Olive Garden Leans Into New Value Strategy
Darden's flagship Olive Garden, which makes up about half of the company's net sales, has been smart when it comes to incorporating everyday value into its menu. The brand has found the sweet spot when it comes to promotions—leveraging them to its advantage, instead of relying on discounting too much.
Executives recently decided to separate the brand’s two strongest deals—Buy One, Take One and Never Ending Pasta Bowl—”to more evenly deliver the value messaging throughout the year,” Darden’s chief executive Gene Lee said during a September 19 conference call. Olive Garden is still riding the buzz from its famed Pasta Pass as its Never Ending Pasta Bowl promotion begins.
The decision to spread out the two different deals resulted in lower traffic this quarter compared to last year, the company said, but will benefit Olive Garden in the long run. Because the two promotions are different types of value offerings, Lee said, they should support each other instead of competing.
“We've made a big strategic choice to separate the two value promotions that gives us more balance in our value messaging throughout the year, which is really important,” Lee said. “It should be additive, it shouldn't be dilutive at all.”
Olive Garden also captured weekday business by infusing everyday value into the lunch daypart. A new menu includes 21 options—including guest favorites like Chicken Parmigiana—all under $10.
Darden also recognized the strength of the Buy One, Take One promotion and added a lineup of $5 take-home entrees to the everyday value menu, which has also been met with strong guest demand, Lee said.
As the brand expands into smaller markets over the next few quarters it will look into how it can compete and market effectively without sacrificing value.
“We need to continue to create compelling guest experiences and come up with and reinforce our value propositions,” Lee said. “We have the luxury of being patient and test and learn and really make great long-term decisions as we try to figure how to support and compete more effectively in this marketplace.”
The new value lineup is also pushing Darden to expand Olive Garden’s off-premises business. Olive Garden is focusing on optimizing off-premises assets—both mobile and desktop ordering options—to offer the most convenient experience for customers.
Digital sales grew 30 percent during Q1 and now represent 40 percent of to-go sales—all without partnering with a third-party delivery service. During the company’s June 20 fiscal 2019 review, Lee called the delivery space “an immature business.” Testing with different third parties continues—you can find Olive Garden on GrubHub or Ubereats in certain markets—but there isn’t enough data for the company to jump into an exclusive partnership.
“Our job is to create a compelling off-premises experience right now with so much value the consumer is willing to come and get it,” Lee said. “That seems to be working for us, and we're going to continue to focus on that.”
Overall off-premises sales grew 12 percent and make up 14 percent of total sales, leaving Olive Garden room to grow with take-out and catering channels.
“The Olive Garden team remains focused on their off-premises capabilities to meet their guest needs for convenience,” Lee said. “The team is doing an excellent job of focusing on this strategy and competing effectively.”
Compared to other casual-dining chains, Olive Garden has been able to consistently return positive results. The first quarter of 2020 marked the 20th consecutive period of growth at Olive Garden with a same-store sales lift of 2.2 percent.
The Italian company’s sales grew 10 percent over the past two years, outperforming the industry benchmark by 840 basis points, Lee said. Total sales upped 3.6 percent during Q1.
Olive Garden’s positive performance along with other Darden brands, like Longhorn Steakhouse, resulted in a positive start to fiscal year 2020. During Q1, LongHorn Steakhouse’s same-store sales growth lifted 2.6 percent, marking the 26th consecutive positive quarter. Darden’s overall same-store sales lifted 0.9 percent and total sales were $2.1 billion, or a 3.5 percent increase from last quarter.