Darden’s CEO is careful not to grow too quickly. | Photo: Shutterstock.
Rick Cardenas, the CEO of the casual-dining chain operator Darden Restaurants, believes his company’s roster features plenty of concepts with “high potential for growth.”
But don’t expect them to be everywhere overnight.
“I want to remind everybody that we think growing way too fast is an issue in the industry,” he told analysts on the company’s fiscal second quarter earnings call on Thursday. “So our growth rates for any of our brands won’t exceed 10%.”
If this were still a print publication I would draw hearts around that quote.
Excess growth has killed more restaurant chains than excess debt. Companies push for more locations to generate quick returns for investors or to get first-mover advantage. But doing so can do more harm than good, pressuring operators to sign unfavorable leases in the name of growth, opening locations in markets before consumers hear about them or expanding beyond the company’s ability to serve those restaurants.
They also can hurt unit volumes if the demand isn’t quite there to justify the extra restaurants.
There have been multiple examples of brands that did this. MOD Pizza, the fast-casual pizza chain, opened too many poor locations too quickly, didn’t grow unit volumes and flirted with bankruptcy. The drive-thru salad chain Salad & Go opened a bunch of locations in Texas after initially thriving in Arizona and ultimately closed them.
Darden is hardly in any danger of doing any such thing or even approaching its 10% cap. Over the past 12 months, none of its restaurant chains have even exceeded 5% unit growth.
The leading growth company was Chuy’s, which Darden recently acquired. It added five locations, or 4.8%. Overall, the company added 30 net new locations, or just 1.4% unit growth.
But Darden has acquired chains over the years with an eye on growth, and not all have fulfilled that promise. Bahama Breeze, for instance, has closed more than a third of its locations over the past year and is now on the market.
Then there’s Cheddar’s, the bar-and-grill chain Darden bought in 2017. At the time, Darden wanted Cheddar’s to help generate growth as its major brands matured. The company has grown unit count by about 11% since then, including just three new locations over the past 12 months.
Cardenas, however, said that Cheddar’s has plenty of growth potential. He noted that its same-store sales grew last quarter. He also said that the chain has spent the past few years focused on improving turnover, which was “well, well above” industry average at the time of the acquisition.
The chain is now getting ready to increase that growth rate. “This is the year [Cheddar’s is] finalizing and building their pipeline,” Cardenas said. “So it might take a year or so before you start seeing a little bit more growth at Cheddar’s.”
By taking a more measured approach to growth, Darden is building brands for the long term, a crucial issue for full-service chains. It costs more to build and operate such restaurants, so they want to be careful not to grow too fast so some locations flame out and close, which can be costly.
Still, Cardenas says Darden has plenty of growth among its portfolio of companies. “We have a clear roadmap to grow our portfolio of iconic brands, which includes two dominant brands, three high-potential growth brands and several balanced brands that are leaders in their respective categories,” Cardenas said.
