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Darden Restaurants
April25th, 2016
Group 2:
Zach Bach, A.J. Buono,
Jacob Kopinetz, Samantha Picciott,
Nicole Taylor, Rober...
Table of Contents
I. Executive Summary.......................................................................................
1
I. Executive Summary
Darden Restaurants Inc. owns and operates seven full-service restaurant brands including Olive Gard...
2
II. INTERNAL AUDIT
A. Current Situation
1. Brief History
William Darden created the concept of Darden Restaurants with h...
3
4. Current Corporate Strategies
Darden is currently implementing its “Back-to-Basics” strategy, which places an emphasis...
4
b. Segments with Sales
Darden Restaurants, Inc. has shown growth over the last three years of operation. Total sales hav...
5
The Capital Grille is a fine dining restaurants, which specializes in steak, seafood, and wine. It typical
consumers con...
6
Darden’s current ratio, which is currently above one, indicates that the company is in relatively good
financial health ...
7
Eddie V’s, The Capital Grille, and Seasons 52, employ executive chefs who are responsible for selecting
and executing th...
8
2. Demographic/ Sociocultural Forces
United States
Sociocultural and demographic forces allow Darden to understand the v...
9
within their country; however, there is a lot of progress to be made. One area to focus on, in terms of their
social lan...
10
Malaysia is currently going through several political struggles since they are a relatively young country.
As previousl...
11
for such a young country. The technological features that are present in the United States, such as tablets
at each tab...
12
restaurants and grocery stores that provide pre-packaged meals are a threat as more people eat on the
go. Home cooked m...
13
b. Current Strategies
Bloomin’ Brands intends to continue in its efforts to remodel its restaurants with the end goal o...
14
they have better inventory management. Since Bloomin’ Brands is working to grow quickly, their debt to
equity ratio was...
15
B. Long-Term Objectives
According to Darden’s President and Chief, Gene Lee, Darden Restaurants are committed “People, ...
16
Currently Darden is diverting waste from landfills through food donation, organic recycling, energy
recovery from cooki...
17
Another key factor with this strategic initiative is to franchise the locations, or place company-
owned restaurants in...
18
having a Bahama Breeze in a mall does not coincide with the atmosphere and experience they are
advertising and this res...
19
based on an objective task strategy, building the budget for this plan from the bottom up. Reaching the
target market o...
20
Until this point, they’ve had complete autonomy to order food and beverage items as they saw fit. Finding
out that thei...
21
year from the reduced amount of food purchased and the lower amount of food spoilage; however, this is
not promised.
Ya...
22
Yard House Advertising Plan: The social media portion of this strategy will drive traffic to Yard House’s
website. All ...
23
Appendix A: Organizational Chart
Brand
Manager
Operations
Management
Team
Director of
Operations
Managing
Partner
Manag...
24
Appendix B: Organizational Chart
President
Operations
Management
Team
Senior Vice
President of
Operations
Director of
O...
25
Appendix C: Price per Plate and Price by Restaurant (Price)
Table 2: Entrée/Ticket Price by Restaurant
Olive
Garden
Lon...
26
advertising strategy on local television time and digital advertising (Darden Restaurants, Inc., 2015). The
remaining f...
27
Darden operates and owns all of its restaurants in the United States with optimal efficiency, as the only
sites that ar...
28
Opportunity
Increasing Online Presence
Darden has placed significant efforts towards growing its online presence, incre...
29
Health Concerns
Restaurants are subject to numerous different health related issues on any given day as outbreaks of
vi...
30
Appendix I: Total Sales by Segment 2013-2015
% of Sales 2015 2014 2013
Olive Garden 56.03% 57.96% 62.23%
LongHorn Steak...
31
Appendix L: International Expansion
Appendix M: Brand Restructuring
Objective
• Increase revenueand expandmarketshare
P...
32
Appendix N: Yard House Advertising Plan
Appendix O: Bahama Breeze Divestiture
Objective
• Increase sales for Yard House...
33
Appendix P: Base Business Key Assumptions
% of Sales 2015 2014 2013
Olive Garden 56.03% 57.96% 62.23%
LongHorn Steakhou...
34
Appendix S: Divestiture of Bahama Breeze Key Assumptions
BB Sales $209 million Followed treatment for Red Lobster Dispo...
35
Appendix U: Bahama Breeze Divestiture Pro Forma
Appendix V: Yard House Marketing Plan Key Assumptions
Yard House Sales ...
36
Appendix W: Yard House Media Spend Plan
Appendix X: Schedule of Advertisements
37
Appendix Y: Social Media Plan
Appendix Z: Yard House Target Persona
38
Appendix AA: Yard House Marketing Plan Pro Forma
Appendix AB: Inventory Optimization Key Assumptions
Percentage Allocat...
39
Appendix AC: Inventory Optimizations
Appendix AD: Rejecting Strategies – International Expansion
Darden’s International...
40
Appendix AF: Darden Restaurants Current Media Spending
41
Appendix AG: Los Angeles Angels Corporate Sponsorship
Appendix AH: Social Media Mock Posts
42
Appendix AI: Outdoor Advertisements: Billboard
43
Appendix AJ: Mintel Craft Beer Trends and Buzz Words
44
REFERENCES
“Advertise on ESPN.com Your Way”. (2016). ESPNCMS. Retrieved from
http://espncms.com/advertise-on-espn.html
...
45
Gallo-Torres, Juia. (2015, April). Full Service Restaurants-Casual, Family and Fine Dining- US. Retrieved
from Mintel R...
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Darden Resturants Policy Final Report

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Darden Resturants Policy Final Report

  1. 1. Darden Restaurants April25th, 2016 Group 2: Zach Bach, A.J. Buono, Jacob Kopinetz, Samantha Picciott, Nicole Taylor, Robert Zappaterrini
  2. 2. Table of Contents I. Executive Summary...........................................................................................................................................................................................1 A. Current Situation..............................................................................................................................................................................................2 1. Brief History.....................................................................................................................................................................................................2 2. Current Mission and Vision.........................................................................................................................................................................2 3. Current Long-Term Objectives...................................................................................................................................................................2 4. Current Corporate Strategies.....................................................................................................................................................................3 B. Functional Approach ......................................................................................................................................................................................3 1. Management.....................................................................................................................................................................................................3 2. Marketing...........................................................................................................................................................................................................3 3. Accounting / Finance.....................................................................................................................................................................................5 4. Production/Operations ................................................................................................................................................................................6 5. Information Systems......................................................................................................................................................................................6 6. Research & Development.............................................................................................................................................................................6 III. EXTERNAL AUDIT............................................................................................................................................................................................7 A. Macro Environmental Audit........................................................................................................................................................................7 1. Economic Forces .............................................................................................................................................................................................7 2. Demographic/ Sociocultural Forces.........................................................................................................................................................8 3. Political/Legal Forces....................................................................................................................................................................................9 4. Technological Forces..................................................................................................................................................................................10 B. Task Environment.........................................................................................................................................................................................11 1. Industry Analysis.........................................................................................................................................................................................11 2. Competitor Analysis: Bloomin’ Brands and Yum! Brands.............................................................................................................12 IV. SWOT ANALYSIS.............................................................................................................................................................................................14 V. STRATEGY ANALYSIS AND CHOICE.......................................................................................................................................................14 A. Revised Mission..............................................................................................................................................................................................14 B. Long-Term Objectives.................................................................................................................................................................................15 C. Generate Corporate Strategies................................................................................................................................................................15 D. Craft Corporate Strategies- Accepting or Rejecting .....................................................................................................................15 VI. STRATEGY IMPLEMENTATION..............................................................................................................................................................19 A. Management Issues......................................................................................................................................................................................19 B. Marketing Issues............................................................................................................................................................................................20 C. Finance/Accounting Issues.......................................................................................................................................................................20 D. Production/Operations Issues ...............................................................................................................................................................21 E. Information Systems Issues......................................................................................................................................................................21 F. Research and Development Issues........................................................................................................................................................22 A. Three-Year Projected Income Statement with Explanation.....................................................................................................22 APPENDIX.................................................................................................................................................................................................................22 REFERENCES............................................................................................................................................................................................................44
  3. 3. 1 I. Executive Summary Darden Restaurants Inc. owns and operates seven full-service restaurant brands including Olive Garden, LongHorn Steakhouse, Bahama Breeze, Seasons 52, The Capital Grille, Eddie V’s, and Yard House. These seven restaurants, totaling in over 1,500 different locations, serve millions of customers each year as each brand creates a unique experience for its different market segments. An in depth analysis of Darden Restaurants’ internal and external environment is detailed in this report as strengths, weaknesses, opportunities and threats are identified. To address these areas of weakness and potential threats, this plan details three strategies to improve Darden Restaurants’ environment to increase sales and to drive growth within the industry. The first of the three strategies will address the slow growth of Bahama Breeze, which does not match the growth of the other six restaurant brands. Divesting Bahama Breeze and reallocating the funds to paying off long-term debt ensures Darden’s financial stability into the foreseeable future. The next strategic plan that will be addressed is the creation of an advertising plan for Yard House, a Darden brand that has been steadily growing. The last of the three strategies will address an area of weakness that affects Darden Restaurants in the category of inventory management. Darden currently donates approximately ten million pounds of food annually. This strategy is built upon the implementation of additional POS software that will decrease cost of goods sold as it aims to attack inventory controls, managing the amount of food brought into individual brands. With an increase in advertising spend to Yard House, Darden will see an initial increase in sales to the specific brand of approximately 12 percent. Together, these three strategies will improve Darden Restaurants’ overall net earnings by 35 percent. Figure 1: Darden’s Current Brands
  4. 4. 2 II. INTERNAL AUDIT A. Current Situation 1. Brief History William Darden created the concept of Darden Restaurants with his restaurant, The Green Frog, in 1938 (History of Darden Restaurants, Inc., 2016). Thirty years later, Darden opened Red Lobster and later went onto sell his restaurant franchise to General Mills to support its increasing growth. As the franchise grew, General Mills realigned its values and decided to ultimately separate its restaurant operations. In 1982, the first Olive Garden was opened and in 1995, Darden Restaurants, Inc. began trading on the New York Stock Exchange while operating both Olive Garden and Red Lobster. Throughout the 1990’s Darden Restaurants, Inc. launched Bahama Breeze restaurants, and in the early 2000’s, Seasons 52 was created internally, expanding its markets. Darden then acquired Eddie V’s Prime Seafood and Wildfish Seafood Grille. After continuous growth with their restaurant brands, Darden Restaurants acquired Rare Hospitality in 2007, which included The Capital Grille and LongHorn Steakhouse. Darden’s most recent acquisition was Yard House in 2012 and in 2014, Darden sold Red Lobster, totaling its current brands at seven (Darden Restaurants, Inc., 2015). Darden Restaurant brands are leaders within the full service dining industry as they have totaled 1,534 restaurants at the end of the 2015 fiscal year. 2. Current Mission and Vision Figure 2: Darden’s Mission and Vision Mission: Vision: (Darden's Mission) 3. Current Long-Term Objectives Darden’s current brands are strong and credible, showing a commitment to driving sales in the future and to win a greater share of the marketplace. Darden plans to increase its brand loyalty and drive the market by focusing on “same restaurant growth, aggressive cost and capital management, and value- creating new restaurants” (Darden Annual Report, 2015). With the recent sale of Red Lobster, Darden plans to move forward in its efforts to secure a wider consumer base and to deepen the development of its seven remaining brands. "Be financially successful through great people consistently delivering outstanding food, drinks, and service in an inviting atmosphere, making every guest loyal!" "Support best in class restaurant brands, helping them reach their full potential by leveraging scale, insight and experience."
  5. 5. 3 4. Current Corporate Strategies Darden is currently implementing its “Back-to-Basics” strategy, which places an emphasis on “culinary innovation, attentive service, an engaging atmosphere, and integrated marketing” to increase Darden’s market share (Darden Restaurants, Inc., 2015). Cultural innovation can be seen throughout many of the different Darden brands. Darden is implementing these strategies by developing new menu ideas, to-go options, and focusing on consumer trends. In addition to its increasing efforts, the most significant strategy that Darden has executed is its sale of Red Lobster. This sale was “the result of implementation of a new management incentive plan that more directly emphasizes same-restaurant sales, free cash flow and relative total shareholder return; continuation of the focus on our restaurant support platform costs; and improvement of capital allocation discipline” (Darden Restaurants, Inc., 2015). B. Functional Approach 1. Management Darden management consists of a hierarchy structure overseen by its President and Chief Executive, Gene Lee (Executive Leadership, 2016). The structure includes individual presidents and brand managers of every restaurant brand. Under each president is a Senior Vice President and their job is to manage multiple regions and/or several stores depending on the restaurant size and growth. Next is the General Manager and their responsibility is restaurant-specific. Lastly, there are regular managers and there can be anywhere from 2-6 regular managers in any given Darden Restaurant (See Appendix A, B). Along with the executive leadership, the Board of Directors help balance the decisions of Darden Restaurants. The “veteran business leaders” are knowledgeable in the restaurant, retail, finance, and real estate fields which aid to Darden’s success (Executive Leadership, 2016). 2. Marketing a. Total Sales Darden’s total sales have been $6.76 billion, $6.28 billion, and $5.92 billion for 2015, 2014, and 2013 respectively (Darden Restaurants, Inc., 2015). Sales have been increasing steadily for the past three years, between 6-7% each year. One major takeaway is the revenue brought in by each unit. Yard House is the largest grossing brand per unit bringing in roughly $8.3 million annually, followed by The Capital Grille at $7.2 million, next was Eddie V’s at $6.3 million per unit, Seasons 52 and Bahama Breeze were tied at roughly $5.7 million per unit, Olive Garden earned $4.5 million per unit, and lastly, LongHorn Steakhouse earns roughly $3.2 million per unit (2015 Annual Report).
  6. 6. 4 b. Segments with Sales Darden Restaurants, Inc. has shown growth over the last three years of operation. Total sales have increased by 6.16% from 2013 to 2014 and 7.61% from 2014 to 2015 (Darden Restaurants, Inc., 2015). The corresponding segments’ sales and growth data are listed in the table above. In 2013, all the brands showed positive growth with the exception of Olive Garden. After implementing their strategic initiatives, all restaurant segments grew throughout 2014. The figures listed above do not include sales from Red Lobster, as it would skew the financial data for the restaurant group. Table 1: Restaurant Sales by Segment 2015 2014 2013 % Change FY ’14-15 % Change FY ’13-14 % Change FY ’13-15 TOTAL $6,764.00 $6,285.60 $5,921.00 +7.61% +6.16% +14.2% Olive Garden $3,789.60 $3,643.10 $3,684.80 +4.0% -1.1% +2.8% LongHornSteakhouse $1,544.70 $1,383.90 $1,231.20 +11.6% +12.4% +25.5% Yard House $469.90 $395.40 $258.30 +18.8% +53.1% +81.9% TheCapital Grille $403.30 $363.20 $331.50 +11.0% +9.6% +21.7% Bahama Breeze $209.20 $201.50 $173.70 +3.8% +16.0% +20.4% Seasons 52 $238.60 $196.30 $158.00 +21.5% +24.2% +51.0% Eddie V’s $96.90 $78.40 $64.90 +23.6% +20.8% +49.3% c. Customer Profiles Olive Garden is Darden’s largest restaurant in terms of gross sales and stores. Darden explains, “We know that life is better together and everyone is happiest when they’re with family, whether it’s immediate family, extended family or a family of friends” (Darden Restaurants, Inc., 2015). Ultimately, the average customer of Olive Garden is one who places value on innovation, value in what their paying for, and affordability ("Darden Restaurants Inc. in Consumer Foodservice (World)”). LongHorn Steakhouse is the second largest Darden restaurant chain and it has a large menu filled with steak, chicken, shrimp, pork chops, prime ribs, and burgers, which attract consumers referred to as the “dining generalists”. This segment prefers generic menus similar to those found at Applebee’s and Chili’s Grill & Bar ("Darden Restaurants Inc. in Consumer Foodservice (World)”). Yard House is the third largest restaurant and it strongly appeals to the beer-and-food-loving consumer. While there is a large menu offered at Yard House, its emphasis is placed on more than 100 different types of beer found in the restaurant (Darden Restaurants, Inc., 2015). Craft beer is a growing segment in which Darden Restaurants, Inc. is capitalizing on.
  7. 7. 5 The Capital Grille is a fine dining restaurants, which specializes in steak, seafood, and wine. It typical consumers consist of businesspeople and luxury spenders ("Darden Restaurants Inc. in Consumer Foodservice (World)”). Bahama Breeze has a very specific consumer profile, which enables the restaurant to strengthen its brand and menu. The restaurant supports an “island atmosphere” with menu items ranging from seafood, chicken, steak, and specialty cocktails. Darden explains, “We are seeing growth with Millennial and Hispanic consumers as well as catering to the adult ambience restaurant segment at Bahama Breeze” (Darden Restaurants, Inc., 2015). Seasons 52 specializes in a fresh grilled menu and a stellar wine selection. Darden describes their customers as “casual, healthy and sophisticated” (Darden Restaurants, Inc., 2015). Eddie V’s is the second fine-dining restaurant under Darden Restaurants and specializes in prime seafood. These restaurants are located in mostly metropolitan areas and include a “sophisticated and contemporary ambience” for customers (Darden Restaurants, Inc., 2015). d. 4P’s (See Appendix C, D, E) idity 3. Accounting / Finance Table 4: Financial Ratio Comparison 2014 10-K Data Darden Restaurants Bloomin’ Brands Yum! Brands Current Ratio 1.22 .72 .68 Degree of Financial Leverage 3.28 6.02 5.20 Debt-to-Equity 2.28 4.98 4.20 Gross Profit Margin 20.60% 16.66% 27.09% PRODUCT •Steaks •Poultry •Seafood •Seasonal Fruits/Vegetables •SpecialtyBeverages PRICE •Casual Dining •Fine Dining PLACE •United States •Canada •Central/South America •Middle East •Malaysia PROMOTION •National, Cable, Local Television •Digital Marketing •Flyers •Misc. Channels
  8. 8. 6 Darden’s current ratio, which is currently above one, indicates that the company is in relatively good financial health especially compared to its competitors. The current ratio serves as a benchmark to “give an idea of the company’s ability to pay back its liabilities with its assets” (Breaking Down ‘Current Ratio’). Darden’s degree of financial leverage is lower than its competitors; therefore, they rely more on equity for their assets. One strength that Darden has is its recent pay-down of debt. In 2014, they retired $1 billion of debt, which ultimately makes its financial structure less risky. The competitors, Yum! Brands and Bloomin’ Brands, are almost double Darden’s overall degree of financial leverage. 4. Production/Operations Darden receives their food from over 1,500 vendors across the world (Darden Sourcing). Darden Restaurants owns and operates Darden Direct Distributions for a tighter grasp on supply chain management. Darden explains, “Through our subsidiary, Darden Direct Distribution, Inc. ("Darden Direct"), and long-term agreements with our third party national distribution companies, we maintain inventory ownership of food and supplies in warehouses primarily dedicated to Darden where practical to do so. Darden Direct further enables our purchasing staff to integrate demand forecasts into long-term agreements driving efficiencies in production economics when we collaborate with vendors.” (Darden Restaurants, Inc., 2015). Due to the rapid turnover of the food, it is important for Darden to analyze the turnaround for food held in its warehouses and its restaurants to eliminate waste. 5. Information Systems Since 2014, Darden restaurants combined its brands onto one “single digital technology platform” (Darden Restaurants, Inc., 2015). This platform was created to improve Darden’s marketing, centralizing it on one platform and allows the brands to be tailored to specific customers, strengthening the brand’s image in the customer’s minds. This system tracks consumer trends as Darden is able to analyze what is working well for the company and what is not. In addition, Darden is part of a multi-year plan to install this new technology, catering to customer needs. Darden Restaurants utilizes a POS system to manage incoming orders and maintains a restaurant support facility in Orlando, Florida, keeping information up to date and secure from potential threats. 6. Research & Development Darden restaurants does not incur any Research and Development costs. Their more casual brands- Bahama Breeze, LongHorn Steakhouse, Yard House, and Olive Garden- are considered to be “generalist” menus, providing the basic food groups within each restaurant with little variation. Their upscale brands,
  9. 9. 7 Eddie V’s, The Capital Grille, and Seasons 52, employ executive chefs who are responsible for selecting and executing the chef’s choice of the day. III. EXTERNAL AUDIT A. Macro Environmental Audit 1. Economic Forces United States An economic force that affects Darden Restaurants can be seen in the comparison between the savings rate and disposable personal income as this affects the amount of money customers are willing to spend at a restaurant (Jones, 2015). Recently, average disposable personal income has been on a steady decline, while savings rates have been volatile. In 2013, the savings rate took a big dip from around 7-8 percent to 4-5 percent and has been steady around the 5 percent mark ever since. With the disposable personal income remaining steady and the decline in the savings rate, it is evident that consumers are spending more money on average. Revolving credit has also shown an increase within the past year indicating that more money is being spent and consumption has increased. Darden must take advantage of this recent trend and provide consumers with the quality service they are looking for. Canada As one of the United States’ strongest allies, it is understandable that the two countries are heavily dependent upon each other for international trade (Canada). The dependency has been consideredboth a strength and weakness for Canada. On a positive light, they have strong international relations; however, if the United States’ economy plummeted, Canada would be adversely affected. Furthermore, their banking sector has been described as one of the most sound in the world for almost a decade which correlates to a relatively strong economy (Canada). Overall, Canada’s economy is exceeding expectations in its overall performance. One point of concern is the high household debt. As families take on higher debt that means their income is being directed to other areas which means they have a smaller amount to spend on dining out. Malaysia The Malaysian economy has seen significant growth in the past year, achieving an increase of 6.0%. Their success is contributed to increased wages, government transfers, and a growing labor market. The country has seen a spike in household debt due to low interest rates and relatively simple credit terms which has increased the debt by more than 12% (Malaysia).
  10. 10. 8 2. Demographic/ Sociocultural Forces United States Sociocultural and demographic forces allow Darden to understand the values and attitudes of their clientele as understanding who dines within the full service industry and how to reach the different segments is key. Darden should explore the trend of dining among men and women over the age of 55, as this age segment frequents restaurants the most (Gallo-Torres, 2015). In addition, it is important to keep track of trends among the prominent millennial generation, as trends within technology do not always parallel the ideals of these age segments. With a focus on healthy living, Darden should cater its menus to this lifestyle as this consumer segment increases so they are at least providing the opportunity to customers (Wall, 2014). Darden should also study the demographics of areas where it wishes to expand its brands as the values and trends of the demographics of the area will indicate if Darden will find success at these locations. Furthermore, in order to achieve diversity in the workforce, Darden staffs its local restaurant so it mirrors the population they will be serving (Darden Restaurants, Inc., 2015). Canada Canada is considered to be an advanced country in terms of human development and social factors. One of the main differences between Canada and the United States is their advanced social welfare system. There are billions of dollars spent on healthcare and education each year which drastically increases the quality of life(Canada). Not only do they have intensive healthcare, but they also have employee training programs to boost the unemployment rate. Canadians are used to a certain standard of life, similar to Americans, and eating at restaurants is a commonality. Canada is primarily composed of Canadians, English, French, Scottish, Irish, German, Italian, Chinese, North American Indian, and other backgrounds. Given the diversity that the country sees, there is a demand for more ethnic cuisine and foodservice throughout the country, specifically French, Mediterranean, Thai, Japanese, Chinese, and Korean. Moreover, there is also an increased demand for aged or premium meats, specialty breads, and specialty meats (Dover). Malaysia Malaysia’s social climate is drastically different from the United States and Canada. There are several factors which go into their interest in eating at restaurants. Only 5.45% of the population is over the age of 65 which indicates it is a very young country. Younger generations are on the forefront of social change
  11. 11. 9 within their country; however, there is a lot of progress to be made. One area to focus on, in terms of their social landscape, is their restriction on human freedom and religious affiliations (Malaysia). The Malays have restricted internet access which make it difficult to advertise to specific use groups. Moreover, the major religions within the country effect menu items for restaurants. Muslim is the primary religion (61.3%) followed by Buddhism (19.8%), next is Christian (9%), then Hindu (6.3%), Confucianism, Taoism, miscellaneous Chinese religions make up the next 1.3% (Malaysia). Given the prominence of the Muslim religion, there are significant food restrictions as to what they can eat. Darden Restaurants, while diverse, has popular dishes which conflict with the religion. 3. Political/Legal Forces United States Darden is subject to a wide variety of these regulations such as fire, health, and safety regulations determined by where the restaurant is located. Other regulations including zoning laws when trying to build new locations, liquor licenses to provide alcohol in our many stores, and “The Affordable Care Act”/FDA requirement to disclose caloric and more nutritional information on menus (“Government Regulation” Darden Restaurants, Inc., 2015). Darden must also be up to date on the Tip Rate Alternative Commitment (“TRAC”), which reduces the likelihood of employees not reporting cash tips to the IRS. It is important Darden adheres with all these regulations to avoid huge fines or possible delays/shut downs of our services (“Government Regulation” Darden Restaurants, Inc., 2015). Canada Canada is structured slightly different from the United States in terms of regulating the restaurant industry. The Canadian Food Inspection Agency is governed by governments, municipalities, and regional health authorities (Workplace Standards). The Canadian government has recently implemented a new standard: The Safe Food for Canadians Act. This is similar to the FDA’s purpose of monitoring the growth and treatment of food to ensure health and safety are not put at risk (Workplace Standards). Canada is stricter regarding drinking and driving with a limit of .05 (the United States is .08). If an adult is found guilty of serving a minor alcohol the offense ranges from one to three months of jail time (Workplace Standards). This sanction makes it imperative for restaurants to remain vigilant in the alcohol they serve to customers to ensure they are following the regulations imposed by the government. Malaysia
  12. 12. 10 Malaysia is currently going through several political struggles since they are a relatively young country. As previously mentioned, there are restrictions on human rights and they struggle with establishing a democracy. The country has such strict rules in regards to freedom and human rights that make it difficult for citizens to challenge authority (Malaysia). Any citizen found questioning or protesting the government’s decision could face unfair processes regarding punishment. Overall there is a significant amount of political unrest sparked by the desire for freedom. 4. Technological Forces United States Darden Restaurants manage their research through a POS System which allows them to track what orders are being placed at a restaurant and how much of the products are being sold (Darden Restaurants, Inc., 2015). Its current research into trends allow for technological innovation. One new system that has been developed for the restaurant industry is their automated ordering devices. This allows customers to place orders at their convenience. This may be an opportunity for Darden; however, it has been found that millennials prefer face to face contact with their servers (Gallo-Torres, 2015). Keeping in mind that technology has the potential to be either an opportunity or a threat, determining how new technology is used is critical to Darden’s success. Canada Technology has a heavy influence on consumers’ desire to eat out at restaurants versus staying inside. It has become more common for customers to search for deals and then come into the restaurant; however, it is difficult to convert them into regular customers (Dover). In order to maintain this interest, they would consistently have to provide some type of deal on their menu or “specialty night” where prices are low for a specific food group. Technology also influences consumer demand because of the internet, television, and travel. Consumers are becoming more informed of the different meal opportunities across the world and they are seeking those opportunities out within their own country (Dover). Malaysia Malaysia exports computers, pharmaceuticals, scientific instruments, aerospace systems, and electrical machinery making it a tech savvy country/government; however, citizens face difficulty obtaining technological resources. As it is a developing country, they are making great strides with introducing technology to families. Roughly 70 of 100 homes have broadband Internet, which is tremendous growth
  13. 13. 11 for such a young country. The technological features that are present in the United States, such as tablets at each table, are not yet realistic in this country, but in several years they may become more realistic. B. Task Environment 1. Industry Analysis a. Description According to its NAICS codes, Darden Restaurants operates primarily within the full service restaurant industry and its secondary industry code indicates a presence in the drinking places industry. Darden operates seven brands, which compete with thousands of other restaurants in any given region. There are smaller, family-owned restaurants and corporate chains which create a significant amount of competition for Darden. b. Financial Performance The financial performance of the overall industry is showing growth. Understanding that the full service restaurant industry has grown by 3 percent, totaling in sales of over $208.5 billion, there is great potential for Darden Restaurants to increase its market shares ("Darden Restaurants Inc. in Consumer Foodservice (World)”). Currently, Darden accounts for 4 percent of the value share, claiming its leadership within the industry. c. Competitive Nature – Porter’s Model Threat of New Entry There are low entry costs involved within the full service dining industry. This is prevalent in the high number of small restaurants that exist today. Limited education is necessary to open a restaurant and resources are available to start a restaurant because it is a large industry. One entry barrier is, however, the level of competition that already exists within the full service industry. In addition, finding a new location for a restaurant is difficult, as many restaurants already exist in high volume locations. Buyer Power The buying power of customers is very strong as there are relatively no switching costs involved when choosing which restaurant to frequent. Customers are able to look up information about a restaurant online and refer to feedback found on these sites to determine if it is worthwhile to dine there or not. Along with that, if a buy has a poor experience at Darden, they can potentially ruin the reputation of that brand through negative word of mouth and other forms of negative publicity. Threat of Substitution Many alternatives exist to the full service industry. The fast casual industry is on the rise as customers may choose to dine somewhere where they do not have to stay for an extended amount of time. Fast food
  14. 14. 12 restaurants and grocery stores that provide pre-packaged meals are a threat as more people eat on the go. Home cooked meals also pose a threat as customers may view this as cost effective and convenient as they do not have to leave their homes to prepare their meals. Supplier Power Darden operates with several different suppliers which provide its high quality food for its restaurants. Darden instills a quality assurance plan to guarantee that its products meet government standards and their internal standards. Food safety is critical to Darden’s success, giving their suppliers power over the company if the food is not properly grown or stored. As mentioned previously, Darden operates Darden Direct as its main supplier to maintain control over its products and to minimize power of their suppliers (Darden Restaurants, Inc., 2015). The overall power of suppliers within the full-service industry is very low because the suppliers rely on these restaurants for sales and there are a good amount of substitutes available if one supplier does not meet a restaurant’s needs. One major factor in Darden’s operations does not come from direct suppliers, but instead stakeholders who have interest in the organization. The U.S. Food and Drug Administration and the Internal Revenue Service both have an influence on Darden Restaurants. The FDA monitors our food safety and overall health regulations. At any point, they can deem our restaurants unsafe which would have an adverse effect on operations and profitability. Moreover, we have moderate relationship with the IRS due to tax regulations involving servers’ tips. Servers are bound by law to report their earnings and Darden must uphold that standard. 2. Competitor Analysis: Bloomin’ Brands and Yum! Brands a. Current Objectives Bloomin’ Brands owns a variety of different brands including Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse and Wine Bar (Bloomin’ Brands, Inc. 2015). Each of these restaurants parallel Darden brands, offering similar products and services within the restaurant industry. Bloomin’ Brands provide a range of different atmospheres as their brands provide upscale, casual, and fine dining experiences for its guests. Bloomin’ Brands prides itself on providing a “compelling customer experience combining great food, highly attentive service and lively ambience at attractive prices”. Yum! Brands is working to expand its brands with innovation as it expands on the products offered at each of its restaurants (Taco Bell, KFC, and Pizza Hut) (YUM! Brands, Inc. 2014). Yum! plans to offer value that is “disruptive but distinctive, genuine and transparent”.
  15. 15. 13 b. Current Strategies Bloomin’ Brands intends to continue in its efforts to remodel its restaurants with the end goal of attracting more customers by keeping its locations up to date (Bloomin’ Brands, Inc. 2015). There will be an increase distribution of limited-time offers and an increase in their marketing budget to drive traffic to their locations. Bloomin’ plans to be innovative in its future offerings as it expands its menu options to better cater towards its customers. Expansion in the number of stores will take place as Bloomin’ Brands plan to open 40-50 stores within the next year, increasing its market reach. Bloomin’ also plans to expand internationally to Latin America and Asia. Yum! Brands focus its current strategies on building strong brands that are recognizable and drive customers to its locations (YUM! Brands, Inc. 2014). Yum! plans to expand its marketing plans and to expand its locations within current and emerging markets. It plans to maintain its global strategies as a leader within both China’s and India’s markets. Yum! Intends to increase its long-term shareholder value and obtain more return on its franchises. c. Competencies Bloomin’ Brands is able to gain competitive advantage with its Strategy and Market Intelligence (“SMI”) which allows the company to take an in depth look of the analytics relating to sales and investments. This system allows Bloomin’ to essentially test out future initiatives before launching them in the marketplace. The system is able to calculate a price for its products and find target areas where its brands can succeed (Bloomin’ Brands, Inc. 2015). Yum! Brands are specifically competent within the research and development aspect of the company (YUM! Brands, Inc. 2014). It maintains multiple operations within the United States and a location in China where it studies the trends found within its restaurants and among the industry. Yum! allocates approximately $30 million of its budget towards research and development that they conduct on their own and with some of their independent suppliers. d. Financial Information Bloomin’ Brands ended its 2014 fiscal year with $4,415,783 in sales (Bloomin’ Brands, Inc. 2015). Their growth from 2013 to 2014 was roughly 7.5% which is comparable to Darden. Since Bloomin’ Brands is such a key competitor with Darden, it was interesting to see how well they managed their inventory. Their Inventory Turnover ratio was 17.77, whereas Darden was only 9.61. Ultimately, this means that Bloomin’ Brands was able to flip their inventory over more times in a period than Darden was, implying
  16. 16. 14 they have better inventory management. Since Bloomin’ Brands is working to grow quickly, their debt to equity ratio was almost double Darden’s. Overall, Bloomin’ Brands is extremely competitive with Darden, having around the same Return on Total Assets and Return on Sales. At the end of the 2014 fiscal year, Yum! ‘s sales totaled at $11,324 billion (YUM! Brands, Inc. 2014). Yum! Brands is exemplary of how a business should be ran to ensure optimal customer satisfaction, processes and control, and overall restaurant management. Since Yum! Brands is located across the globe; they have a very strong reach in terms of brand awareness. Moreover, their Gross Profit Margin is 27% which is significantly higher than Darden and Bloomin’ Brands. They recently took on more debt in 2014 which caused their Debt to Equity ratio to go from 2.8 to 4.2. Yum! Brands brings in almost double the sales as Darden ($6.764 billion vs. $13.279 billion). Overall, they appear to be in great financial position. IV. SWOT ANALYSIS Figure 3: SWOT Analysis These strengths, weaknesses, opportunities, and threats are based on information found within the internal and external analysis for Darden Restaurants (See Appendix F). V. STRATEGY ANALYSIS AND CHOICE A. Revised Mission N/A Strengths - Seven Distinct Brand Identities -Menu with DietaryApproved Items -Large Operational Network -CompanyControl -Top-Line Growth Weaknesses -Reliance on Domestic Market (Weak International Presence) -Poor Waste Management -Declining Liquidity Opportunities -IncreasingOnline Presence -More Efficient Technology Available -Favorable Growth Trends Threats -IntenseCompetition -Economic Trends in Consumer Spending -Health Concerns -Economic trendsin Labor Costs
  17. 17. 15 B. Long-Term Objectives According to Darden’s President and Chief, Gene Lee, Darden Restaurants are committed “People, Planet & Plate” (Citizenship). Based on this, Darden’s long term objectives are as followed:  Increase market share worldwide by 2% in total by the end of 2019.  Improve Darden Restaurants’ bottom line through increased efficiency in waste management. This will be achieved, as the amount of waste will be reduced by 6% per year until 2019. In addition, there will be a decrease in the cost of goods sold to create a more sustainable culture.  Increase sales by 7% annually over the next three years, ending in 2019. (Sales have previously increased from $6.285 billion in 2014 to $6.764 billion in 2015, which equates to a 7.6% growth (Darden Restaurants, Inc., 2015)) C. Generate Corporate Strategies 1. Inventory Optimization: Optimize inventory controls to decrease costs of goods sold 2. International Expansion: Increase sales and expand market presence 3. Brand Restructuring: Convert Bahama Breeze Restaurants to Yard House Restaurants 4. Yard House Advertising Plan: Enhance the Yard House brand 5. Bahama Breeze Divestiture: Sell brand with low growth potential D. Craft Corporate Strategies- Accepting or Rejecting Strategy #1: Inventory Optimization Waste management poses a significant weakness for Darden Restaurants. Within the past 10 years, Darden has donated up to 77 million pounds of food through their Darden Harvest program; annually donating up to 10 million pounds of food (The Journey to Zero Waste). While the food donation is wholesome, not having control over food costs leads to a much higher cost of goods sold. Improvements in inventory turnover will cut costs, which in turn increases the bottom line. In order to address this, Darden Restaurants currently maintains a goal to eliminate the amount of waste being sent to landfills (The Journey to Zero Waste). As explained previously, roughly 10 million pounds of excess food is donated to charity each year with millions more being directed to landfills. With 71% of waste still being directed to landfills, Darden has remained stagnant in their diversion rate with a minimal increase (2014 - 28%, 2015 - 29%). Darden Restaurants’ Sustainability Manager, Kristine Young, explained, “Darden has 13 different waste streams- from discarded food to cardboard to plastic straws.
  18. 18. 16 Currently Darden is diverting waste from landfills through food donation, organic recycling, energy recovery from cooking oil, and mixed and cardboard recycling” (Food Waste Reduction Alliance). Darden needs to continue to maintain ties with the community through their food donation program; however, donating their food does not serve as a solution to the underlying problem at hand. There is a lack of control on distribution, supply chain, and inventory management throughout the Darden network. The objective of this strategy is to minimize the amount of overall waste being generated from restaurant operations to ultimately decrease the amount being sent to landfills and divert it to other areas. In order to achieve this, a new software must be incorporated into everyday operations to provide better solutions for waste and inventory management. While Darden develops some of their software internally, it is vital that they rely on software developed by a company who specializes in this specific industry (Darden Restaurants, Inc.). We have selected SYRUS to integrate these new systems into each of our restaurants, distribution centers, and headquarters. They specialize in enterprise reporting and food cost management with an emphasis on waste, labor management, inventory, and ordering. Darden intends to combat this issue through moving food waste into various recycling streams. The objective of this strategy is to decrease the amount of waste being generated in the first place. Instead of taking a passive approach to fixing the issue, Darden needs to remain aggressive. Implementing a new POS system services will be costly initially, however, the long-term benefits from this strategy greatly outweigh the costs. Accepting this strategy will increase Darden’s bottom line, as it limits its inventory to specific quantities that will decrease the amount of pre-consumer waste at each of its restaurant locations. Accept: (See Appendix AB, AC) Strategy #2: International Expansion Expanding Darden Restaurants internationally would widen Darden brand’s presence and expose the company to new market segments, potentially increasing its revenue. According to Darden’s 10K, there was a recent increase in earnings during their 2015 fiscal year at their international locations, which indicated growing potential within the foreign marketplace. International expansion would begin with two of the most easily convertible brands- Olive Garden and LongHorn Steakhouse- into European markets where there is forecasted high sales growth and potential.
  19. 19. 17 Another key factor with this strategic initiative is to franchise the locations, or place company- owned restaurants in new international locations. The benefits of franchising to third parties means that Darden does not take on any additional costs; however, drawbacks of the franchise options are strict contractual agreements, which limit Darden’s ability to exercise control over a situation. If Darden pays for company-owned stores to be created in new locations, they have the opportunity to generate new opportunities for the food they’re serving, the customers they’re working with, and the team members they have on board with them. Reject: (See Appendix AD) Darden Restaurants currently operates stores internationally. These stores do not bring substantial revenue for Darden compared to the United States restaurant locations. In addition, maintaining control over franchise restaurants in international locations proves to be very costly for Darden and previous earnings in these international locations indicate this to be a weak strategy for Darden. An in depth study of the external environments of each international location would have to be conducted and an in depth understanding of the laws and regulations of the countries is essential. Based on the cost of expanding internationally and the numerous implications paired with it, this international strategy is rejected. Strategy #3: Brand Restructuring After assessing the overall performance of each restaurant brand, it is apparent that Bahama Breeze is the most stagnant of the seven Darden brands. Bahama Breeze currently operates in 36 locations, of which 7 are located either in or around malls. This strategy aims to close the seven mall locations of Bahama Breeze and convert them into a more profitable restaurant: Yard House. Yard House is the third highest sales generator for Darden, while only representing 59 of Darden’s 1,534 restaurants nationwide. In addition, this strategy includes aggressively growing the Yard House brand by placing the additional new locations in large cities across the United States as demographics in these areas meet Yard House’s customer profiles. These locations will be located in “Craft-Beer-Loving” cities. New locations will include Hartford, CT, Columbus, OH, Cleveland, OH, Grand Rapids, MI, Washington D.C., San Francisco, CA, Sacramento, CA, and Seattle, WA (Notte). The potential of opening new waterfront locations of Bahama Breeze to add to the “ocean atmosphere” that they attempt to provide to customers is also included in this strategy. Unfortunately,
  20. 20. 18 having a Bahama Breeze in a mall does not coincide with the atmosphere and experience they are advertising and this restructuring will allow each restaurant to maximize its presence and potential revenue. A waterfront location not only creates value, it also piques interest of customers looking to enjoy a relaxing meal. Reject: (See Appendix AE) Converting under-performing Bahama Breeze Restaurants to Yard House Restaurants poses issues pertaining to the location space. The minimum square footage for a Yard House is larger than the average square footage of current Bahama Breeze. In addition, Darden would have to train employees in regards to the new menu and how to respond to the different clientele. Converting the Bahama Breeze locations may initially increase sales, however, it does not address the fact that Bahama Breeze is not forecasted to perform as well as Darden’s other six brands. This strategy contains many moving parts that will be timely to implement. Because of these tactical issues, this strategy is rejected. Strategy #4: Yard House Advertising Plan Darden Restaurants currently spends 80 percent of its media allowance on Olive Garden, one of its most widely known and attractive brands (RedBooks). However, Darden allocates less than one percent of its budget on each of its smaller brands such as Seasons 52, Yard House Restaurants and Capital Grille, which make up a large percentage of Darden’s overall sales. This division of spending is limiting Darden’s potential profit. Yard House sales have indicated that it generates the third most profit for Darden Restaurants with limited marketing resources allotted to the brand. As the brand continues to grow by 6- 8 locations each year, marketing expenses will need to drastically increase to address this. This advertising plan will be created to reach new market segments as well as existing segments, specifically in Los Angeles, California where four Yard House Restaurants are currently located. There will be an increase in Yard House’s budget by 30 percent in order to create a campaign that will be effective. This campaign will include a corporate sponsorship of the Las Angeles Angels, regional and national commercials, billboards, paid social media posts, and online advertisements to reach Yard House’s target market. Accept: (See Appendix V-AA, AF-AJ) After a study of Olive Garden’s previous income based on their advertising efforts, it is projected that this strategy will increase Yard House’s overall sales by 12 percent. The advertising plan will be built
  21. 21. 19 based on an objective task strategy, building the budget for this plan from the bottom up. Reaching the target market of millennial males proves that an effective approach would be focusing this campaign around sports in the specific geographic regions where current Yard Houses are located. In additio n, the 6-8 locations of the new Yard House locations in craft beer loving cities with a high rate of millennials within these cities will make drive this strategy. Promoted posts on social media where the target market is active will increase the reach of this strategy. In addition, focusing the efforts of this campaign around building an experience at this restaurant will entice people to dine there. The increase in craft beer sales prove that the market for restaurants providing craft beer is growing and to adhere to this, this campaign must be aggressive and effectively reach the target market using a variety of different media forms. Strategy #5: Bahama Breeze Divestiture Divesting Bahama Breeze is a viable option for Darden Restaurants, as it would generate revenue to fund additional strategies for the company. Bahama Breeze is one of Darden’s most stagnant brands, making it the most attractive to divest. This divestiture will give Darden Restaurants increased control over its brands as it can focus its efforts on improving their operations. As seen by the sale of Red Lobster in 2014 Darden has been restructuring its brands as a whole to better fit its mission and vision. Bahama Breeze’s growth has been the least consistent and as a result, we have decided to divest the brand and its assets. The proceeds from the sale will be used to pay off a portion of Darden’s long-term debt. The lowering of long-term debt not only lowers Darden’s outstanding obligations, but decreases the interest expense from year to year. This strategy will help to focus growth of Darden’s six remaining stores and help to put Darden in an even more stable financial position. Accept: (See Appendix S-U) VI. STRATEGY IMPLEMENTATION A. Management Issues Bahama Breeze Divestiture: There could be resistance amongst employees and management of Darden for deciding to sell off this restaurant brand. Since Bahama Breeze was created internally within Darden, it could be viewed as selling off a piece of the company that is inherent to the restaurant group. Next, it is unclear as to whether or not Darden employees working at Bahama Breeze will remain employed or be laid off; the new owners should exercise discretion. Inventory Optimization: Implementing new software is key in reducing the amount of food going to landfills. One negative aspect of this feature is that management may feel undermined in the process.
  22. 22. 20 Until this point, they’ve had complete autonomy to order food and beverage items as they saw fit. Finding out that their ordering processes are extremely wasteful could leave negative feelings. Yard House Advertising Plan: Aside from Olive Garden and LongHorn Steakhouse, the remaining five restaurants could feel animosity towards Yard House since they are the next restaurant brand to be thrust into the spotlight. Higher sales mean higher bonuses for management and tips for servers. B. Marketing Issues Bahama Breeze Divestiture: It may be viewed as a negative move to sell off another Darden Restaurant brand. We do not want the stakeholders to think that our company is failing. Instead we are realigning our restaurant brands to be more desirable. Inventory Optimization: As it currently stands, Darden donates leftover food to their Harvest Program, which then redistributes the food to local charities and shelters. Our objective is to decrease the amount of waste being redistributed. It could look bad on Darden that they are decreasing the amount that they are giving to the community. Yard House Advertising Plan: One of the negatives for the marketing plan is the reliance on alcohol for sales. That may be viewed negatively because we by no means want to promote irresponsible alcoholic consumption. C. Finance/Accounting Issues Bahama Breeze Divestiture: The divestiture will decrease our overall sales each year, but by paying off long-term debt with the cash from purchase, it decreases our interest expense. We assume there is a buyer for Bahama Breeze. Inventory Optimization: This was a necessary financial strategy. Darden Restaurants is losing money for every pound of food they redistribute. The new software has the capacity to forecast sales and inventory. It will tell managers when to order certain products and overall it will reduce shelf-life and spoilage. The cost for this strategy is relatively low when compared to the cost savings. Darden Restaurants already owns their computer terminals, but they use their internally developed software. The only negative aspect of this software is that it is to be rented from month to month. It would be preferable to have a one-time purchase. However, since it is not a large expense, Darden is free to cancel at any time. The cost is shown in Restaurant Expenses. We assume there to be a large cash savings each
  23. 23. 21 year from the reduced amount of food purchased and the lower amount of food spoilage; however, this is not promised. Yard House Advertising Plan: There is a large amount of money being invested in the Yard House marketing plan; but there is no way to know if that sales amount will produce definitive results. There’s no way to guarantee what marketing initiatives yield results. As Yard House is such a profitable business segment, once there is an audience visiting we expect a direct increase in Sales; however, this is not promised. D. Production/Operations Issues Bahama Breeze Divestiture: Eliminating Bahama Breeze means that our organizational structure has shifted. This will affect operations, as Darden’s suppliers will no longer distribute Bahama Breeze inventory to its locations. Jobs may be affected to adhere to this shift. In addition, Darden must address whether or not to relocated Bahama Breeze managers to other Darden Restaurant locations. Inventory Optimization: Overall there is a fear that new technology will negatively impact the supply chain. While there is significant room for improvement- and improved efficiency is realistic- new systems ordering may confuse employees and suppliers. Moreover, there is the business risk that the system may be faulty or not perform to expectation. Yard House Advertising Plan: Delays due to conflicts in production times in the filming of commercials or printing of billboards may affect the potential reach if advertisements do not get placed accurately or on time. E. Information Systems Issues Bahama Breeze Divestiture: Removing Bahama Breeze from the Darden system will be a timely task. In addition, protecting customer information once the brand is divested is essential to maintain customer loyalty to current Darden brands. Inventory Optimization: The new POS features must be secure and not susceptible to hackers or other cyber attacks. This system will contain vital information to the operation of the company in addition to personal information about employees and customers. A cyber attack may delay operations or result in significant capital expenditure to resolve the problem.
  24. 24. 22 Yard House Advertising Plan: The social media portion of this strategy will drive traffic to Yard House’s website. All technologies for this site must be up to date to accommodate this increase in online traffic. In addition, the media form placed on social media must adhere to the technology available, using the most effective mediums possible. F. Research and Development Issues Due to the nature of the restaurant industry Darden Restaurants does not incur and Research and Development expenses. VII. EVALUATION & CONTROL A. Five-Year Projected Income Statement with Explanation Darden Restaurants will undertake three strategic initiatives to ensure the long-term success and stability of the company. The first strategy, the divestiture of Bahama Breeze, lowers our outstanding long-term obligations and increases cash flows by eliminating $9 milion of interest expense paid each year. The second strategy, the Yard House media plan, increases our top line to provide expanded growth for a smaller brand. The final strategy, inventory optimization, cuts down on avoidable food waste which in turn impacts our bottom line by decreasing expenses. APPENDIX
  25. 25. 23 Appendix A: Organizational Chart Brand Manager Operations Management Team Director of Operations Managing Partner Managers Hourly Employees Executive Chefs Hourly Employees The Capital Grille/ Seasons 52/ Eddie V’s/Bahama Breeze/ Yard House Brand Manager:  Reports directly to executive management Operations Management Team:  Visits and checks on various locations Director of Operations:  Oversees 3-10 restaurants Managing Partner:  Oversees restaurant operations Managers:  Approximately 1-6 per restaurant Executive Chefs:  Approximately 1-3 per restaurant Hourly Employees:  Servers, line cooks, bussers, hostesses, etc.
  26. 26. 24 Appendix B: Organizational Chart President Operations Management Team Senior Vice President of Operations Director of Operations Managing Partner Managers Hourly Employees Executive Chefs Hourly Employees Olive Garden/LongHorn Steakhouse President:  Reports directly to executive management Operations Management Team:  Visits and checks on various locations Senior Vice President of Operations  Oversees 100 restaurants Director of Operations:  Oversees 3-10 restaurants Managing Partner:  Oversees restaurant operations Managers:  Approximately 1-6 per restaurant Executive Chefs:  Approximately 1-3 per restaurant Hourly Employees:  Servers, line cooks, bussers, hostesses, etc.
  27. 27. 25 Appendix C: Price per Plate and Price by Restaurant (Price) Table 2: Entrée/Ticket Price by Restaurant Olive Garden LongHorn Steakhouse The Capital Grille Bahama Breeze Yard House Eddie V’s Seasons 52 Lunch $7-15 $7-15 $12-39 $7-21 $7-32 N/A $8-31 Dinner $10-20 $12-25 $16-59 $9-30 $7-32 $18-61 $11-31 Average $17 $20 $75 $45 $31 $90 $26 The lunch and dinner rows highlight the prices of entrées and various meal options. The “average” row shows what the typical price per person was including both meal and drink (Darden Restaurants, Inc., 2015). Appendix D: Store Breakdown in United States (Place) Table 3: Stores in the United States Olive Garden LongHorn Steakhouse The Capital Grille Bahama Breeze Yard House Eddie V’s Seasons 52 Stores 846 480 54 36 59 16 43 Franchised 20 13 1 0 0 0 0 Darden Restaurants, Inc. currently operates 1,534 restaurants in total between the United States and Canada. There are an additional 34 franchised locations located in airports, Puerto Rico, Middle East, Central and South America, and Malaysia. Overall, Darden projects 18-22 new restaurants to be opened in 2016, ranging from 0-1 Eddie V’s and Seasons 52, 6-8 Yard Houses, 1-2 Capital Grilles, Olive Gardens, and Bahama Breezes, and lastly, 8-10 LongHorn Steakhouses. Appendix E: Marketing Plan (Promotion) Promotion and advertising vary strongly among the seven restaurants. Olive Garden advertises primarily through national television, cable, and local TV ads, as well as utilizing digital advertising (Darden Restaurants, Inc., 2015). In order to enhance its position across various demographics, Olive Garden has created advertisements in Spanish to reach Hispanic customers. LongHorn Steakhouse focuses their
  28. 28. 26 advertising strategy on local television time and digital advertising (Darden Restaurants, Inc., 2015). The remaining five brands avoid television broadcasting, instead focusing on social media, outdoor platforms, direct contact, mail, and the radio (Darden Restaurants, Inc., 2015). In years past, Darden used several advertising agencies to manage their brands; however, in 2014 they began the move for all brands to be handled by one agency. Appendix F: Total Sales 2013-2015 2015 2014 2013 Sales (Millions) $6,764.0 $6,285.6 $5,921.0 Appendix G: SWOT Strengths Seven Distinct Brand Identities As described under Customer Profiles, each of Darden’s restaurants provide customers with a unique atmosphere to better serve its diverse customer base. Each restaurant offers a variety of different foods, ranging from Olive Garden’s Italian cuisine to Longhorn’s high quality steak to Eddie V’s fresh seafood. Darden offers food for any type of dining experience, hitting different markets within the dine-in industry. This gives Darden a competitive advantage over Bloomin’ Brands and Yum! Brands as their offerings are not as diverse or well defined. Menu with Dietary Approved Items With an increase in consumer awareness in the types of food that they are eating, customers are turning towards healthy alternatives when dining out. Darden restaurants offer dietician approved menus that allow people who are looking to eat healthy to dine at one of the various restaurants (“Darden Restaurant Profile”). This also continues to broaden Darden’s customerbase. Large Operational Network Darden operates 1528 restaurants in the United States as well as 40 more locations internationally (Darden Restaurants, Inc.). Today, it is considered the “largest full service restaurant company” in America, serving millions of patrons each year. Company Control
  29. 29. 27 Darden operates and owns all of its restaurants in the United States with optimal efficiency, as the only sites that are franchised are its international restaurant locations (“Darden Restaurant Profile”). This gives Darden complete control over its brands and ensures consistency among the restaurants in different locations. Top-Line Growth From 2014 to 2015, Darden has increased its margins and profitability ratios due to the creation of new restaurants and a better overall performance of existing restaurants (Darden Restaurants, Inc.). A decrease in Darden’s expenses has also occurred, increasing its bottom line and creating better operational efficiency for the company. Weaknesses Reliance on Domestic Market (Weak International Presence) Darden lacks a large international presence, as only 40 of its 1568 restaurants are international locations (Darden Restaurant Profile). Darden has struggled within the past couple of years to maintain these restaurants abroad as strong brands like Olive Garden, do not hold the same integrity as they do in the United States. Darden is missing out on a large portion of its potential market and revenue by sticking mainly to the United States and limiting its expansion. Current competitors are taking advantage of international expansion. To keep up with this competition, Darden needs to consider whether it would add value to the company to expand. Poor Waste Management Currently, Darden sends 71% of its waste to landfills; while its food waste is something that Darden should have complete control over. Inventory control is an extremely important matter for restaurant companies and poor inventory management (waste management) is proving to be a large cost for Darden that is affecting its bottom line. Declining Liquidity Darden’s decline in its current ratio from 1.2 in 2014 to .8 in 2015 proves that there is a decline in liquidity (Darden Restaurants, Inc.). This prevents Darden from generating funds to pay off current debts and prevents Darden from having funds at its expense in the case that an extraordinary expense is incurred. If their liquidity continues to decrease, Darden is put more at risk to not be able to meet their financial needs.
  30. 30. 28 Opportunity Increasing Online Presence Darden has placed significant efforts towards growing its online presence, increasing brand awareness. In 2014, Darden consolidated each of its brands onto one platform, enhancing its marketing towards specific customers segments (“Darden Restaurant Profile”). This online marketing tool has also been able to reach a wider customer base as its advertising is tailored to specific languages, preferences, and locations of its customers. In addition, Darden has tested out new online ordering systems, increasing consumer engagement and brand loyalty. This system was made available nationwide in 2015 in addition to personalized e-gift cards, leveraging more business in alternative ways. More Efficient Technology Available Touch screen ordering systems and improvements in food management software can increase Darden’s bottom line as it allows restaurants to forecast how much food will be necessary for operations, This will also help to address Darden’s waste management concerns. Favorable Growth Trends According to a study by MarketLine in 2015, the restaurant industry is forecasted to grow at a compound annual growth rate of 4.3% between 2014- 2019 (Darden Restaurant Profile). This will provide Darden with new opportunities as its revenues are forecasted to increase because of this trend as well. Threats Intense Competition The full service dining industry is a very competitive market as consumers’ choices are dependent on their tastes, location, economic trends, demographic trends, ect. Darden’s competition comes from a variety of other restaurants within the full service industry, while also competing with fast food restaurants, local restaurants, pre-prepared meals sold at supermarkets, and home cooked meals. Each of these forms of competition could potentially harm Darden’s market share. Economic Trends in Consumer Spending It is evident that consumer spending greatly affects the restaurant industry. Darden could experience a decrease in revenue if there is an economic downturn, causing consumers’ disposable income to decrease (Darden Restaurant Profile). With this decrease, customers will be less willing to spend their money on activities like going out to eat.
  31. 31. 29 Health Concerns Restaurants are subject to numerous different health related issues on any given day as outbreaks of viruses or food-borne illnesses may occur. These instances pose a major threat to Darden as poorly prepared meals may affect Darden’s brand reputation. A health related concern does not have to begin in a restaurant to cause a decrease in customers, as outbreaks like the flu can prevent people from trusting others to handle their food in general. Economic trends in Labor Costs An increase in minimum wage could greatly affect Darden’s income as minimum wage has been rising within the past few years (“Darden Restaurant Profile”). This, along with the threat of employees working overtime, increases Darden’s labor cost, affecting it operating margin. Appendix H: Food Service Transactions KEY FINDINGS Canada has the highest amount of food service transactions per capita United States, Australia, and Brazil have the second highest transactions Russia, South Africa, parts of Europe have the lowest foodservice transactions (Canada)
  32. 32. 30 Appendix I: Total Sales by Segment 2013-2015 % of Sales 2015 2014 2013 Olive Garden 56.03% 57.96% 62.23% LongHorn Steakhouse 22.84% 22.02% 20.79% Yard House 6.95% 6.66% 4.36% The Capital Grille 5.96% 5.78% 5.60% Bahama Breeze 3.09% 3.21% 2.93% Seasons 52 3.53% 3.12% 2.67% Eddie V’s 1.43% 1.25% 1.10% *Disclaimer: Remaining .17% is considered other income. Appendix J: Number of Stores 2013-2015 2015 2014 2013 Olive Garden 846 837 828 LongHorn Steakhouse 480 464 430 Yard House 59 52 44 The Capital Grille 54 54 49 Bahama Breeze 36 37 33 Seasons 52 43 38 31 Eddie V’s 16 15 12 Appendix K#: Waste Management Objective • Decrease Costof Goods Sold Problem • 10 million pounds of preconsumer foodgets donated to Darden Harvest • Signifies there is morebeing wasted Strategy • Rationalizesupply chain to cut costs Tactics •Investin inventory and wastemanagementsoftware •Real-time inventory updatesand suggestions •Connectsoftwareto distribution centers
  33. 33. 31 Appendix L: International Expansion Appendix M: Brand Restructuring Objective • Increase revenueand expandmarketshare Problem • Darden Restaurants relies on its domestic marketplace to generate revenue. Because of this, they are limiting their reach in potential market segments in different geographic locations. Strategy • Expand OliveGarden and LongHorn Steakhouserestaurants into the European market. Tactics • Instead of franchising the international operations, Darden will own and control the restaurants Objective • Decrease debt structure Problem • Sales havegrown overall, butBahamaBreezehas remained stagnant Strategy • Avoid selling off brand • Still generates money • Makesour businesslook questionable to stakeholders Tactics • Slowly transform underperforming Bahama Breeze's into Yard Houses • Yard House is the highest revenue-generating restaurant unit • Open new restaurants in "Beer Loving" cities
  34. 34. 32 Appendix N: Yard House Advertising Plan Appendix O: Bahama Breeze Divestiture Objective • Increase sales for Yard House. Problem • The averageadvertisingspend for Yard Houseiscurrently less than onepercentof Darden Restaurant'stotaladvertising expense. In addition, brand awarenessfor Yard Houseisnot very high. Strategy • Develop amoreaggressiveadvertisingplan specifically for Yard House. Tactics • Implementsocial media marketing • Utilize television combined with sports marketingto effectively reachthe target market. Objective • Decrease long-term debt and related expenses Problem • Bahama Breeze'sgrowthhas remained stagnant Strategy • DivestBahamaBreezeand its related assets Tactics • Apply thecash from sale to an outstandinglong-term note to decrease interestexpense
  35. 35. 33 Appendix P: Base Business Key Assumptions % of Sales 2015 2014 2013 Olive Garden 56.03% 57.96% 62.23% LongHorn Steakhouse 22.84% 22.02% 20.79% Yard House 6.95% 6.66% 4.36% The Capital Grille 5.96% 5.78% 5.60% Bahama Breeze 3.09% 3.21% 2.93% Seasons 52 3.53% 3.12% 2.67% Eddie V’s 1.43% 1.25% 1.10% Appendix Q: Restaurant Brand Sales Growth Rate 2016 2017 2018 2019 2020 Olive Garden 2% 2% 2% 2% 2% LongHorn Steakhouse 12% 12% 12% 12% 12% Yard House 18% 16% 14% 12% 10% The Capital Grille 10% 10% 10% 10% 10% Bahama Breeze 4% 4% 4% 4% 4% Seasons 52 20% 20% 20% 20% 20% Eddie V’s 22% 22% 22% 22% 22% These growth rates were taken from a four-year historical average. In some cases, Darden rounded down because there is no way that certain grown rates were sustainable in the long-term. For example, Yard House had an average growth rate of 35%. Moreover, smaller revenue generating restaurants such as Seasons 52 and Eddie V’s can support their larger growth rates because there is room for expansion in the marketplace. Appendix R: Expenses as Percentage of Sales Food and Beverage 31% Three year historical average Restaurant Labor 31% Three year historical average Restaurant Expenses 17% Three year historical average Marketing Expenses 3% Three year historical average General and Administrative 6% Three year historical average Tax Rate 26.63% Eight year historical average, Darden 10-K
  36. 36. 34 Appendix S: Divestiture of Bahama Breeze Key Assumptions BB Sales $209 million Followed treatment for Red Lobster Disposal BB PP&E Valuation $54.6 million BB portion of Darden PP&E BB Land-Only Leases 16 Proportion of Total Restaurants Ground and Building Leases 2 Proportion of Total Restaurants Space/In-Line/Other Leases 5 Proportion of Total Restaurants Owned Sites 13 Proportion of Total Restaurants BB Food/Beverage Expense $69.5 million Proportion of Total Sales BB Restaurant Labor Expense $69.9 million Proportion of Total Sales BB Restaurant Expenses $37 million Proportion of Total Sales BB Marketing Expenses $0.4 million Darden Marketing Plan - Red Books BB Depreciation Expense $52 million Straight-line depreciation Interest Expense from Note 8 $18.6 million $150 million note at 6% interest due in 2035 Red Lobster % of Sales 85.77% Darden 10-K (2014) Appendix T: Property, Plant, Equipment and Sales Valuation
  37. 37. 35 Appendix U: Bahama Breeze Divestiture Pro Forma Appendix V: Yard House Marketing Plan Key Assumptions Yard House Sales Base Business Pro Forma Marketing Sales Increase in sales of 12% (2016), 10% (2017), 8% (2018), 6% (2019), and 6% (2020) YH Food/Beverage Expense (2016) $14.6 million Proportion to YH Sales YH Labor Expense (2016) $14.8 million Proportion to YH Sales YH Restaurant Expense (2016) $7.8 million Proportion to YH Sales YH Increase in Sales Followed treatment for Olive Garden re-brand OliveGardenRebrandSalesIncrease 5.5% Darden 10-K (2014) Social MediaReach% Increase 20% Followed treatment for Olive Garden re-brand
  38. 38. 36 Appendix W: Yard House Media Spend Plan Appendix X: Schedule of Advertisements
  39. 39. 37 Appendix Y: Social Media Plan Appendix Z: Yard House Target Persona
  40. 40. 38 Appendix AA: Yard House Marketing Plan Pro Forma Appendix AB: Inventory Optimization Key Assumptions Percentage Allocation: Food 87.49% Darden 10-K; Proportion of Breakdown of Beverages Percentage Allocation: Beverage 12.51% Darden 10-K; Cost Breakdown of Beverages Syrus Consulting Cost $500,000 Syrus Industry Professional # of Employees to Train 140,000 Darden 10-K Minimum Wage $7.95 Average of 50 States Hours of Training 2 Consultation with Syrus Industry Professional Annual Software Cost Per Store $18,000 Consultation with Syrus Industry Professional Annual Store Increase 20 Darden 10-K; Historic Growth Trends Food Cost Decrease 2%-4% Consultation with Syrus Industry Professional Initial Investment $5,487,200 CF1 $39,390,000 CF2 $32,270,000 CF3 $66,250,000 CF4 $81,290,000 CF5 $97,250,000 WACC 3.08% NPV $297,970,804
  41. 41. 39 Appendix AC: Inventory Optimizations Appendix AD: Rejecting Strategies – International Expansion Darden’s International locations have been performing badly in the last three years. There have been negative earnings for international locations. At some point in Darden’s future, they should consider expanding internationally; however, they need to focus attention on other issues before expanding abroad. Appendix AE: Rejecting Strategies – Brand Restructuring While the original plan was to turn Bahama Breeze locations into new Yard House locations, there is a large difference in the square footage needed for a Yard House. Therefore, the Bahama Breeze locations cannot fit or handle the Yard House restaurants.
  42. 42. 40 Appendix AF: Darden Restaurants Current Media Spending
  43. 43. 41 Appendix AG: Los Angeles Angels Corporate Sponsorship Appendix AH: Social Media Mock Posts
  44. 44. 42 Appendix AI: Outdoor Advertisements: Billboard
  45. 45. 43 Appendix AJ: Mintel Craft Beer Trends and Buzz Words
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