While most restaurants have turned to delivery options to increase profits, there are still a few that have opted out.

Darden (NYSE: DRI), the parent company of such banners as Olive Garden and Longhorn Steakhouse, is one of them. The full-service restaurant mogul told investors on its first-quarter 2023 earnings call this week that the decision not to offer delivery has protected it from a negative impact on margins.

“Because the margin is pretty much the same for us on offsite and onsite, since we don’t have a shipping fee, we’re fine [the on-premise/off-premise mix] ” said Rick Cardenas, president and CEO of Darden.

Cárdenas acknowledged that some of the company’s brands still have less traffic than before COVID-19. But he said the reduction was being offset by a rise in warehouse sales. For the quarter, off-premise sales — mostly takeout and catering — accounted for just under a quarter (24%) of Olive Garden’s total sales and 14% of Longhorn Steakhouse’s.

“For two consecutive quarters, we’ve seen flat levels outside of businesses,” said Rajesh Venam, Darden’s senior vice president, chief financial officer and treasurer.

Because Darden brands do not offer any form of shipping, they are not susceptible to fluctuations in shipping demand that can hurt margins. These fluctuations can be more volatile than demand for food, which is usually the cheaper option and more insulated from factors such as inflation that hold back consumer spending.


Read: This technology could change the world of food distribution

Read: Amazon sued for removing Whole Foods’ free shipping from Prime


But compare the sales of Darden’s brands to those of other restaurant brands, and you’ll see that parent companies Olive Garden and Longhorn Steakhouse stand in stark contrast to the industry as a whole.

2020 year the report from the National Restaurant Association found that 71% of operators saw an increase in off-premises sales as a share of total sales following the COVID-19 outbreak. 2022 year the report echoed these findings – 80% of operators said they expect off-premises sales to remain flat or increase in 2022.

Consumer data supports this sentiment. The same report found that more than half (54%) of adults surveyed consider grocery shopping or delivery “essential to their lives.” I research of Pymnts found that 43% of more than 2,600 respondents in the U.S. order food through same-day delivery apps like Uber Eats or DoorDash every month. More than half of them order once a week.

Meanwhile, 2022 survey from Technomic found that 64% of meals ordered at US restaurants in 2021 were either take-out (43%) or delivered (21%). This means that only 36% of orders are fulfilled on site. By ditching shipping, Darden is entering the smaller of the two markets — local orders account for about 80% of total orders for some brands.

Why, then, did Darden refuse to increase off-premise sales through shipping? Comments from company executives indicate that the company is concerned about the unit economics of small deliveries.

“At this point, we’re not interested in delivering a $10 lunch … to an individual family,” Gene Lee, Darden’s former CEO, said on the 2018 earnings call. “We don’t think that’s a business we want to be involved in right now.”


See: No signs of easing food price inflation


The position of the company has not changed with the new management. A year ago, when asked if the company was reconsidering its resistance to shipping proposals, a Darden executive answered with a simple “no”.

It was reported in 2020, Darden experimented with a delivery option, but still found the economics worrisome.

“We tested it by doing our own delivery [but] found it really ineffective,” Lee said. “We really haven’t seen third-party supply grow faster than our own self-service business. We don’t expect a third-party delivery model to launch.”

This takeaway business works a little differently than most third-party food delivery apps. For Olive Garden, it mandates a minimum basket size of $75, which was reduced to $50 during the pandemic.

Cárdenas believes these orders are more reliable than orders from third-party vendors, which attach additional shipping fees, which he believes will put off some customers.

“If the consumer starts to feel more exhausted, will they be willing to pay for food delivery at the same price?” he asked in June. “Do they just decide to go get it?”

We’ll soon see if Cárdenas is right to be skeptical. With inflation rising, third-party delivery volumes could take a hit, so keep an eye on upcoming earnings reports from companies like Uber, DoorDash, and Grubhub.

You may also like:

Uber and United Nations join forces to deliver food to war-torn Ukraine

Digitizing supply chains would reduce food waste, says Hwy Haul CEO

Drone delivery helps in the stadium

https://www.freightwaves.com/news/why-olive-garden-longhorn-steakhouse-refuse-to-deliver

Previous articleThe craze for stealing Kia, Hyundai is causing problems
Next articleMozilla claims that Apple, Google and Microsoft force users to use their default web browsers