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Can Olive Garden Save Darden Restaurants?
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Can Olive Garden Save Darden Restaurants?

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The restaurant operator is placing a big bet on the Italian eatery turning around its growth prospects. Here's whether it can actually achieve that.

The restaurant operator is placing a big bet on the Italian eatery turning around its growth prospects. Here's whether it can actually achieve that.

Published in: Food

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  • 1. Can Olive Garden Save Darden Restaurants?
  • 2. Olive Garden is the biggest kid on Darden’s block • It had Q4 sales of $926 million, which accounted for 56% of Darden’s revenues from continuing operations of $1.6 billion. • Its 828 restaurants in U.S. and Canada represent 58% of restaurateur’s total locations . 56.322.9 20.8 Darden Restaurants Revenue Contribution by Concept Olive Garden Long Horn Steakhouse Specialty Group
  • 3. Rebirth of a brand • Darden says Olive Garden chain provides foundation for all future growth • New “brand renaissance” program to enhance position with millennials and multicultural households • Will use platform for renewed same-restaurant sales growth and margin expansion • Greater emphasis placed on fresh ingredients, presented simply, with sense of Italian flair
  • 4. But we’re in a new era of fast-casual dining • Consumers are looking for fresh ingredients, customizable menus, and pleasant atmosphere • Fast-casual chains like Chipotle Mexican Grill and Panera Bread are where growth is happening • Segment unit growth outpaced rest of industry in 2013, expanding total locations by 6% compared to 1% decline at casual, midscale, family, and fine-dining restaurants • Everyone from pizzerias to beer-and-wing joints wants to copy experience
  • 5. That makes organic growth hard to come by • Same-restaurant sales at Olive Garden are on downward spiral – Q4 Revenues fell 2.7% – Comps fell 3.5% • Trouble exacerbated by traffic falling by similar rates -14 -12 -10 -8 -6 -4 -2 0 2 4 6 Dec11 Feb12 Apr12 Jun12 Aug12 Oct12 Dec12 Feb13 Apr13 Jun13 Aug13 Oct13 Dec13 Feb14 Apr14 Darden Restaurant Olive Garden Comps & Traffic Traffic Comps
  • 6. Olive Garden’s competitive moat is drying up Olive Garden is still the premier Italian dining experience, with over 800 locations, but it’s spawned legions of copycats: • Bloomin’ Brands (Nasdaq: BLMN) has 241 Carrabba’s Italian Grill restaurants • Brinker International (NYSE: EAT), 45 Maggiano’s Little Italy • Ignite Restaurant Group (NYSE: IRG), 177 Romano’s Macaroni Grill That means more similar-style restaurants fighting for shrinking piece of restaurant industry’s pie
  • 7. Mama mia! Everyone’s into the sauce! Italian dining theme’s popularity makes it difficult for anyone to grow. -6 -5 -4 -3 -2 -1 0 1 Olive Garden Carrabba's Italian Grill Maggiano's Little Italy Romano's Macaroni Grill -5.6 -1.8 0.2 -4.1 Calendar Year 2014 Q1 Comps (% Chg.)
  • 8. Digital improvements are coming Darden promises additional enhancements will help brand renaissance, including a redesigned website: • National launch of “online To Go,” where orders are placed online for pickup at nearest restaurant • Can be prepaid online and discount coupons used • Favorite orders can be saved • Orders can be placed days in advance Will add tabletop tablets just like Chili’s and Applebee’s
  • 9. The new logo
  • 10. Updated interiors
  • 11. Foolish takeaway • Investors have time to see if changes work. • Management is placing big bet on Olive Garden and track record isn’t the best. • Darden also faces shareholder revolt over Red Lobster sale. • Although stock trades at about 1x sales, it’s also nearly 33x earnings, a steep premium to rivals and better-run concepts. • Taking a wait-and-see approach to the fallout over Red Lobster’s sale is the prudent course of action.
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