Low prices, young diners fuel Olive Garden comeback

ORLANDO, Fla. – What a difference three years makes for Olive Garden, a chain once bashed in a 300-page report by an activist investor for poor food quality and being wasteful.

The once stodgy Italian dining chain has made a financial comeback with help from two unlikely sources: young diners and carryout meals.

Olive Garden and its Orlando-based parent company Darden are now back on top of the restaurant world, with the chain recording 11 straight quarters of same-restaurant sales growth. Darden's stock price is at an all-time high and about 150 percent higher than three years ago.

And those elusive millennial eaters who were supposedly ditching Olive Garden for hip, independent restaurants are actually part of the reason.

CEO Gene Lee said that millennials are 30 percent of Darden's customers, compared with just 24 percent of the population.

"Believe it or not, millennials still want to come to restaurants," Lee said during a call with investors last week. "People still want to come to restaurants and have that experience. And we've just got to provide them the right experience and the right value."

Young consumers haven't completely abandoned the habits of their baby boomer parents, said Christopher Muller, a former UCF restaurant professor who now teaches at Boston University.

While Olive Garden performed well during the Great Recession as consumers looked for value, sales dropped starting in 2012. The chain's same-restaurant sales decreased 10 times in 12 quarters between 2012 and 2014. The chain was criticized for having a bloated menu and losing customers to fast-casual chains that offered quality food at lower prices.

Every brand struggles as it reaches maturity, Muller said, and Olive Garden has reached that point.

But Olive Garden, he said, has rebounded by being efficient, cutting the menu down to core pasta dishes and keeping prices low.

"If you look at the menu a lot of the prices are the same as they were 15 or 20 years ago," he said.

Orlando's Joe Sarrubbo, 41, said price and consistency are a big reason he continues to eat there.

And Sarrubbo said the students he works with are drawn to the low prices as well, even if they might prefer independent restaurants.

In the last three years, Olive Garden has also introduced a series of low-priced menu items, including unlimited soup, salad and breadsticks for $7.

"Olive Garden is really after that value consumer," Lee said. "[Customers are] looking for everyday value, and that's something that we continue to promote."

Meanwhile, Olive Garden's competitors in the Italian dining segment have struggled. Romano's Macaroni Grill is closing restaurants.

Carrabba's Italian Grill, based in Tampa, saw its same-restaurant sales drop 2 percent in the first quarter compared to a year ago.

Muller said other sit-down restaurants have struggled to stand out, especially bar and grill style eateries.

Olive Garden launched a remodel of its oldest restaurants in 2014. The chain has continued to remodel many of its restaurants to give them a cleaner, more modern look. Newer restaurants are also getting refreshes that expand the bar area and update some of the interior elements.

Lee's strategy since taking the lead at Darden three years ago has been to simplify operations, cut costs and use the company's buying power to keep prices low for consumers.

Olive Garden has also seen a big boost in its takeout business while much of the industry grapples with third-party delivery.

In the last quarter, takeout business was nearly 13 percent of Olive Garden's total sales. Takeout orders are also up 58 percent in the last years.