Thanks for Visiting!

Register for free to get the full story.

Sign Up
Already have a Placer.ai account? Log In
Back to The Anchor

Darden: Never-Ending Pasta Bowl Helping to Lift Olive Garden Out of Casual Dining Malaise

R.J. Hottovy
Sep 20, 2024
Darden: Never-Ending Pasta Bowl Helping to Lift Olive Garden Out of Casual Dining Malaise

It’s been an eventful 2024 across the restaurant industry. Alternative food retail channels like value grocers like Aldi and Trader Joe’s and revamped food platforms for many convenience stores have put increased pressure on restaurant visits across all channels, forcing chains to take two approaches: (1) introduce new menu, marketing, and store format innovations; or (2) utilize the year-over-year moderation in food commodity prices and become more aggressive with promotional activity. We’ve covered the success of menu innovations that Chipotle (Chicken al Pastor) and CAVA (steak) introduced this summer. We’ve also touched on a number of new promotional strategies, including Chili’s “3 for Me” menu and Buffalo Wild Wings Monday/Wednesday all-you-can-eat promotion in May, followed by a bevy of bundled value meals across the QSR sector in June. The launch of the $5 Meal Deal drove visits to McDonald’s in July, but the rest of the industry took a “July Pause”. More recently, we’ve discussed the bifurcation we’re seeing across the restaurant sector, with QSR and fine-dining outperforming, while fast casual and casual dining seeing weakness (below).

This week, Darden (the parent company for Olive Garden, Longhorn Steakhouse, Cheddar’s, Ruth’s Chris, and others) provided a quarterly update validating many of the trends we’ve been discussing. For the three-month period ending August 25, Olive Garden’s same restaurant sales declined 2.9%, underperforming the industry same-restaurant sales decrease of 2.5% according to the company (including a 5.4% decline in industry same restaurant guest counts). According to management, “June same-restaurant sales trends were in line with our fiscal 2024 fourth quarter results. And we were surprised by the significant step down in traffic beginning with the Fourth of July holiday. However, sales trends rebounded in August resulting in flat same restaurant sales for the month. The first three weeks of September have further improved, resulting in positive same restaurant sales quarter to-date for all of our segments, except fine dining.” Our visitation data for Olive Garden–using Data Version 2.1, which utilizes an enhanced dynamic debiasing model that improves accuracy–shows roughly the same progression.

What did Olive Garden do to reverse this trend? They tapped into both value and innovation, which has been a winning combination for many other restaurants and retailers this year. According to Darden CEO Rick Cardenas, “We know that in this environment, guests are motivated by compelling offers like Never-Ending Pasta Bowl that provide a strong value during a limited time. When the Olive Garden team saw their traffic gap to the industry go negative during our first quarter (June-August 2024) after years of outperformance, they reacted by moving this promotion up and having it run for a total of 12 weeks, three weeks longer that they had planned and four weeks longer than last year. To help keep this offer exciting during a relatively long window, Olive Garden will introduce a new Garlic Herb Sauce during the fifth week of the promotion…Beyond checking all the marketing filters, Never-Ending Pasta Bowl offers guests tremendous value. The starting at price point hasn't changed in three years, making it an even more compelling value and Olive Garden is putting additional marketing support behind it. We have said that we had priced below our competitors and inflation over time. In fact, when you look at Olive Garden, over the last five years, they have priced more than 800 basis points below the full-service industry average and 700 basis points below grocery inflation. The Olive Garden team recognizes the need to do a better job of communicating this value to guests so their advertising will prominently feature more price points this year compared to last year when the advertising message was primarily focused on equity building.”

The question isn’t really whether a value-oriented promotion like Never-Ending Pasta Bowl drives visits, but does it improve visit frequency after the promotion ends. We won’t know for sure if Olive Garden’s latest Never-Ending Pasta Bowl drives repeat visits, but we’ve already seen signs of repeat visits from other restaurant promotions this summer, and by integrating new sauces and other innovation into its promotion, we expect improved visit frequency trends.

There were several other noteworthy developments from Darden’s update, including continued strength from Longhorn Steakhouse, which posted 3.7% comparable sales growth. As we discussed in May, the casual dining steakhouse category continues to be one of the top performers, helped by a strong value proposition, staffing investments, and innovative use of technologies. After years of resisting delivery partnerships, Olive Garden also announced that it is partnering with Uber that will allow customers to order delivery from Olive Garden’s website and app, which could help to attract new customers to the brand. Finally, the company noted that the acquisition of Chuy’s is on target to close in mid-October, and that the team that led the Ruth’s Chris integration is ready to do the same with Chuy’s. In addition to filling a gap in the Darden portfolio, our data also suggests that Chuy’s could help to attract younger, more affluent customers.

Schedule a Call

Required
Please enter your email
Required
Required

Thanks for reaching out!

I’ll be in touch soon

Go Back
Oops! Something went wrong while submitting the form.

R.J. Hottovy

Head of Analytical Research, Placer.ai

R.J. Hottovy, CFA has covered the restaurant, retail, and e-commerce sectors for 20 years as an equity analyst and strategist for Morningstar, William Blair & Co., and Deutsche Bank. R.J. also brings a wealth of experience with early-stage investments as a committee member for the IrishAngels / Vitalize venture capital group. Over the past three years, he advised over 50 food service companies on more than $200 million in early-stage capital raises and M&A transactions.

Schedule a Call
Related Articles

Black Friday’s Big Winner? Malls

Black Friday 2024 provided valuable insights into consumer behavior as we look ahead to 2025. Placer’s blog highlighted a +2.7% increase in Black Friday weekend visits compared to last year, with shoppers focusing on value while also seeking unique and differentiated products, evidenced by strong year-over-year trends at off-price retailers like HomeGoods, Marshalls, and T.J. Maxx. Pandemic-era categories like home furnishings and sporting goods may also be seeing signs of a resurgence.The standout takeaway, however, was the evolving role of malls. Mixed-use developments and placemaking, a key trend for malls heading into 2024, proved pivotal this Black Friday weekend. Open-air and indoor malls saw larger year-over-year visit increases (6.7% and 5.0%, respectively) than retailers across all property types (up 2.7%). This was a trend echoed by operators like Simon, further underscoring the mall’s continued relevance in modern retail.Retailers remain integral to malls, but seasonal attractions, entertainment options, and a more diverse tenant mix have transformed malls into community hubs and prime destinations for both residents and tourists. These attractions have a symbiotic effect, driving greater foot traffic to mall tenants compared to standalone stores of the same brands.Need evidence that this strategy works? Consumers are staying longer. Our data shows that open-air malls experienced a 7.2% increase in dwell time over Black Friday weekend, while indoor malls saw a 5.1% rise. As we've highlighted before, the longer consumers spend at a mall, the more likely they are to make a purchase.A strong box office undeniably played a role in Black Friday visit trends and dwell time. Our data shows a nearly 250% increase in visits to movie theaters this Black Friday compared to last year (below). However, the data also reveals that many malls with unique holiday attractions and effective marketing strategies experienced increased visits, indicating that mall traffic was driven by more than just blockbuster movies.Taken together, our data reinforces that malls have become more vital than ever to modern retail, evolving from traditional shopping hubs into multifaceted destinations that blend commerce, entertainment, and community experiences. Changes in tenant mix have introduced a diverse array of retailers, including digitally native brands, experiential stores, and unique local offerings, catering to broader consumer tastes. Increased visitor attractions, such as dine-in theaters, fitness studios, and immersive art installations, create compelling reasons that drive repeat visits for more than just shopping. Mall-focused events, from seasonal pop-ups to live performances, further enhance the draw by fostering engagement and creating a sense of occasion. This strategic evolution has positioned malls as essential anchors in the retail ecosystem, blending convenience and experience to meet the demands of today’s shoppers.

R.J. Hottovy
Dec 6, 2024