The parent of Olive Garden and LongHorn Steakhouse is slowing the pace of its new restaurant openings, partly citing the macroeconomic trend of higher construction costs.
Darden Restaurants, based in Orlando, Florida, updated its outlook for its various chains' eateries during a fiscal third-quarter earnings call on Thursday.
For fiscal 2024, it expects to open 50 to 55 new restaurants, and rack up about $600 million total in capital expenditures. But in fiscal 2025, the number of planned restaurant openings will drop to between 45 and 50, with $250 million to $300 million in capital spending on them, according to Darden Chief Financial Officer Raj Vennam.
The move comes as other national restaurant chains, including Dine Brands Global, the parent of Applebee’s and IHOP, are looking to save money on real estate and supplies while driving more sales.
As of Feb. 25, Darden had 2,022 restaurants, including not only the Olive Garden and LongHorn chains but also Yard House, Ruth's Chris Steak House, Cheddar's Scratch Kitchen, The Capital Grille, Seasons 52, Eddie V's and Bahama Breeze.
The company's third-quarter sales rose roughly 7%, to $3 billion, driven by the addition of 79 Ruth's Chris Steak Houses and 53 other net new restaurants. Same-restaurant sales declined 1% for Darden overall and were down 1.8% at Olive Garden and up 2.3% at LongHorn.
Dual Branding
Dine Brands is looking to develop more dual-branded restaurants, blending some of its new Applebee’s and IHOP restaurants into one eatery under the same roof. Outback Steakhouse and the Cheesecake Factory are also looking for property efficiencies.
They are planning expansions and remodeling restaurants to capitalize on steady restaurant spending of the past three years after dining room shutdowns of the pandemic’s early months.
Last year, Darden struck a deal to purchase Ruth's Hospitality Group, Ruth's Chris Steak House's owner, for $715 million, expanding its brick-and-mortar fleet.
During the earnings conference call, Darden officials were asked about the 2025 projection for fewer store openings than in the previous several years.
"It is within our long-term framework over time, but it's lower than we'd like it to be," Darden President and CEO Rick Cardenas said. "We're going to keep working to get to the higher end of that framework over time. But it'll take a little bit of time. I would say construction costs were quite a bit higher than pre-COVID levels. And we have walked away from some deals because of the construction costs. And they've come back to us after we walked away. So, we're willing to slow it down a little bit to get a better result in the long term."
But the good news is at least construction costs have stabilized, Cardenas said. Supply-chain woes at one point were stalling completions, helping to drive up some of those costs.
"The other thing is, it's still taking longer to get construction starts than it was four years ago," Cardenas said. "It's also taking longer to get to completion than it was in the past. And so, if you think about the time it'll take to build a restaurant, it's longer than it was. A lot of that is driven by developers, utilities' hookups and time for permitting and also time for getting certificates of occupancy."
The Ruth's Chris acquisition also expanded Darden with an additional 77 restaurants this year, "so it gave us a little bit of a release valve to not be so aggressive if we didn't need to be aggressive [with] restaurant openings," Cardenas said.
About two-thirds of the new restaurants will be Olive Garden and LongHorns, with the rest from Darden's other chains, Vennam said.