With the planned exit of Red Lobster, Darden Restaurants, Inc. has refocused on its core brand of Olive Garden, with efforts well under way to revitalize the Italian casual dining chain.
Consumer response to the restaurant’s most comprehensive menu overhaul in history so far has been positive, Darden told financial analysts during a March 21 earnings call.
“It was a big change, and so execution was what we thought it was going to be as we introduced it,” said Gene Lee, president and chief operating officer. “We have been very pleased with how quickly our operations teams have picked up this new menu, and we’re seeing guest complaints drop very, very quickly and actually receiving a lot of positive comments here the last few days.”
Launched Feb. 24, Olive Garden’s new menu features more than 20 new items that includes reduced-calorie meals and mix-and-match pasta options, as well as new small plates offerings. Handheld options, such as sandwiches and flatbreads, were added to the lunch menu. With the new items came new cooking techniques and kitchen equipment, including a Piastra flat-top grill for chicken and seafood selections. Additionally, the restaurant modified its service steps at lunchtime to allow for a quicker customer experience.
“We've provided everyday value … but we've also gone all the way through the menu and we've added price points at $14, $15, all the way the to $18.99,” Mr. Lee said. “As we look at it today, with the mix that we're seeing, we're not seeing a lot of margin compression with this menu. We're seeing the consumer that we hope would trade up to the filet and the salmon and risotto and the dishes like that. That's happening. We're getting a good mix on that and everyday value.”
Another component of Olive Garden’s brand revamp is restaurant re-imaging. The first remodel is on track to be completed by the end of April, and the second is expected to start soon. Darden also has developed a contemporary new logo for the brand.
The changes at Olive Garden coincide with an active sale process or potential spinoff of Red Lobster as part of a comprehensive strategic plan announced in December. Darden hopes the separation of its seafood chain, combined with efforts to revive Olive Garden, will lift the company out of the ongoing slump pressuring casual-dining operators in a post-recession consumer environment.
Severe winter weather added to the company’s challenges during its third quarter.
Net earnings for the quarter ended Feb. 23 slid 18% to $109.7 million, equal to 84c per share on the common stock, from $134.4 million, or $1.04 per share, in the prior-year period. Net sales for the quarter totaled $2,233.1 million, down 1.1% from $2,258.2 million last year.
During the quarter, U.S. same-restaurant sales increased 0.3% at LongHorn Steahouse while declining 5.4% at Olive Garden, 8.8% at Red Lobster and 0.7% at the Specialty Restaurant Group. Bad winter weather, as well as a shift in timing of the Thanksgiving holiday negatively affected comparable performance.
Darden has reaffirmed its earnings projection for fiscal 2014, due to greater-than-expected progress in implementing cost management efforts that helped offset third-quarter challenges, but the outlook does not include costs associated with the Red Lobster separation and related strategic actions.
