When Darden Restaurants acquired Cheddar’s Scratch Kitchen, the story was all about growth.
The then Texas-based Cheddar’s, known for its affordable, scratch-made comfort food, had 165 units and “significant growth opportunities” when the Olive Garden parent scooped it up for $780 million in 2017.
With unit economics in the ballpark of Olive Garden and a trophy case of awards from Zagat and Consumer Reports, Cheddar’s looked like a slam dunk addition to the company’s stable of full-service brands. The synergies and scale the portfolio offered would only help accelerate its growth.
Six years later, after a bumpy introduction compounded by a business-altering pandemic, Cheddar’s finally appears ready to live up to those expectations.
Orlando-based Darden has picked up the development pace for the brand, opening seven restaurants in 2022 for a total of 179 Cheddar’s locations. Sales and average unit volumes are on the rise, and the chain is pleasing guests as well as it has in its 44-year history.
“When we bought Cheddar's, we thought they had a lot of opportunities ahead of them,” Darden CEO Rick Cardenas said during the company’s quarterly earnings call last month. “We still believe they have a lot of opportunities ahead of them.”
A rocky start
Getting Cheddar’s to this point was not easy. For its first few years under the Darden umbrella, the brand was a consistent laggard, posting quarter after quarter of negative same-store sales and barely growing total sales even as unit count increased.
Some of that was part of adjusting to life under its new owner, particularly for franchised locations that were being shifted to corporate ownership. The slow start was not unusual for Darden acquisitions—LongHorn Steakhouse, for instance, also stumbled when it first entered the fold, but is now one of Darden’s most consistent performers.
Cheddar’s, however, was shaping up to be a major project. In June 2018, the company laid out a plan to fix the chain with a combination of improved retention and training and simpler operations, a formula that had worked for other Darden concepts. It unveiled a new menu and changed its marketing strategy to boost Cheddar’s brand beyond its core base of regular customers.
“This is really back to basics,” then-CEO Gene Lee said at the time. “Cheddar’s is going to work its way through this, and it’s going to be a dynamic brand.”
Over the next two years, same-store sales continued to decline. Any progress was erased when the pandemic struck in March 2020. Systemwide sales fell 33% that year and Cheddar’s closed four restaurants after decades of unit growth, according to Technomic data. Darden stopped disclosing Cheddar’s same-store sales in earnings reports, instead grouping its results with other concepts.
Bouncing back
Like most full-service chains, Cheddar’s performance improved significantly in 2021 as pandemic restrictions eased and customers rushed back to dining rooms. Systemwide sales rose more than 30% that year, according to Technomic.
Pent-up demand from the pandemic obviously had a lot to do with that, and sales were still below pre-pandemic levels. But there were signs that underlying changes to the business were beginning to bear fruit. In March of 2021, executives revealed that simplifying Cheddar’s menu and operations had added 300 basis points to its restaurant-level margins. The next big hurdle to clear was staffing.
“We've got to build the bench strength so that we can get that system up and running,” Lee told analysts, according to a transcript from financial services site Sentieo. Once the chain had stronger management in place, he expected it to start opening new units at a 7% to 10% annual clip.
Fast-forward to December 2022, and Cheddar’s appeared to have made serious progress on the leadership front. That translated into four restaurant openings to close out the year—the most ever for Cheddar’s in a single quarter. Executives credited a suddenly bursting leadership pipeline for clearing the way.
“They … have been able to staff all of these restaurants with managing partners that have run Cheddar's [before], and we have a pipeline of more ready to go as we open restaurants,” CEO Rick Cardenas told analysts in December.
Meanwhile, Cheddar’s results for the year showed signs of organic growth. Systemwide sales rose 14% year over year, to $738 million, and AUVs increased 12%, to $4.2 million, according to Technomic data. Both were just off Cheddar’s 2019 figures of $743.2 million and $4.3 million, respectively, and came on virtually the same base of restaurants.
Not only that, but customers are feeling the effects of better staffing and execution. Cheddar’s guest satisfaction ratings reached an all-time high in Darden’s most recent quarter, according to the company’s internal data.
All of that has brought Cheddar’s into the role Darden always hoped it could play: growth brand. But the company will be careful not to move too quickly.
“The world is littered with brands that grew too fast, and we're very, very strategic on how we grow our brands,” Cardenas said last month. “The days of 10-plus-percent growth for a brand at Darden, that doesn't happen very much. And so with Cheddar's, we're going to be prudent.”
The plan is to open new Cheddar’s in the single digits annually to see how they do. The focus will be on existing markets, but Darden is eyeing new ones as well. And restaurant leadership will continue to be the key that unlocks new stores.
“As long as we have the people to do it, we can grow them,” Cardenas said.
Cheddar’s currently has locations in 28 states, with the bulk of them in Texas (52 units) and Florida (23).
Scratching out a niche
Cheddar’s unique place in the casual-dining landscape should aid its growth. In 2015, the chain changed its name from Cheddar’s Casual Cafe to Cheddar’s Scratch Kitchen to highlight a major competitive advantage: Unlike most sit-down concepts of its size, almost all of its food is indeed made from scratch. (The “Cheddar’s” moniker, by the way, came from a class of 5th graders, who were polled by founders Aubry Good and Doug Rogers for restaurant name ideas.)
Despite its more labor-intensive approach to cooking, Cheddar’s is known for its attractive prices—a point that Darden has sought to maintain at all of its brands. The average check at Cheddar’s is $16.50, according to Technomic. That compares to $16.37 at Chili’s, $17.05 at Applebee’s and $20 at BJ’s Restaurants. Every Cheddar’s meal comes with one of its popular Honey Butter Croissants, on the house.
Cheddar’s food quality and value have helped it build a particularly loyal audience. Shortly after the acquisition, Darden revealed that Cheddar’s had the highest guest frequency of any of its eight brands—and that the concept was little-known outside of that core group, prompting a new approach to marketing.
If the brand lost its way over the past six years, it appears to have found itself again in part by working those core attributes. Consumers ranked Cheddar's No. 1 for value, atmosphere and brand fit & loyalty last year, according to Technomic's Consumer Brand Metrics.
“Cheddar’s … [has] made significant improvements to their brand, significant improvements to service, and significant improvement to value; and customers see that,” Cardenas said.