Darden Restaurants Inc. Report

Organizational overview

In 1938, Bill Darden saw the potential and opportunity of opening up a restaurant. He materialized his dream by opening a 25-seater restaurant which he called The Green Frog, named after a hopping frog, for that was what its service was.¹ In the years that followed, the company Darden Restaurants was patronized by customers who saw the comfort of casual dining and soon it spread all throughout the many states of North America.

Darden Restaurants Inc. is now the number one company whose strategy involves casual dining. It is a publicly held organization with an estimated $5.2 billion in annual sales, with about 1,860² restaurants all scattered in almost all states across the United States and Canada, and a workforce of about 180,000. Its restaurants are named according to its specialty, such as Red Lobster, Olive Garden, Smokey Bones, etc.³

Red Lobster, which was a brainchild of William Darden in 1968, specializes in seafood. The progress of Red Lobster has been fast and astronomical because in 2005, sales reached $2.4 billion, registering an upward sales trend of 7.2%, with average sales reaching $4.4 million.⁴

There are now 670 Red Lobster and 748 Olive Garden restaurants. Darden restaurants are their brands with unique food specialties. Darden Restaurants Inc. own and operate their restaurants in the United States, but they also have subsidiaries across the globe managing the restaurants.

The top management realized the importance of partnerships. For this, they have joint ventures in other countries, like those in Puerto Rico and Japan which has 22 Red Lobster restaurants.⁵

Darden does not allow franchising to its hundreds of restaurants. They do partner with local restaurant companies in other countries. With respect to earnings, the management has promised to increase earnings per share (EPS) and new methods in their restaurants to increase profits.

One of these methods is diversification. They also have plans to penetrate school campuses and airports where they will apply combinations of restaurants, for example, Red Lobster and Olive Garden under one roof.⁶

Major Competitors

Restaurant business is a competitive business. There are young and sprouting restaurants in every place available because people love food. But there are competitors with a brand of their own.

Darden Restaurants’ competitors include Carlson Restaurants Worldwide (CRW), a subsidiary of conglomerate Carlson Companies, which, like Darden, also strategizes on casual dining and has hundreds of restaurants across the United States and in more than 60 countries around the world.

It has various specialties and menu selections including seafood. CRW’s strategies include franchising. Their seafood business is fast becoming popular, which is a threat to Red Lobster restaurants.⁷

Another casual-dining restaurant chain is owned by The Cheesecake Factory Inc. It is not quite as big as Darden Restaurants but its strategy and products can be a cause for concern to Darden. It has 160 casual-dining branches with various menus that include steaks and seafood.

Cheesecake is a specialty that comes in many varieties and may create revolutions in customers’ palates. Their strategy and theme are opulence and the Las Vegas style showmanship. The Cheesecake Factory also supplies desserts to stores and restaurants in various places.⁸

Cracker Barrel Old Country Store, Inc. is a major competitor of Darden Restaurants. It owns and operates about 600 branches nationwide and offers specialties like chicken, ham and beef dishes, but does not offer seafood. Aside from food, Cracker Barrel also sells glassware, cookware and other non-food products.⁹

Strategic Assessment

External Analysis

Restaurant business is complicated business that has to be applied with almost all sorts of strategies in the marketing mix, for example advertising and promotion, product, prices, and places. Restaurant business is also management- and capital-intensive and brings along with it high capital requirements.

The food industry is also affected by globalization. In globalization, some traditional processes have remained but governance and structural arrangements in corporations are somewhat affected. Some differences include the structural set up: the top managers and their boards now assume functions different from traditional firms.

The structure and functions with respect to the roles of top managers and the board, the CEO or the managing director, and the composition of the board are the same as in traditional firms. The changes are rather pronounced because the scope and the geographical considerations are big and different from organization of proximity.

Traditional multinational corporations are different from global firms. While both the traditional and the new global firm handle a large organization with respect to geographic consideration, their structure is different. Global firms conduct business differently, with the use of the Internet and other technology. There is a wider scope and things are more unpredictable, faster and very competitive.¹⁰

Darden Restaurants and many of its competitors conduct a common practice in the service and hospitality industry, which is diversification. There are many reasons why companies diversify; the following are some of these reasons:

• Risks on low ROI are earlier dealt with especially in a volatile environment like the restaurant industry
• Increased profitability
• Growth for the company
• Resources and capabilities are well applied and spread
• Synergy for the company is created
• New knowledge and new technology for the workforce are attained
• Increase in competitive advantage¹¹

Porter’s Five Forces

The restaurant industry’s growth did not show good performance in 2007 due to some factors, like lower consumer spending and the economic crisis. But after this, Darden easily recovered from the economic crisis with higher sales in 2009 and 2010.

Darden Restaurant’s strategy emphasizes value-added chains, a product of innovation and corporate strategy. Sea-food suppliers across the United States and other countries have been briefed on such concepts of value-added chain that includes food quality and consistency which requires little amount of kitchen preparations.¹²

Porter’s five forces will also shape the entry of Darden Restaurants to a foreign country. Profitability will be determined by these five sources of competitive pressure.¹³

Threat of New Entrants

There are many casual dining restaurants in the United States, Canada, and in other countries in which Darden Restaurant would want to penetrate.

The entry of Darden will be a threat, although this will depend on the kind of service and the products Darden will introduce. Existing restaurants composed the competitive forces, but with the reputation and quality service Darden provides, this may not be a problem.

Casual dining restaurants with seafood as specialty are also proliferating across the United States and other countries.

Bargaining power of suppliers

There is an abundance of suppliers. Darden Restaurants are in close relations with suppliers. Seafood suppliers from ports and places across the United States, Canada, and other countries have been briefed on the quality of products they provide the restaurants. Quality is not sacrificed in exchange for quantity. In other countries, products come from local suppliers.

Bargaining power of buyers

Restaurant customers are meticulous when it comes to product choice, prices, quality and taste, and so forth. To thrive in this business, management has to outsmart customers because you cannot control people’s tastes and preferences. At Darden Restaurants around the world, managements recognize the power of buyers or customers. Their tastes are important.

Threat of substitute products

This is one of the problematic areas that Darden Restaurants will have to tackle. Local products in subsidiaries will be a major threat. Local products are cheap. But this can be solved with Darden’s partnership with local firms.

For example, in Japan Darden has partnered with well-known restaurants that serve local menus. Darden has introduced seafood in Japan. But Japanese people are fond of seafood and it was not so difficult with Darden to penetrate. Darden’s partners took care of the problem by introducing Japanese menus.

Cultural Dimensions

The management will have to adjust to the multi-culture of Darden. When entering different countries, Darden management and employees have to adjust to different cultures, particularly the customs and traditions of the country and the organizational culture that the branch will develop.

SWOT Analysis

This provides an analysis of the macro environmental trends employed by Darden Restaurants. The company has remained the lead.

Strength

The restaurants or brands are the company’s strength. The Red Lobster was started in 1968 and today it is the largest seafood restaurant serving about three million customers weekly, and never stopping.

Darden promotes team building. There are teams that management form as the situation and opportunities demand. Each team is given leeway and freedom and the members are allowed to function at their own free will, but each member is responsible to the team.

This is an effective strategy of Darden considering that without teamwork, they cannot provide good service to the public. This has made the company strong; it is an innovative way of direct personal contact with low-rank employees, with no job titles while everyone are treated equal.¹⁴

Supply chain is another source of strength. Darden partners with suppliers who can supply fresh, quality seafood and other products Darden serves in their restaurants.

The hundreds of restaurants which serve roughly 325 million meals annually have to be applied with effective IT software. Application of Information Technology has improved operations for Darden. In 2007, Darden acquired a new point-of-service (POS) system from Microsoft.

Its hundreds of restaurants have to be serviced with fast and efficient software that could provide reliable and fast information service. Microsoft improved Darden’s operations, which means improved POS service, lesser time in applying the devices to the far-flung restaurants, and millions in savings due to low maintenance costs.¹⁵

Right after the recession, Darden introduced several strategies to increase customer loyalty. They offered special coupons and meal deals, strategies which were effective and have to be applied even up to today.

Darden has also improved their quality of service in answering to competitors’ value-based strategies.

As said earlier, Darden’s strength comes from its brands, which means the restaurants. A brief analysis of the restaurants’ background can give us a glimpse of this purported strength. Olive Garden is based on Italian casual dining, and it is one of the major sources of profits for the company.

In 2010, it generated $3.32 billion in average sales. Red Lobster is Darden’s original restaurant which has hundreds of branches all throughout the United States and Canada. For each restaurant, Darden gained annual average sales of $3.6 million.

LongHorn Steakhouse caters to a broad segment of the population in a particular state. LongHorn has opened up more than 331 restaurants in the United States and its annual sales have been estimated to reach $882 million. Other restaurants are also performing well and they are: The Capital Grille, Bahama Breeze, Seasons 52, and many more.¹⁶

Weakness

Some of Darden’s brands are not providing profits for the company. Olive Garden was said to be not producing the expected profits. Darden reported a 6 percent decline in profits in 2010 which was unexpected by Wall Street. In 2009, the company reported that its income was $122.8 million, but this came down to $116 million in 2010.¹⁷

This trend shows the volatility of the restaurant business. Competition and other external factors like the changing mood (or taste) of the customers are one of the causes why this kind of business has to be dealt with like a parent looking after a child.

Opportunity

Red Lobster’s campaign is an opportunity to showcase to the world the many benefits of seafood and patronize Darden Restaurants’ products. This campaign also focuses on Darden employees. The commercial shows Jon Forsythe fishing for crabs in Alaska fishing, and Charles Himple, presiding over an oak-wood grill in one of the Red Lobster branches.

Art work has been designed by Annie Sessler. This opportunity will allow Red Lobster to make use of two of the most important social media in the Internet today, Facebook and YouTube. Grey New York, part of the organization Grey Group, created the commercial.¹⁸

For the years ahead in the twenty-first century, Darden has big plans. Growth will have to be examined discreetly since the restaurant business is a competitive business. Application of the POS system by Microsoft has seen a great opportunity for Darden.

The aging one had to be replaced with a new fast and efficient POS, one that could provide visibility when the manager is far from the people he/she is managing. The system was down and this was solved by Microsoft.¹⁹

Threat

There are many restaurants offering the same strategy as Darden’s casual dining. Restaurants which are considered small-and-medium scale enterprises offer low prices and quality food. Quality food means healthy food which Darden has to introduce in its various menus.

Consumers of the new millennium are choosy when it comes to food. People are concerned now of what they put into their mouths because of the various ‘new’ illnesses that have plagued humanity in the new millennium. Diabetes, high-blood pressure, obesity are caused by fatty foods.

Corporate level strategy

Darden’s strategy truly matches current potential markets. Everyone is a customer in the food industry. And no one takes food for granted. Once there is something wrong with the service, customers go away, they spread the news, and for all you know, nobody is entering to eat in your restaurant.

Darden’s corporate strategy is focused on customer tastes and perceptions. This is true with all of its restaurants. Customer satisfaction is vital. Customers want to be understood. Darden is also service-oriented and doesn’t want to take customers for granted.

If there is something wrong with a branch or a restaurant, meaning profits are low, top management find it discomforting not to take any action right away. They focus on customers’ complaints and supply chains. These two can reflect satisfaction and loyalty. Supply chain management and customer focus can attain customer satisfaction.

Although Darden focuses on profits, they don’t take it as a priority. Once customer loyalty is attained, profits are not far behind. Restaurants compete to gain more customers, and one of obtaining more customers is to win their trust, meets their needs and wants, and make sure they come back. A lifelong partnership between a restaurant and customers can make the company last lifetime.²⁰

Darden’s prices are also competitive. Customers look for the price of the product and do not care about sales pitch of sales people. Consumers are concerned of the value they are receiving of the money they are spending.

Darden is flexible in dealing with customers – each restaurant has the ability to change and react to customer perception. Rapid changes in the product mix, delivery, and volume should meet customer’s specification.

Darden’s position in casual-dining segment ensures long-term growth. It has long introduced effectiveness in servicing customers, and in other product mix such as distribution, pricing, and promotion.

There is also a conceived expertise in operations; the hundreds of restaurants across the world are owned and operated by Darden Restaurants Inc. They introduce a brand of management and even real estate development to local and overseas branches. The flagship restaurant Red Lobster is well managed while others are also leaders, such as Capital Grille, Bahama Breeze (with its Caribbean theme) and Seasons 52 chains.²¹

Acquisition is one of the reported drivers for growth for Darden. Bahama Breeze and Seasons 52 are some of Darden’s new thrusts for the coming years. This means Darden will push for expansion in these restaurants. In some areas in the country, Seasons 52 has opened up restaurants.

Darden is seen as focusing on Seasons 52 because it has produced more sales per restaurant. It also means that the brand has some appeal to the general public.

LongHorn Steakhouse, which was acquired in 2007, was not producing much profit and did not have good performance for Darden. Fifty-four Smokey Bones restaurants were sold by Darden in 2007 for slow growth. There were several of the same restaurants that had remained for Darden to dispose of.²²

Business level strategy

Business has to satisfy customer needs and wants. The marketing concept states that an organization should provide products that satisfy customers’ needs through activities that will also allow the organization to achieve its goals. The marketing concept begins and ends with the customer.²³

Darden’s business strategy focuses on people and the product or food they value. By focusing on this type, the company surveys and determines the taste of their customers. An added aid to this type of strategy is through experience. Through years of experience, they have known what their customers like to eat.

The seafood industry is a growing industry and this is what Red Lobster has been able to tap and nurtured through the years. Red Lobster is one of the profit-generating restaurants of Darden. Darden, through Red Lobster, has shown to the world that America is a seafood lover.

From the time it was ‘invented’ and introduced to the public, Red Lobster has never waned and has provided a lot of benefits to the company by way of increased profits. Through Red Lobster, the company says that they now have a unique story to tell.²⁴

The company has seen this potential of Red Lobster so that it has focused one of its ad campaigns to promoting Red Lobster more, increasing awareness of the customers on the benefits of seafood and also focusing on the workers’ contribution as one of the strengths of the organization. The company spent more than $38 million on the ad to promote Red Lobster and the workers behind the success of the brand.

Another brand of Darden is Olive Garden, which is said to be a sibling of Red Lobster’s. When the company noticed that Oliver Garden had been slowing in customer perceptions, Darden management changed the dishes with more familiar menus, the ones already patronized by long-time customers. Promotions and ads were introduced and Olive Garden has been recovering and in the lead again.²⁵

A remarkable strategy that Darden has introduced is the use of emails to customers. They utilized this to encourage email recipients to visit Red Lobster on a particular night. This proved to be effective. They also used this technique in soliciting donations for the victims of the September 11 attacks.

The use of emails, websites and mobile technologies is a welcome move for global firms in the new century. It is cost effective, fast and accurate.²⁶

Darden’s website is a state-of-the-art website, an IT application for a leading company in this age of intense globalization. This is one of the strategies corporations or multinational firms employ in this era of information revolution.

Websites are the windows of organizations wherein they can showcase their products and services and answer to the complaints and questions of customers and clients. It is also through the websites that businesses and organizations can post advertisements.

The Internet is one of the most important discoveries and a fascinating phenomenon that have changed the way people conduct business and communicate. With just a computer with Internet connection, one can communicate with anyone who may be in the other side of the globe.

Effective communication and faster transportation, faster than the speed of sound are two of the most important changes that organizations and businesses have benefited.

Darden is fast growing and will maintain the lead because of these technologies. It has all the resources, finances, and manpower at its disposal, to go on and be the leader in the industry; an industry that is so volatile and which depends much on the behavior and changing moods of people around the world.

Darden management and creative people are filled with ideas when it comes to product launching, product mix, and even corporate social responsibility. Corporate social responsibility (CSR) is practiced by the company in environment preservation and protection.

They go ‘green’ and are into green business. Promoting seafood is considered a CSR program for as long as they don’t abuse and exploit natural resources. Aquaculture seafood is also being promoted.

For sure, we will be witnessing the successes of Darden in the many years ahead because of the effective strategies it has applied through the years.

Bibliography

Breakenridge, Deirdre and DeLoughry, Thomas. The New PR Toolkit: Strategies for Successful Media Relations. United States of America: Financial Times Prentice Hall Books, 2003.

Darden. Company History. 2011. Web.

Elliott, Stuart. Red Lobster Campaign to Showcase Some of Its Own Workers. 2011. Web.

Enz, Cathy A., Hospitality Strategic Management: Concepts and Cases. Hoboken, New Jersey: John Wiley & Sons Inc., 2010.

Grant, Robert. Contemporary Strategy Analysis, fifth ed. United States of America: Blackwell Publishing, 2005.

Hoovers. Carlson Restaurants Worldwide, Inc. 2011. Web.

Hoovers. Cracker Barrel Old Country Store, Inc. 2011. Web.

Hoovers. The Cheesecake Factory Incorporated. 2011. Web.

Jobber, David and Lancaster, Geoffrey. Selling and Sales Management, Sixth Edition. England: Pearson Education Limited, 2003.

Microsoft Case Studies. Darden Restaurants. 2007. Web.

Reuters. Darden Posts Lower Profit, Falling 6%. 2010. Web.

Standard & Poor’s. Standard & Poor’s 500 Guide. United States of America: McGraw-Hill Companies, Inc., 2006.

Sussland, Willy. Connected: A Global Approach to Managing Complexity. London: Business Press, 2000.

The New York Times. Darden Restaurants Inc. 2011. Web.

William, George. “Value-added Seafood: Opportunities and Challenges – a United States Restaurant Chain Perspective.” In Global Trade Conference on Aquaculture, edited by Richard Arthur and Jochen Nierentz, 149-150. Rome, Italy: Food and Agriculture Organization, 2007.

Footnotes

¹ Darden, Company History, 2011.

² The New York Times, “Darden Restaurants Inc.”

³ Standard & Poor’s, Standard & Poor’s 500 Guide (United States of America: McGraw-Hill Companies, Inc., 2006), 267.

⁴ Ibid.

⁵ The New York Times, “Darden Restaurants Inc.”

⁶ Ibid.

⁷ Hoovers, Carlson Restaurants Worldwide, Inc.

⁸ Hoovers, The Cheesecake Factory Incorporated.

⁹ Hoovers, Cracker Barrel Old Country Store, Inc.

¹⁰ Willy Sussland, Connected: A Global Approach to Managing Complexity, (London: Business Press, 2000), 2.

¹¹ Cathy A. Enz, Hospitality Strategic Management: Concepts and Cases, (Hoboken, New Jersey: John Wiley & Sons Inc., 2010), 221.

¹² George T. Williams, “Value-added Seafood: Opportunities and Challenges – a United States Restaurant Chain Perspective,” in Global Trade Conference on Aquaculture, ed. Richard Arthur and Jochen Nierentz (Rome, Italy: Food and Agriculture Organization, 2007), 149.

¹³ Robert Grant, Contemporary Strategy Analysis, fifth ed., (United States of America: Blackwell Publishing, 2005), 173.

¹⁴ Reuters, Darden Posts Lower Profit, Falling 6%.

¹⁵ Microsoft Case Studies, Darden Restaurants.

¹⁶ The New York Times. Darden Restaurants Inc.

¹⁷ Reuters.

¹⁸ Stuart Elliott, Red Lobster Campaign to Showcase Some of Its Own Workers.

¹⁹ Microsoft Case Studies.

²⁰ Stuart Elliott, Red Lobster Campaign to Showcase Some of Its Own Workers.

²¹ Cathy A. Enz, Hospitality Strategic Management: Concepts and Cases, (Hoboken, New Jersey: John Wiley & Sons Inc., 2010), 221.

²² Microsoft Case Studies, Darden Restaurants.

²³ David Jobber and Geoffrey Lancaster, Selling and Sales Management, Sixt Edition, (England: Pearson Education Limited, 2003), 256.

²⁴ Ibid.

²⁵ Ibid.

²⁶ Deirdre Breakenridge and Thomas J. DeLoughry, The New PR Toolkit: Strategies for Successful Media Relations, (United States of America: Financial Times Prentice Hall Books, 2003), 99-100.