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.
