Any limited-time offer risks being perceived as a gimmick, and it looks like Olive Garden wants to re-up its image as a high quality, dine-in destination.
— Kristen Hawley
Olive Garden is dropping its popular “Buy One Take One” offer this quarter, a sign that restaurant chains are willing to sacrifice some customer traffic in order to wean themselves off promotions.
The company is pursuing an everyday value strategy, meaning it wants customers to feel like they’re getting a good deal on their food without a special offer, according to the Italian chain’s parent, Darden Restaurants Inc. The Buy One promotion had let customers order one meal to eat at the table and then receive a second one for later at home.
“It may have have a short-term impact on traffic,” Darden Chief Executive Officer Gene Lee said on a conference call Thursday. But he expressed confidence that the chain could absorb the hit. “I’m encouraged by Olive Garden’s momentum,” he said.
The move is a gamble for a business that posted disappointing results last quarter. Both Olive Garden and LongHorn Steakhouse, Darden’s two biggest brands, posted smaller comparable-sales increases than analysts predicted. Harsh winter weather hurt results in January and February, the company said.
The tepid performance sent shares of Darden down as much as 7.7 percent to $86.10 on Thursday, marking the worst intraday decline in more than five years. The stock had already fallen 2.8 percent this year before the latest tumble.
Restaurants are shifting away from limited-time deals to focus on what’s available on a daily basis. Chili’s recently changed its loyalty program to always offer a free drink or chips-and-salsa appetizer.
In all, Olive Garden is cutting its promotional offers from nine to six this fiscal year, so the deals aren’t disappearing altogether. The chain is currently offering $8.99 dinners for those who dine between 3 p.m. and 5 p.m. Monday through Thursday. It’s a time when the restaurants aren’t typically busy, management said on Thursday’s call.
Olive Garden and other chains also are grappling with higher labor costs, one reason why they may have to cut back on aggressive promotions. Wages are climbing, and U.S. unemployment is near a record low.
To help keep workers happy, Darden plans to invest invest $15 million in its workforce after the U.S. tax-rate overhaul.
“We are seeing a shift across the industry, just because companies are trying to absorb labor inflation,” said Mizuho Securities analyst Jeremy Scott. “The concern is the short-term impact.”
The new spending is on top of the $20 million labor investment Darden already announced in January. The additional spending will improve the customer and employee experience, management said on the call, without giving more details.
“There needs to be some investment in some of the non-wage factors — so the benefits — in order to get that employee retention up and turnover down,” Scott said.
©2018 Bloomberg L.P.
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