Nobody in the late 2010s, as delivery tech really began to unlock the off-premises channel, had clear sight of the category’s future. Darden CEO Rick Cardenas, who began his career with the multi-concept group as a busser and became its fourth top executive in 2021, figured (as many did) guests would tap the channel for its novelty and eventually pull back due to high costs. But it’s proven a lot stickier.
The reason, Cardenas said, is customers aren’t looking at delivery so much as a lunch or dinner answer. “This is a need state for convenience,” he noted. “It’s a different occasion.”
Olive Garden has offered delivery in a handful of stores in recent years, but resisted from a larger, company-wide angle—it elected instead to focus on to-go and employee-fulfilled catering. In those units, however, of which there are “13 to 14,” the guests ordering delivery aren’t the same ones walking inside to eat. It’s a new moment in the purchasing journey. And that lends Darden to believe a wider rollout would drum up fresh business versus slicing from another channel. Or to put it differently, delivery would open the door to a host of customers who don’t want to get in the car and go pick up their food—people who aren’t considering Olive Garden because of just that.
Darden announced last Thursday morning an exclusive, two-year deal with Uber to begin offering Uber Direct delivery via the company’s own channels. So diners will go direct to Olive Garden and Uber will handle the delivery through its national network of drivers.
The first-party delivery pilot will start with a limited number of Olive Garden locations (five or six in one market) in late 2024 in hopes of pressure-testing the technology before ballooning to roughly 100 stores in Q2, being left through the holidays, and then, if all goes accordingly, Darden’s flagship will roll the service national by May 2025. That would give guests the ability to order delivery through Olive Garden’s website and app at more than 900 company-owned locations across the U.S. BTIG analyst Peter Saleh said in a note Friday delivery could drive 3–5 percent same-store sales once at scale.
This decision signals a major turn for Darden after opposing the strategy for years. Back in June 2019, now-retired CEO Gene Lee called the delivery arena “an immature business” and one that was more margin destructive than incremental. The notion was straightforward: Olive Garden’s off-premises sales had increased 9 percent that Q4, providing a two-year stack of about 18 percent. The brand generated growth without engaging aggregators and did so by letting its in-restaurant experience drive a compelling proposition outside the four walls. Essentially, value and quality created demand for to-go. Olive Garden didn’t want customers to shoulder the added cost burden of delivery. Or, as Lee said then, “… what percentage is the consumer long-term willing to pay of their overall check to have that convenience? That has to be proven out to me over time [before] that’s something that we want to do.”
Cardenas, Darden’s CFO at the time (he became president and COO in January 2021 before taking over the CEO post), was asking the same question as well.
Off-premises mix when Lee made that comment was about 15 percent of total sales. Today, it’s in the mid-20 percent range, without delivery.
Yet even with concerns stirring, Cardenas said, Darden held conversations with delivery partners about possible solutions “over the years.” Those discussions grew serious in April and teams started to work on systems integrations in May. “It was apparent to us that the solution addressed our concerns,” he said.
What were those main stress points? Firstly, Darden didn’t want delivery to affect in-restaurant experience (no couriers in the lobby crowding space). In this case, it pulled learnings from the growth of curbside and to-go during the COVID haze. Drivers with delivery are now going to pick up orders curbside in the same fashion to-go guests do today.
Olive Garden will also offer the same everyday menu prices for dine-in, pickup, and delivery.
The added cost for the latter will be transparent. What this means is Olive Garden won’t change the prices of its delivery offerings to cover margin. Rather, there’s going to be a $5 delivery fee for every order and a 5 percent service charge for the entire order. Cardenas estimates that will probably run “somewhere around $7” for a guest to have their food delivered versus picking it up. But, again, the key point is the price people see when they select their meal online will be the same as in-restaurant. It will be visible the extra fee owes to delivery and is tacked on.
Given Cardenas’ earlier comment about incremental and new-occasion guests, this is a critical factor to protect the brand’s overall value proposition and how it presents itself. Olive Garden doesn’t want somebody ordering for the first time to think it’s that expensive normally.
Another big difference between delivery and the current catering channel is Olive Garden won’t set up trays in somebody’s house.
And aside from alcohol and a rotating offer like Never Ending Pasta Bowls, all food items will be available for delivery.
The tip on delivery orders will be shared by Olive Garden team members as well. “We believe that it’s a win-win for everybody,” Cardenas said. “If a consumer wants the convenience of delivery, we believe they should pay for that convenience in a transparent way. Today on [the] third-party marketplace, a lot of the consumers are paying for it in a very untransparent way. They see a menu price that they may not realize is much higher than the menu price in the restaurant. We were clear that we didn’t want that.”
Additionally, delivery is going to come at zero incremental cost to Darden. Olive Garden today does about $1 billion in to-go sales. And so, if it were to transfer a good bit of that to a third-party marketplace without the charge being taken on by someone other than the restaurant, it would present a major margin disruptor unless hugely incremental (enough transactions to balance the hit, which would be unlikely).
As for demand, Cardenas said customers have been asking for small-order home delivery from Olive Garden for a good while. Saleh said about 80 percent of current takeout orders are small orders.
And the “delivery guest” has proven willing to pay for convenience. Olive Garden simply wasn’t on their radar.
The company’s proprietary capacity management tool will remain in place, too, which allows Olive Garden to manage volume so it doesn’t negatively impact restaurant operations. “To-Go Specialists” will continue, as noted, to earn tips on delivery orders as they do with curbside.
Pretty much every Olive Garden nationwide offers to-go currently. Nearly all have curbside, outside of certain spots, like Times Square in New York City, where it doesn’t fit (that store already has third-party delivery). “What we wanted to be clear is that this is a curbside experience no matter what,” Cardenas said. “If a guest orders to go and they want it delivered, the only difference is somebody else is picking it up for them curbside, just like today.”
Also, inking an exclusive deal with Uber versus opening to the aggregator masses, will enable Darden to strengthen and defend its competitive advantages of scale and data and insights, Cardenas said. In plain: since guests order via Olive Garden’s portal or mobile app, Darden keeps the data.
“Overall, we view this as an incremental long-term sales driver,” he said. “This is a first-party delivery, not third-party delivery marketplace. It will take time for us to build sales.”
The two-year deal with Uber gives Darden the ability to expand delivery to other brands if desired. So while Olive Garden will be the day one focus, LongHorn, Yard House, Cheddar’s, Ruth’s Chris, Capital Grille, Seasons 52, Eddie V’s, Bahama Breeze, and soon (mid-October close expected) Chuy’s, are potential options, although, naturally, some are more feasible than others; it feels far-fetched Capital Grille will soon be delivering 14-ounce Boneless Prime Ribeyes.
“We do have the ability to pilot other brands even in this fiscal year,” Cardenas explained. “We just want to make sure that the systems work, that we have pretty seamless experience for our guests and for the drivers and for our team members, so that we know this works really well. And then, we have the ability to pilot at other brands. And we already have the different pricing options from Uber for every one of our brands. Not that every one of our brands are going to be on this first-party delivery, but we do have the ability to put it in other brands and that’s going to be up to those brands to decide that they want to do it.”
Darden does not plan on advertising through Uber Eats for Olive Garden. As it reaches scale, it can leverage other channels to drive consumers to its websites and mobile apps. But when a diner goes to place a To-Go order, they’ll see the option for delivery. Cardenas said there are a lot of people who show up direct searching for the option. That’s where Olive Garden will start. Delivery is going to be available on the website before expanding to the app.
Presently, about 60 percent of Olive Garden’s to-go orders are digital (either online or app).
The brand also has 17 million-plus members in its eClub. So once it gets started, Cardenas expects awareness to build.
“As we’ve always said, there are things that we don’t like about third-party marketplace,” he added. “One of them is a market. I mean, if you think about marketplace and reason maybe a lot of these folks are sourcing their delivery through that is it’s really a marketing channel. We’re really strong marketers. We’ve got money we can spend in marketing that maybe others can’t. It’s also a technology channel and we’ve got a great technology team. Some of these brands that are sourcing, maybe sourcing, because that’s the way they can and we have other ways to do it.”
Darden’s total sales in Q1, which ended August 25, increased 1 percent to $2.8 billion thanks to 42 net new restaurants. Blended same-store sales declined 1.1 percent, year-over-year.
Olive Garden’s comps dropped 2.9 percent, underperforming the industry benchmark by 40 basis points. However, its same-store sales a year ago rose 6.1 percent. So its two-year stack of 3.2 percent actually exceeded the sector by 480 basis points.
LongHorn’s same-store sales gained 3.7 percent to best the industry by 620 basis points, building off a lap of 8.1 percent. The fine-dining group declined 6 percent and “other business” dropped 1.8 percent.
