When the coronavirus upended the restaurant industry in spring 2020, CEOs scrambled to inform stockholders of the extraordinary measures that were being taken to protect their investment. Gene Lee, head of Olive Garden and LongHorn Steakhouse parent Darden Restaurants, was no exception. But he somehow managed to find the time and energy to address a constituency often left off the memos and presentations of other companies. Indeed, those stakeholders’ only communication was often a notice they’d been fired.
“To our furloughed team members: hang in there. We will get through this,” Lee reassured the company’s workforce in a statement issued in early April, right as the full force of the crisis was hitting. “And when our dining rooms reopen, we will be together as a family once again, ready to deliver exceptional experiences to our loyal guests.”
“Continuing to attract and retain the best talent in the industry will be critical to our success.”
The communications with employees, furloughed or on active duty, would continue as Lee led his charge through a situation that was unimaginable even for an industry lifer like himself.
Team members learned that Darden would provide employees with various forms of aid for persevering through the pandemic. Those measures included the adoption of a permanent paid sick leave policy, a three-week emergency pay plan and a small outlay to help unit-level workers cover such expenses as transportation and childcare.
Close readers of the communications also learned, typically far down in the copy, that Lee was forgoing his own salary to channel a few more dollars to employees.
"We invested over $100 million in that short period of time into our team members," Lee told financial analysts. Months later, after industry conditions stabilized and Darden’s sales roared back, he went back to Wall Street with the news that Darden was splitting $17 million among its hourly employees as a thank-you bonus. It also decided to bump wages up to a minimum of $12 an hour across the system.
Lee was no Mother Teresa. Despite his pledge to protect the workforce, he cut Darden’s headquarters staff mid-pandemic by 250 people, albeit mostly through early retirements and buyout packages. Among the involuntary departees was operations guru Dave George, a friend with whom Lee lunched at least once a week.
Rather, Lee was convinced after a multidecade career in full-service restaurants that outstanding employees, not Olive Garden’s Bottomless Salad Bowl or a LongHorn ribeye, would be what kept Darden’s restaurants busy long after the nightmare of COVID-19 had faded into memory.
“Continuing to attract and retain the best talent in the industry will be critical to our success,” he declared to Wall Street.
Now Lee will be watching from the boardroom rather than the CEO’s office as his theory is tested. After 46 years in the restaurant business, starting as a busboy and dishwasher for the now forgotten York Steakhouse chain, the Massachusetts native has announced he’ll retire as CEO in May. He’ll be succeeded in that role by another ex-busboy, Rick Cardenas, whom Darden had appointed president a year ago in what now appears to be a bit of deliberate succession planning. Lee will remain Darden’s chairman.
Lee’s take on labor won’t be the only one of his slightly contrarian convictions that will be fire-tested as the industry pushes into Year 3 of the pandemic. He has never been completely in line with the industry’s thinking on a number of matters, including ...
Delivery. Most of Darden’s direct competitors, including Outback Steakhouse parent Bloomin’ Brands and Chili’s owner Brinker International, were quick to embrace that costly off-premise service as third-party services started appearing. Others, like Texas Roadhouse or Del Frisco’s, said they’d rather go vegetarian than follow the pack.
Lee kept Darden somewhere in the middle. The company saw no reason to vie with everyone else for a $15 order when you’re giving 20% or 30% back to a third party for consummating the deal. Instead, it took an approach that was closer to catering. Yes, Olive Garden would bring a meal to your home, driven by an employee. But the sale would have to be in the triple digits, and you’d need to order it at least a day beforehand.
The company has since tempered that stance. The minimum for an order has dropped to $50, and guests can put in their order as late as 5 p.m. the preceding day.
Darden even experimented with third-party deliverers during the pandemic, but the numbers didn’t pencil out to Lee’s satisfaction, and it reverted back to using its own employees as the haulers.
Meanwhile, the company is likely hoping that Lee was very, very wrong on one of his more controversial utterances, a prediction in March that off-premise business would flag as restaurant dining rooms were reopened. “As we get to offer more capacity and we see this in individual restaurants, the off-premise will start to fall off,” he said at the time.
Lee certainly thinks that was a misfire. “A lot of you guys disagreed with me,” he told financial analysts, referring to his prediction. “I think you were right. and I was wrong. This was stickier than what we thought.”
Virtual concepts. Virtually every other operator of a casual-dining chain, from Bloomin’ to Brinker to BJ’s Restaurants to Applebee’s parent Dine Brands, is embracing the mega-trend. Even Texas Roadhouse—a chain that had cursed and spit when someone mentioned delivery—acknowledges that it’s looking at the phenomenon.
But not Darden. Or at least not a Darden run by Lee.
“For us, this is not the right approach,” he told financial analysts. “We want to focus on brands that we've got 20-plus years and hundreds of millions of dollars invested in trying to build. And we want to make sure that they're executing at a high level.”
Handling a rough marriage. No, we’re not going into Lee’s personal life, other than to note he’s one of the more rabid Bruce Springsteen fans we’ve encountered in the business. Rather, a focus of Darden watchers in the next few months will be how the company manages the rocky integration of Cheddar’s Scratch Kitchen, the casual chain acquired by the company at Lee’s direction in 2017 for $780 million.
Efforts to rejuvenate the brand, in part by transplanting Darden’s management strategy and technology to the operation, have failed to bring Darden-scale results. Management problems had been seen as the issue, but they’ve been addressed.
Now it’s a matter of what Cardenas can do to invigorate Lee’s acquisition.