Dine

Olive Garden's sales plunge on closed stores and limited alcohol: the BYOB problem

Friday, June 26, 2020 by Snacks
_When the takeout is Olive Garden, but the drinks are BYO_

When the takeout is Olive Garden, but the drinks are BYO

Short end of the breadstick... Olive Garden parent Darden Restaurants got it on earnings. In addition to the unlimited breadstick icon, Darden parents eight other restaurant chains, including Capital Grille and LongHorn Steakhouse. All its kids disappointed this quarter.

  • Sales plunged 43%, and Darden posted an Eggplant Parm-sized $480M loss (compared to a $209M profit last year). All of its 1.5K dining rooms were closed at some point in the March-May quarter.

Blame the booze... During lockdowns, 99% of Olive Gardens were open for curbside pickup. Takeout sales soared 142%, and 3X'd at LongHorn (Darden doesn't deliver). But that wasn't enough to make up for all the lost booze bucks.

  • Alcohol makes up around 30% of restaurants' sales. And that $40 bottle of Merlot you see on the menu probably cost the OG just $15.
  • Boozy beverages have around a 70% profit margin, so a restaurant makes 70 cents profit on each buck of price. Your $10 mojito cost $3 to whip up — the restaurant pockets a $7 profit.
  • During closures, restaurants lost their biggest profit puppy: alcohol. Lockdowns mean takeout, and takeout means BYO(cheaper)B.
THE TAKEAWAY

Big chains can survive and come back stronger... Darden stock jumped because it survived — 91% of its dining rooms are now open and it expects earnings will be positive again by 1st quarter 2021. Plus, it still has $750M in cash to weather slowdowns. Smaller biz isn't so lucky: 53% of restaurants that closed during the pandemic said they won't reopen. That wipes out a lot of Darden's competition.

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