese Stuffed Shells with marinara, Alfredo, and toasted breadcrumbs; and Giant Stuffed Shells with Shrimp, which arrive smothered in Alfredo sauce and chopped, seasoned tomatoes. The price: just $12.99.

Olive Garden
An 11.5-inch long Giant Chicken Parmigiana is part of Olive Garden's new Giant Italian Classics menu.

“Olive Garden is known for its generously portioned, craveable Italian food at a strong value—with unlimited salad or homemade soup and breadsticks served with every meal,” Jennifer Arguello, executive vice president of Marketing at Olive Garden, said in a press release. “And we regularly hear how much our guests love our timeless dishes like Chicken Parmigiana and our classic meatballs. So, in the spirit of Italian generosity, we’re serving up them up bigger than ever before with the introduction of Giant Italian Classics.”

Of course, we have no way to prove (right now at least) that Olive Garden created this menu in response to its larger Chicken Alfredo success. But it fits so snuggly into what’s happened lately that it’s impossible not to believe it played a role.

Some of Olive Garden’s incentive-laced deals, like the Buy One, Take One deal, are among the most recognizable in the industry. And they drive traffic no question. In Q2, for example, Olive Garden saw its comparable guest counts drop 0.8 percent, year-over-year, thanks, primarily, to less incentives, especially email promotions. It ran 16 fewer weeks during the quarter and that included some weeks where Olive Garden presented multiple offers in the comparable period.

Why did Olive Garden do this? Partly because its healthy margins and top-line sales allowed it to. Also, it gave Darden’s team a chance to shift focus to sales profitability and not seasonal fluctuations, which are tough to predict and, sometimes, even more difficult to implement consistently across an 860-unit system. Returning to what Lee preaches constantly: less incentives and more everyday value helps execution. It aids the process from servers to cooks to marketing teams. What it does as well is create pent-up demand for past deals, and puts Olive Garden in a position of strength amid an undeniably heightened discounting environment.

What you’re seeing large chains do today is take share thanks to increased advertising budgets. It’s an area casual dining stalwarts are fighting back against independents. The industry is becoming far more promotional and check average growth is sub-2 percent, which is an anomaly compared to past years. Will large brands continue to give up margin to advertise and promote this intensely? Probably.

And, for the most part, most of the ad spend increase will come from food aggressive in price. That’s simply the game being played right now. Lee said earlier in the year, “This is putting tremendous pressure on their margins, and we’ll see how long they’re willing to eat into their margin growth to have this kind of intensity out there.”

He uses the word “their” in that context because Olive Garden has travelled a different path. The chain is not so much aggressive on price as it is on abundance and consistency. Olive Garden is focused on building a healthy consumer base. In doing so, it also opens the door for future opportunities where, if need be, Olive Garden can pulse back some of these incentives into its business. That direction is a powerful perch compared to brands that race to the bottom and then try to climb back up.

Olive Garden
Olive Garden keeps operations simple, which ensures consistency across its 860-unit system.

Here are some examples of this playing out: Olive Garden chose to shift from nine to six deals last March, including removing the Buy One, Take One incentive for the time being. It then took a $1 price increase for the Never Ending Pasta Bowl that didn’t deter guests. Again, this spoke to everyday value over value-seeker value.

Olive Garden redesigned its menus to more prominently showcase two platforms that fit the bill: unlimited soup, salad, and breadsticks, and Cucina Mia! The brand also launched a 5 for $5 beverage platform. This past quarter, the chain’s Oven Baked Pastas and Never-Ending Stuffed Pasta deals hit all-time highs for overall guest satisfaction, Lee said.

Olive Garden’s everyday value menu architecture is hard to miss, too. The chain is in the second year of its Early Dinner Duos and didn’t really advertise it heavy out of the gate. So it’s matured. The flexibility of Olive Garden’s Lunch Duo section has allowed it to keep offerings fresh and pulse new news into an everyday platform. And it gives the company price certainty at lunch, which is a key driver of repeat business at what’s typically a challenged daypart for sit-downs. Guests know what to expect price wise, while Olive Garden has kept the platform appealing through continual innovation. Cucina Mia!, meanwhile, is approaching 10 percent of sales. The create-your-own, 4-year-old program continues to report strong preference, Lee said.

Olive Garden’s customer is just very strong right now. Lee said the brand’s value proposition is one few, if any, competitors can rival at this scale. And guests are using the full menu on a daily basis, which inspires repeat visits.

A question worth asking now is whether or not Olive Garden will put its foot on the gas even more. With the incentives cutback, can the chain take further traffic share given how many brands are reacting to the inflationary pressures we’re seeing, like labor? Which is to say restaurants are raising prices to guard margins. The traffic versus margin trade-off conversation, in other terms. Or will Olive Garden raise the pricing umbrella as well?

“I think it's going to be a combination of both,” Lee said. “… Depending on what others do, then we'll react to that. Hopefully, it'll be an opportunity for us to be able to maybe pass on a little bit more pricing than we have in the past, but maintain our strategy of underpricing the competition, but also use it as an opportunity to gain some share.”

Some other notes

Olive Garden’s off-premises business is booming, up 13 percent in the past quarter alone to 15.9 percent of total sales. The brand is getting there without a serious delivery push as well. It’s take-out and catering that’s driving the performance.

On just Valentine’s Day, which is traditionally Olive Garden’s second busiest day, off-premises sales hiked 20 percent. The chain also saw an eye-opening 52 percent increase in online orders as “more guests took advantage of the convenience of online ordering,” Lee said. This reflects a changing industry, one where more guests are choosing to eat at home, and millennials are pushing the convenience debate into uncharted territory. This is also a prime example of a restaurant chain meeting that demand instead of being buried by it.

The reason this is working so well is pretty similar to the menu note. Olive Garden has created a proposition guests value and know they can count on, Lee said. It’s executed at the store level and delivered to Darden’s high bar. “When you put that on top of an awesome value proposition to the consumer, especially around pans of lasagna or pans of fettuccine Alfredo, our bulk salad or our bulk soup, our offering is compelling and our execution is really high. And what that tells me is the consumer is really engaged in that experience.”

Lee said Olive Garden is staffing up in preparation for continued off-premises growth. That will “provide us the opportunity to add more people to make sure that we actually get the food on time and accurately to the consumer as they walk in the door,” he said, which is goal No. 1. Management turnover is actually lower today than a year ago, Lee said. The goal: get to less than 10 percent.

“I do think that consumer demand for convenience continues to grow, and I think that we're meeting that need,” he added. “And I do think that the value proposition and what we do in Olive Garden is spectacular, and the execution and the thought that went into this over the last four years has helped them continue to gain market share.”