MANAGEMENT 4842 - 009
GROUP CASE 1
2/14/2012
Team 4
Catherine Bradshaw
Derek Joyner
Marjorie Landen
Robin Williamson
Megan Willis
Table of Contents
Vision Statement………………………………………………………………..1
Corporate Objectives
Financial Objectives……………………………………………………….1
Strategic Objectives……………………………………………………….2
Corporate Level Strategies……………………………………………………..3
Business Level Strategy………………………………………………………...4
External Analysis……………………………………………………………….4
Opportunities……………………………………………………………...4
Threats…………………………………………………………………….5
Competitive Analysis…………………………………………………………....6
Five Forces Analysis
Rivalry
Tools of Rivalry
Potential Entry of New Competitors
Barriers to Entry
Likely Reactions of Competitors
Competitive Pressures from Substitute Products
Supplier Power
Buyer or Customer Power
Industry Key Success Factors………………………………………………..12
Internal (Company) Analysis………………………………………………...15
Strengths………………………………………………………………...15
Weaknesses……………………………………………………………...16
Financial Analysis…………………………………………………………….18
Strategic Issues………………………………………………………………..21
List of References……………………………………………………………..21
1. Organizational Vision:
Darden Restaurants wants to continue to build a fantastic organization. An organization
that year after year produces consistent financial results and provides a workplace for
employees that will allow them to achieve their personal and professional dreams. Three
important areas Darden seeks to continue to improve are consistency, accuracy, and
efficiency. Striving to improve their positive affect on the economy, business partners,
and most importantly their customers is the overall goal.
2. Corporate Objectives:
A. Financial Objectives:
a. Increase in annual revenue
Revenues increased to $7.5 billion in 2011. This is a 5.44% increase from 2010’s revenue
of $7.1 billion (Mergent). Darden caters to a wide variety of customers with their wide
service mix. The ability to meet the desires of so many individuals increases patronage
and thus increases revenues (Datamonitor).
b. Internal cash flows to fund new capital investment
Darden’s increase in annual revenue and the addition of new restaurants to its product
line create cash flows to fund new capital investments. Investments such as building new
restaurants in new markets in turn create even more revenue.
c. Increase profit margins
The profit margin for 2011 was 6.35%. This margin was lower in 2010 (5.58%)
(Mergent). Darden’s shareholders are expecting the company to return larger profits
every year. They are expecting this based on Darden’s success and its continued
improvement in strategies. Darden aims to please investors and customers and in effect
increase profits.
d. Increase shareholder value
Darden is aware of the crucial role that shareholders play and the importance of returning
sufficient dividends back to those shareholders. In keeping with this goal, Darden has put
some of its restaurants into tax-exempt real estate investment trusts. Leasing the
restaurants to its self, the company takes tax deductions on the expenses and the trusts
pay dividends back to the company (Pedicini).
e. Annual increases in earnings per share
The cash flow per share rose from 6.5 to 6.56 between 2010 and 2011 (Mergent). Darden
is aiming to continue improvements in cash flow and create more value for shareholders.
f. Annual increases in after-tax profits
Net income was $476 million in 2011. This is an improvement from $372 million in 2009
and $404 million in 2010 (Mergent). Darden’s success in reducing expenses and
increasing revenue has resulted in this significant annual increase in profits.
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B. Strategic Objectives:
a. Increase Market Share
Darden understands that profitability is the key to their success. Entering new and
existing markets are some ways to increase profitability. Darden has recently acquired
Eddie V's Prime Seafood and Wildfish Seafood Grille and previously acquired LongHorn
Steakhouse and The Capital Grille in 2008. With these new restaurants, Darden has the
opportunity to reach new markets and continue to be a leader in the restaurant industry
(SmartMoney).
b. Achieve lower overall costs than rivals
Darden achieves low overall costs through economies of scale. Operating on such a large
scale allows the company to spread out expenses and control operating expenses. A
policy against offering discounts on food items and centralized facilities management
perpetuate the reduction of expenses (Datamonitor). Darden’s headquarters is home to the
largest privately owned solar array in Florida. The solar plant is capable of producing 1.9
million kilowatts a year (Spear). The savings on electricity reduce the company’s overall
expenses.
c. Overtake key competitors on customer service
Darden has become creative in the search for outcompeting rivals in terms of customer
service. In light of today’s more health-conscious society Darden restaurants are pledging
to cut calories and sodium in its dishes by 10 percent by 2016 and 20 percent by 2021. A
fruit or vegetable will become the standard side for kids’ meals as well as milk with free
refills. Michelle Obama says, “With this new commitment, Darden is doing what no
restaurant company has done before” (Malkin). By making meals healthier, Darden is
conveying to customers that they care about their health and encourage them to make
healthy choices even when dining out.
d. Brand Recognition
Darden is trying to establish itself as the most well-known and respected brand in the
world. They have branched out to neighboring Canada and franchised five LongHorn
Steakhouse restaurants in Puerto Rico. An unaffiliated Japanese corporation has also
franchised 22 Red Lobster restaurants (Unknown). International expansion is supported
by joint ventures and franchisee agreements and location of new restaurants in new
global markets.
e. Have stronger national or global sales than rivals
Sales for Darden in 2011 were $7.5 billion. Darden has been successful thus far in
out-ranking similar competitors. O’Charley’s only had revenues of $830 million in 2011
(Mergent). Continuance of Darden’s current strategies will maintain Darden’s
competitive edge over rivals in the restaurant industry who are failing to match their
success.
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f. Have a wider product line than rivals
The expansion of Darden’s restaurant line with the addition of LongHorn Steakhouse and
Capital Grille in 2008 (Reuters) and Eddie V’s Prime Seafood and Wildfish Seafood
Grille in 2011 (New), provide Darden with a diverse product line. Such a diverse product
line attracts a wide variety of customers, ensuring their product line is wider than any of
their rivals. Darden has secured a top-notch place in the market.
3. Corporate Level Strategies:
a. Market Penetration
Darden seeks to capture more market share for existing products. One way to accomplish
this task is to utilize the capabilities the Internet provides. Online ordering services are a
convenient way for customers to purchase products when they are not able to dine in the
restaurant. Online reservations would provide customers the assurance of getting a table
on a busy weekend night and also alert staff of the impending arrival of large groups in
ample time to avoid long wait times.
b. Market Development
Darden has created a tactic to provide meals from their restaurants at lower prices.
Offering a three-course meal at Olive Garden for $12.95 provides consumers with tight
budgets the opportunity to dine at Olive Garden when they would not be able to
otherwise. Darden is conscious of the value of developing markets for products that are
already successful.
c. Product Diversification
Darden is constantly improving their products and creating new products to capture new
customers. New recipes, desserts, wines and other beverages are all ways for Darden to
increase the diversity of the products in their restaurants.
d. Horizontal Integration
Darden has already demonstrated their readiness to take on merging with competing
restaurants to pump up revenues and add value to their brand. Continued acquisitions of
similar brands will give customers even more value and increase profits.
e. Related Diversification
The acquisition of Eddie V’s Prime Seafood and Wildfish Seafood Grille were a
continuance of the success that Darden has experienced with its Red Lobster restaurants.
This strategic fit allows Darden to continue on the path of delivering quality food to
customers in a wide variety of markets.
f. Horizontal Diversification
The new restaurants that became a part of the Darden family in the past few years merged
smoothly with the tastes of existing customers. The atmosphere and menus were similar
to what was already provided. There was also an added benefit of different price points
for customers to choose from to fit their budget.
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4. Business Level Strategy:
Differentiation
Darden attracts customers through their commitment to quality and store locations that
capture the heart of the local communities. Each Darden restaurant embodies a carefully
crafted theme and an atmosphere of warmth. The restaurants are strategically positioned
according to the palates of the local patrons. Darden’s strategy also includes locating their
restaurants in accordance with the economic standing of the community (SmartMoney).
5. External Analyses – Opportunities and Threats
A. Opportunities
a. Alliances and Joint Ventures
Darden Restaurants is involved in several partnerships with sustainability groups. The
focus of these groups is to provide sustainable change opportunities across the globe, not
just within Darden. Two main avenues that Darden focuses on are seafood and
agricultural best practices. The Global Aquaculture Alliance works to create a set of
standards for cultivating fish and seafood. In 2009, Darden joined forces with The
Keystone Alliance for Sustainable Agriculture which focuses on implementing
sustainable agricultural practices. The alliance contains about 40 different companies
that provide support and information to teach about sustainable practices. Darden
provides the perspective of food retailers and purchasers.
(http://www.generationcommitment.com/assets/PDFs/20_collaborativepartnerships_FINAL.pdf)
b. Emerging New Technologies
Proper food handling and food safety is a main component in Darden kitchens across the
country. In the past year, Darden has installed 8,500 low-flow aerators in their kitchens.
This new technology helps cut costs of water usage. This has helped save more than
$5,000 worth of water costs in Darden restaurants. The goal is to cut up to 15% of water
usage in each restaurant by 2015. (http://www.generationcommitment.com/#/water/ )
c. Entering New Businesses
In October of 2011, Darden Restaurants announced the acquisition of Eddie V’s Prime
Seafood and Wildfish Seafood Grille restaurant brands. These two brands are in the
market of luxury restaurants. This will allow Darden to reach a new customer base in
full-service dining. This will also put them in a powerful position for long-term
competitive sales growth.
(http://investor.darden.com/releasedetail.cfm?ReleaseID=614552 )
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d. International Expansion
In August 2011, Darden announced plans to expand their brand into Mexico. They have
joined forces with CMR, a leading casual dining company based in Mexico, to open a
minimum of 37 restaurants over the next five years. Also, recently Darden celebrated the
opening of its first restaurant in Dubai. This has allowed Darden to expand
internationally into the Middle East. Darden recently started its international expansion
to add international franchising. The goal of this venture is to enter markets that have the
potential to operate successfully with several restaurants. The direction for choosing
partners is having the ability to successfully operate and manage restaurants, with prior
history to show, as well as the need to develop several of Darden’s brands.
(http://investor.darden.com/releasedetail.cfm?ReleaseID=598784 )
e. Domestic Expansion
Darden Restaurants prides itself on domestic opportunities for growth. There are
currently 1,900 Darden brand restaurants across the United States and Canada. Darden is
always looking for markets that provide opportunities for full-service restaurants. They
seek out areas that can support several restaurants in one area.
f. Supplier Diversity
Darden provides opportunities for supplier organizations to grow their businesses. They
pride themselves on giving diverse companies the opportunity to compete with current
suppliers. They have a Supplier Initiative that focuses on utilizing women and minority
owned businesses to supply their restaurants. Darden pushes a heavy emphasis on
diversity awareness.
B. Threats
a. Increasing Competition
Restaurant and food service industries are highly competitive. Darden Restaurants
competes in several levels of the food industry – casual dining, full-service dining, and
food/bar service. Being a part of so many market segments only increases competition.
(http://www.hoovers.com/company/Darden_Restaurants_Inc/cyhsxi-1-1njea3.html)
b. Shift in Buyer Needs
With any type of restaurant there is always concern for buyer needs. An external threat
that can affect Darden is a shift in buyer needs. Many restaurants offer a variety of food
offerings. Darden’s main avenues are seafood and fine dining. Outside of this buyers
may choose to have different needs for offerings that Darden restaurants do not have. For
example, in locations that are land-locked, many buyers may be concerned about the
quality of seafood. Therefore, they may choose to eat somewhere that does not offer
seafood. Also, price sensitive buyers will choose to skip Darden Restaurants fine dining
options.
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c. Economic Conditions
Economic conditions are always a threat to any business. Declining economies directly
affect buyer wants and needs. While Darden’s casual dining services may not be largely
impacted by this due to lower prices, fine dining options may take a toll. Many buyers
are worried about saving money in rough economic times and don’t see the advantage of
spending more money for good quality food items.
d. Increased Costs
With poor economic conditions come increased operating costs. Gas and electric prices
continue to rise across the country. Therefore, suppliers may have to increase prices due
to ever-increasing gas prices that affect their delivery costs.
e. Changes in Technology
While Darden makes its best efforts to use new, sustainable products for its restaurants,
there are new technologies that competing restaurants can employ to put them at an
advantage over Darden. Many new technologies that Darden should consider using are
efficient cooking appliances, customer check out equipment, delivery services, and green
initiatives.
f. Loss of Sales to Substitute Products
Restaurants are in a constant battle with substitute products. With the increasing amount
of grocery products and rival restaurants, there is a high risk of loss due to substitute
products. Darden needs to assure that it is providing the best quality of foods that rivals
and grocery stores cannot compare to. This is also includes pricing. If a buyer can find a
dish similar to one of Darden’s in a grocery store for a cheaper price, there is a risk of
loss of sales due to this substitute.
6. Competitive Analysis
A. Potential Entry of New Competitors- Strong

Advertisements barriers- Ads are placed in local newspapers, magazines, and are
viewed by consumers daily. The cost of advertisements are a high cost for a brand
new company; however if it were a chain that were opening in a new location that
already has strong name recognition such as the Darden Restaurant’s name it
would be more successful to entering the new location of the industry. A brand
new company will have more difficulty affording the amount of money it costs to
promote the new restaurant, but the new building will cause general public to try
something new, which would take away business from other consumers. For
example, Olive Garden one of Darden’s restaurants offers various specialty offers
for cost efficient three course meals for 12.99, while a local competitor Tripp’s
offers half priced wine and $9.99 pasta meals on Thursday’s. Olive Garden
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advertises their deals on television as well as local ads while Tripp’s
advertisements are based on word of mouth, and advertised on their menu.

Customer loyalty barriers- Restaurant chain’s located all over will give a
customer satisfaction of knowing what to expect instead of trying a different
restaurant. The loyalty barrier is both beneficial and harmful to this industry due
to the amount of companies that are well known within the industry, and are
located in many cities around the United States. If a restaurant has similar style of
food, tastes are similar, then the costumer is going to go to whichever it feels
more loyal to or whichever has the better deal. If a customer receives poor
service, their loyalty decreases and will change their dining preferences to another
restaurant.

Supplier Agreements- The agreements between a company and a supplier can
cause a barrier for a similar company to enter that part of the industry if the main
supplier is unable to have a contract with them. Sea Food suppliers have
agreements with various companies within the Sea Food restaurant businesses that
can prevent more restaurants from entering the industry due to the lack of
availability within the supply chain. This will be an advantage to companies
within the industries that have strong commitments from their suppliers, whom
are unable to break their agreement due to financial reasons or other contractual
reasons.

Economies of Scale- The firm that has been dominating in the industry such as
Darden has been in leading the industry in the world’s largest full-service
restaurant company allows the company to have many resources available to it.
While a new restaurant or a smaller local restaurant does not have access to the
amount of money or resources while entering into the industry especially in larger
cities where many of the restaurants associated in their family of restaurants are
located. It causes a negative barrier to entry based on the location and the amount
of resources the new firm has to offer while entering a new industry.

Strong network affects in the costumers demands- In any industry; the most
advertisement good or bad is in relation to word of mouth by its customers. The
networking capabilities that costumers have involving all forms of technology can
be a beneficial or harmful barrier in this specific industry. When a customer has
had horrible service, or had a meal that was not worth the price that was paid it is
likely that the broadcasting of their feelings will cause a negative impact on that
specific restaurant within the industry. However, when restaurants own different
restaurants and it is not widely known that they are related, the negativity only
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affects a small portion of the market segment rather than the whole firm within
the industry. When costumers have a great experience, they are likely to bring
their friends, and to boast about their experience through various technologies
such as: Checking- In on Facebook, or posting a Tweet regarding their meal on
Twitter for their followers to read, which causes a positive entry within the
industry.

High Capital Requirements- This is a negative barrier to entry to a firm that is
trying to start out in the industry if they do not have the amount of investments
required to be successful. It is a positive barrier where there are enough
investments through cliental and other investors that see this as an opportunity.
The higher amount of money within their budget, the more successful a firm will
be with providing a substantial amount of competitive marketing, and a higher
amount of spending within the building process, as well as obtaining better
suppliers for their food supplies.

Likely Reactions to Competitors
Competitors are likely to be in fear of losing their business due to entrances
within the industry. When a new entry is being offered to the consumers, they are
likely to switch because of the low cost of switching to another restaurant versus
the same one that they visit frequently. Within the restaurant industry, there are
various types of full-service restaurants and Darden Restaurants offers a range of
various types as well as ranges of costs for the consumers. Their name recognition
is beneficial within the industry, however when consumers are tired of the same
restaurants they are more likely to cook their meals at home or to try a competitor
that they may not have been to before. Competitors will be forced to improve
their marketing skills as well as being offering new items on their menus in order
to keep customer loyalty as well as continue to improve their profits.
B. Competitive Pressures from Substitute Products- Moderate

A substitute for Darden Restaurants is staying in and cooking a home cooked
meal rather than going out to eat at a restaurant. The substitute is affected by the
economy, consumers purchasing power, and the time of year where spending can
be higher or lower due to other costs for the consumer.

Buyer power increases when buyer demand is weak-When consumers are not
spending their access money on meals at a restaurant the demand for restaurants
within an industry decrease, which causes their profits to decrease, which has an
effect on their marketing strategies. Businesses are likely to react by proposing
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more cost efficient ways for families to eat out such as: “Tuesday’s kids eat free”,
or “Share a 3 course meal for only $20”. The buyer power increases because the
value that they receive for their money will increase.

Buyers gain leverage if they are well informed- While the age of technology has
been beneficial to both the buyers and the suppliers in an industry; it has been
beneficial for comparisons to buyers. When advertisements for similar substitutes
such as a coupon at the local grocery store versus the same meal at a restaurant
being advertised, it is easier for the buyer to have a more cost efficient response
when comparing prices of the substitutes. It is why different restaurants within an
industry try to offer specials in their advertisements to make a meal in a restaurant
more appealing than cooking it yourself. When two restaurants have similar
specials at the same time, and can be substituted within their own industry such
as: Applebee’s and Chili’s 2 for $20 special, it allows the buyer to use their
leverage of knowing what meals are offered and which has a better value.

Buyers bargaining power is greater when switching to substitutes is relatively
low- When buyers are considering the substitute of making a meal at home, they
will consider the cost, time, and amount of food that they will receive after this
meal is made. Their bargaining power is higher when it is slightly cheaper to
make the same pasta dish at home, and have greater portions than to eat Olive
Garden. This forces Olive Garden to come out with various marketing strategies
such as: All You Can Eat Pasta Bowl for $9.99, where as a consumer it sounds
like an excellent deal however consumers on a budget can make the same amount
of pasta for under $10. This forces firms within the industry to consider lowering
prices during certain days of the week, as well as giving incentives to have
families eat dinner out.
C. Rivalry Among Competing Sellers – Strong

Rivalry increases as it becomes less costly for buyers to switch brands – This
implies that it is less expensive for buyers to switch their purchases from one
seller to another. In restaurants the switching cost for buyers is low due to the
fact that there are so many options for dining.

Products of industry members are weakly differentiated – This implies that the
offerings of rivals are very similar or identical. This decreases buyer-loyalty.
This makes it easier for buyers to switch to rival restaurants with similar
offerings.
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
Competitors are numerous and of equal size – When rivals are of equal size and
strength rivalry increases. Darden has numerous competitors of equal size and
strength. This allows them compete evenly which increases rivalry. There are
several restaurant choices for buyers, as well as several casual dining
opportunities that are in line with the offerings of Darden.

Product demand is growing slow – This implies that rivalry is more intense when
there is unused product. This is especially intense when an industry’s product has
high storage costs. Darden Restaurants are a leading provider of quality seafood.
However, seafood carries a very high storage capacity. If product demand slows,
then these costs can significantly increase. Also, if stored too long, seafood is
highly perishable which would be a total loss of product for the company.

Competitor Pricing – Rivalry can be brutal when competitors enter price wars. In
such a competitive market like restaurants, companies are constantly monitoring
competitor pricing to match or better their rivals.

High exit barriers – This implies that rivalry is strong when assets cannot be
easily sold or transferred and owners are committed to remaining in business.
The restaurant industry has a high number of assets that cannot be easily sold such
as food, appliances, and quality staff members such as chefs. Restaurants that are
having financial issues may heavily cut prices, which can start a price war
amongst competitors. This also causes struggling companies to seek desperate
measures to ensure they stay in the game.
D. Supplier Power - moderate

Whether the supplier industry is dominated by a few large companies: The
pressures that Darden Restaurants have faced from suppliers have not been very
strong. There is countless number of food and beverage distributors that provide
their services to restaurants. Because Darden does have a number of restaurants,
they actually have a link on their website where businesses can apply to be the
distributor for Darden.

Whether supplier’s product is in short supply: In the restaurant industry, the main
supplier is obviously in the food and beverage industry. Because these suppliers’
products are heavily affected by the environment they are able to have some
bargaining power with their customers. For example, if you have been following
the news at all you will know that there has been an ongoing drought in the
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Midwest for at least the past year. Cattle farms can’t afford to buy feed since
grass isn’t growing. Because of their decline in the supply of beef they had to
raise their prices and there isn’t anything that companies like Darden can do about
that. The suppliers have a little more power when it comes to the seafood because
of the restrictions of the fishing laws. There are limits set on the number of
lobsters and other species of fish that caught and because of this these species
have a much higher price range.
http://www.reuters.com/article/2011/08/04/us-usa-droughtidUSTRE7735XJ20110804

Whether it is difficult for industry members to switch their purchases from one
supplier to another: If Darden only had a few restaurants then switching from one
supplier to another would not be hardly an issue. That fact that they have over
1900 restaurants and consistency is one of their main concerns it would be a
pretty serious issue to switch suppliers. Because Darden’s Restaurants are
franchises they tell the owners how to run their business and who to order from.
They want all of their restaurants to be the same. Customers expect the same
service whether they are eating in North Carolina or California.

Whether the supplier industry is dominated by a few large companies and whether
it is more concentrated than the industry it sells to: The food and beverage
industry is definitely a growing industry. There are lists that show the top 100
food and beverage companies. There is more domination in the beverage side of
the industry with companies such as Pepsi and Coca-Cola. Every restaurant is
expected to have one or the other and these companies know this and so they are
able to have more bargaining power. http://www.foodprocessing.com/top100/#1
E. Buyer or Customer Power - moderate

Buyer’s bargaining power is greater when their costs of switching to competing
brands or substitutes are relatively low: While customers of restaurants aren’t
able to actually negotiate the price of their meal, their ability to drive across the
street to another restaurant is their power. The cost of a customer switching to
another restaurant is practically nothing and that’s why restaurant pricing stays
competitive. Restaurants know that if they raise their prices to high then
customers will choose to stay home and cook the meals themselves.

Buyer’s power increases when industry goods are standardized or differentiation
is weak: Darden recognizes that people prefer different foods and if you look at
their different restaurants that have tried to cover three pretty big areas. They
understand that they have to set themselves apart from other restaurant chains. If
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you want seafood, Italian, or a variety of beef and poultry they have it covered.
By catering to the customer this way, it somewhat lowers their buyer’s power.

Buyer leverage power increases if buyers have discretion to delay their purchases
or perhaps even not make a purchase at all: Going out to eat is something that
customers choose to do when they have the extra money. People can choose to go
out once a week, once a month, or not even at all. Because they have this option
to choose restaurants have to make their services more appealing to their
customers and find ways to continue to draw them in. This increases the
customers’ power.

Buyer price sensitivity increases when buyers are earning low profits or have low
income: Since 2008 we have been in an economic recession. Our economy has
started to come back some but it did affect many industries including restaurants.
People’s income was affected and they realized they did not have the extra
income to eat out. They made more trips to the grocery store and fixed their
meals themselves. Restaurants realize that this is a big factor and so they try and
do what they can to keep their meals affordable.
http://www.potatopro.com/Newsletters/20090223.htm
7. Industry Key Success Factors
In the chain restaurant industry there are many competitors to face. Having an upper hand
against these competitors is crucial to stay alive in this industry. In order to do so, identifying a
company’s key success factors is imperative. Key success factors are what we know works well
for our company in order to sustain customers and make a profit. “Correctly diagnosing an
industry’s KSF raises a company’s chances of crafting a sound strategy.” (Text 83)
“Darden restaurants are the world’s largest full-service chain restaurants,” so you can imagine
the KSF it must have to have 14.8% of the industries market share.”(www.darden.com)
1. Broad Product Line
 Darden’s restaurants culinary inspirations come from Maine, Italy, the Caribbean,
and western American.

Its brands are: Red Lobster, Olive Garden, Longhorn Steakhouse, The Capital
Grille, Bahama Breeze, and Seasons 52

Darden’s product lines vary from seafood, Italian, Western cuisine, Caribbean
cuisine, and seasonally and locally inspired 475 calorie limit menus.
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
Each brand offers its customers a special dining experience from dining by the
sea, a big Italian family setting, western Texas, island escape, and private party
and intimate settings.

Darden’s broad product line offers many choices for all of its customers. Because
of such a wide variety they are able to cater to the diversity of their customer’s
wants and needs. Having something for everyone makes well for gaining and
retaining loyal customers.
2. Global Supply Chain
 Darden has a “world-class” supply chain that rivals many of the world’s largest
retailers and provides a significant competitive advantage.

Their suppliers consist of 2,000 in 30 countries around the world, so their suppliers
are truly global.

Darden is able to buy many of the same products for the multiple brands that they
have which helps them effectively cut costs and spend their money where it may be
needed more.

Darden uses a Supply Chain Automation system that allows them to efficiently and
cost effectively manage supply and demands for the markets where they exist,
allowing them to save money by having their products in the right stores when they
are needed.
3. Quality Dining Experience for Low Costs
 Darden offers quality meals for low prices. In the chain restaurant industry,
customers want a variety of quality meals with a variety of ambiance for a
reasonable price. Darden delivers exactly that.

“It operates under a variety of brands and offers variety of food and menu items at
different price points designed to meet guest’s needs.” (IBISworld)

Providing customers with many quality choices for low prices will keep this
company successful for years to come. With the economy the way it has been and
as we are slowly recovering, people want an affordable way to get their families
out of the house and spend time together. What better way than to go to the local
Olive Garden or Red Lobster for an extraordinarily, delicious dining experience.
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4. Marketing
 Clever commercials and marketing of new or featured items, lets potential
customers see a visual of what the food and dining atmosphere are like.

Money saving promotions for customers to have a good meal all for a low price.

For example, Red Lobster is “addressing affordability through a balanced
promotional calendar that offers price certainty and through core menu changes
that include more compelling affordable items. To heighten the visibility of the
brand refresh, they are launching a new national advertising campaign and
updated logos as well as the continuation of their highly successful restaurant
remodel initiative.” (17)

Olive Garden is promoting its enhanced core menu by adding healthier selections
and even more affordably priced meals. (18)

Word of Mouth. Happy customers tell their friends and family about their
experience, the same goes for unhappy customers. Leaving a good impression on
a customer will indirectly help business. People like to try new things, especially
after they have heard good reviews.
5. Customer Service
 Darden spends a great deal of time working with their employees to ensure that
consumers are getting the best service possible. Thorough training from their
Learning Center of Excellence is given to both experienced and inexperienced
new employees. Darden wants to make sure their employees know the menu,
know the ingredients, and are able to adequately answer all of their guest’s
questions and deliver an unforgettable dining experience.

Darden makes sure they provide their restaurant teams with the knowledge and
leadership skills to keep their restaurants running smoothly and in the most
effective way.

Consumers expect quality service in any industry; they do not go back to a place
where they were treated poorly. Poorly treated customers tell their friends and
family and in turn can affect business. Keeping customers happy with employees
who give exquisite customer service will build brand loyalty with those
customers.
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
Excellent customer service along with an exceptional meal is what keeps
customers coming back and gives Darden a competitive advantage over their
competitors. Darden strives to deliver an experience that consistently exceeds
their guest’s expectations.
8. Internal Analysis
A. Strengths
a. Strong Brand Names and Social Image
Darden’s restaurants are widely known in the United States as well as overseas. Darden
has created great reputations for its brands and they continue to do better and better. For
example, Olive Garden was introduced in 1982 and is now the largest most well-known
Italian Restaurant in the US. In 1968, Red Lobster was introduced and has only gotten
more popular as the years have passed. At the end of May 2011, they were operating 670
Red Lobster stores in every state except for Alaska. Darden has been dedicated to
adjusting its brands to the market place and ensuring that their success will be long lived.
For a company to maintain customer loyalty for 44 years and hold the largest percentage
of market share for the chain restaurant industry is remarkable. Their well-known brand
names and the positive social image that Darden holds is strength in this industry which
earns “superior guest loyalty and trust that enables them to sustain profitable market
share growth.”
b. Dedicated Employees
Darden does not just offer their employees a job; they offer an opportunity to have a
rewarding career. In 2011, Darden Restaurants is the first in chain restaurant history to
make Fortune 500’s- 100 Best Companies to work for. Such a prestigious recognition is
a fact that their employees truly enjoy working for them. “In 2011, their Manager in
training program prepared more than 1,300 individuals for restaurant management roles.
A strong commitment to making Darden a special place to be has led to internal
promotion rates of 50% for restaurant managers and 99% for General Managers and
Managing Partners.” (15-shareholder) These statistics are incredible, and this makes
Darden Restaurants a desired place to work. Because their employees are happy, their
guests are happier. Satisfied employees keep a clean and pleasant dining atmosphere and
deliver a more memorable experience to their guests. Great customer service is what
connects their brands with their guests; Darden’s employees are the face of its company.
Their satisfied, dedicated employees work with each other to make Darden a favorite
place to be for both its employees and guests which directly affects its sales growth in the
industry for the better.
c. Strong Shareholder Support
Darden’s long-term success of creating value for shareholders is tremendous. For 14
years they have increased diluted net earnings per share, for 9 years they have increased
the dividends paid to shareholders and they have had $3.4 billion of share repurchase
since 1996.(24) Because they have such a great track record, it only means that
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shareholders will continue to invest in Darden Restaurants and make them even bigger
and better than in previous years. To continue this trend, they plan on increasing existing
and new store sales, expanding its margins, and increasing earnings and creating strong
cash flows. (24- shareholders)
d. Internal Expertise
Darden has various expert teams that come together to make Darden an enjoyable place
not only for its guests but also for its employees. The areas in which they have
considerable time and effort invested are Brand Management, Restaurant Operations
excellence, Supply Chain, Talent Management, and Technology and Finance. Because of
their focus and energy in these important areas, Darden is able to support its strong
brands more effectively and efficiently than its competitors, giving Darden a competitive
advantage.
e. Economies of Scale, Lower Cost of Operations
Because Darden is one of the largest chain restaurant companies in the business, it
operates on a much larger scale than most of its competitors. Serving about 400 million
meals a year between its 1,824 restaurants in the US and Canada, now that is economies
of scale. “This large scale gives Darden bargaining power when making their purchases
of food products and a reduced per unit cost of production.” The bargaining power that
Darden holds is most definitely strength in this industry. (Denominator 360)
f. Cost Saving Measure
Darden has most recently been introducing cost saving measures to improve profitability.
The measure include in-store food waste, cutting labor costs, an abundance of suppliers
to make sure they are getting the best price possible, and also looking at distribution
costs. In 2010, just by watching these few things, Darden saved over $18 million.
Because it was so successful they are also implementing the saving measures with the use
of energy, water, and cleaning supplies. If all goes according to plan, they could possible
save up to $75 million a year due to these cost savings measure. That is exceptional!
(Denominator 360)
B. Weaknesses
a. Geographic Concentration
Darden has focused a lot of its attention in the North American markets and they have
been very successful. Besides about 30 stores outside of the US, they have made the
majority of their success in the American markets. But with uncertain economic and
market conditions, only having a strong presence in the US could potentially be
detrimental. The Asia-Pacific and Europe foodservice markets are only getting larger
and larger and Darden not having a presence in these markets could limit the company
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from reaching full growth potential and taking in larger revenues. Its competitors such
as Brinker International Inc. have taken advantage of these international opportunities
and have operations in over 30 countries. If Darden wants to compete on a larger level,
it is important that they broaden their markets. (Denominator 360)
b. Increasing Debts
In the last three four years, Darden’s long-term debts have increased by $917.1 million.
Along with this increase came an increase of $53.8 million increase in interest expenses.
Having a large debt can hurt the company in more than one way. Such a large debt can
make it difficult to respond to the ever changing business and economic condition, also
having such a large debt and interest expense to pay off will tie up a good bit of cash
flow from operations. With cash flows tied up for debt and interest payments that money
will not be available to use for funding other areas of the business that may be needed.
Lastly, companies with large debts are less likely to get additional financing which can
eventually lead them to bankruptcy.
c. Increased Hourly Wage
From 2007 to 2009, the federal minimum wage increased by $2.10 per hour total. When
minimum wage increases, veteran employee’s wages see a pay increase. Because of
increased labor costs, restaurants had to no choice but to raise meal prices. In order to
maintain previously obtained profit, price levels have to rise. This puts a strain not only
on the restaurant but on its guests also. Times are tough with the economy slowly
rebounding, people want a good value meal and if Darden’s prices keep rising, they will
lose a big chunk of their loyal customers to these increased prices that stem from
increased minimum wages. (Net Advantage)
d. Unpaid Retirement Benefits
Darden offers retirement benefits for its employees. In 2010, Darden under forecasted
the planned assets that were to be used to fund these retirement accounts for its
employees. They under forecasted by $45.6 million. Now Darden will have to make
regular cash contributions to fund these retirement benefits which puts the company in a
sticky situation and “pressurizes the liquidity position of the company.” (Denominator
360)
e. RARE Hospitality International Acquisition
Darden recently went through a RARE Hospitality International acquisition. This is
where a company takes a slight dip to change some operations and in some cases merge
with another company. The point of RARE is to come out of it even stronger than before
and bigger and better than its competitors. When a company under goes RARE, its
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competitors are waiting to intervene because they know that an event such as this can
come with a lot of headaches for both its employees and customers. During the time
period that Darden was undergoing RARE, its competitors were offering mega discounts.
This did hurt Darden because it was continuing to “trade on providing quality service
and value,” and regain its profits and we all know that this cannot happen with discounts.
(IBISworld)
9. Financial Analysis
Although Darden is the leader in the chain restaurant industry, its competitors are fierce. For the
financial analysis, we are using Brinker International Inc. to compare with Darden.
1. Profitability Ratios
These ratios show Darden’s overall efficiency and performance.
Return on Assets (ROA):
ROA
2011
2010
Industry
Brinker Int’l Inc.
8.48
7.13
Darden Restaurants
8.92
7.9
2009
3.38
7.51
Return on assets measures the return on total investments made in the business, the
higher the number is the better, and the number should be moving upward. (text 94)
Darden is clearly doing well in this category; from 2010 to 2011 it grew by one, which is
pretty miraculous considering current economic conditions.
Return on Equity (ROE):
ROE
2011
Industry
Brinker Int’l Inc.
24.23
Darden Restaurants
24.94
2010
2009
19.7
23.18
12.78
24.29
Return on equity measures the return that stockholders are earning on their investments in
the business. This ratio is the most important of all the financial ratios to investors in the
company. This is a number that investors use when deciding whether or not to invest in a
particular company. A return between 12% and 15% range is the average, but the trend
should be moving upwards. Darden has been pretty consistent the last three years, taking
a little dip in 2010 but recovering at an even higher percentage than in 2009. (text 94)
2. Liquidity Ratios
This is the company’s major measure of financial health.
Current Ratio:
Current Ratio
2011
2010
18
2009
Industry
Brinker Int’l Inc.
Darden Restaurants
.55
.52
1.11
.54
.9
.51
Current ratios will show if a company is able to meet its short-term liabilities with its
short-term assets. The ratio should definitely be higher than 1.0, 2.0 is ideal. Here we see
that Darden may have some liquidity issues, and Brinker was doing well until it hit 2011.
Quick Ratio:
Quick Ratio
Industry
Brinker Int’l Inc.
Darden Restaurants
2011
2010
2009
.29
.1
.85
.23
.33
.08
The quick ratio does almost the same as the current ratio but it eliminates inventory and
prepaid expenses that are more difficult to liquefy. The higher the ratio the more liquid it
is. Both Brinker and Darden have major liquidity issues, which can potentially be
detrimental if they get into a sticky situation.
3. Asset Management Ratios
These ratios measure how your company is managing its assets to produce sales. If you
have too much invested in assets, your working capital may be too high, if you have too
little invested you will lose sales and it can decrease profitability, cash flow, and stock
price.
Total Asset Turnover:
Total Asset
2011
Turnover
Industry
Brinker Int’l Inc.
1.66
Darden Restaurants
1.4
2010
2009
1.48
1.39
1.75
1.46
This ratio measures how efficiently your company’s assets generate sales. The higher the
ratio, the better your company is at using its assets to generate its sales. Brinker seems to
be doing a little bit better of a job at using its assets to generate its sales, but Darden has
remained consistent over the last three years.
Inventory Turnover:
Inventory Turnover 2011
Industry
Brinker Int’l Inc.
87.67
Darden Restaurants
21.88
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2010
2009
75.76
23.45
84.75
24.31
Inventory turnover ratios are one of the most important of the asset management ratios.
The number represents the number of times inventory has been sold and restocked each
year. If the number is high, there is danger of having stock outs, if the number is low,
there may be a time where inventory is obsolete. Here Brinker is a head of the game, this
could be a good thing, but also can be a bad thing as stated above. Although Darden’s
numbers are not as high, its numbers are consistent and at a comfortable level.
4. Debt Management Ratios
These ratios measure the company’s debt compared to its financing. These ratios see how
much of the company’s operations are run by debt instead of other ways of financing such
as personal savings, loans, and stocks.
Long-Term Debt to Equity Ratio:
LTD to ER
2011
Industry
Brinker Int’l Inc.
1.15
Darden Restaurants
.76
2010
2009
.72
.77
1.12
1.05
Long-term debt to equity ratios shows the balance between debt and equity in the
company’s long-term capital structure. (text 95) If the ratio is low, then there is more
room for them to borrow more funds if they are needed. The graph shows that Darden and
Brinker have a small amount of their shareholders money invested in its fixed assets.
Total Debt to Equity Ratio:
Debt to Equity
2011
Industry
Brinker Int’l Inc.
1.2
Darden Restaurants
.85
2010
2009
.74
.89
1.13
1.15
This ratio is used to measure funds coming from creditors against funds coming from
owners. If the ratio is high, creditors are faced with a great amount of risk. In 2009,
Darden’s creditors were probably a little worried, but the last two years they have been
able to stay under 1.0, and will be able to borrow more funds if needed in the future.
10. Strategic Issues
1. Increasing brand preference and competitive pricing
Darden restaurants need to continue to strive in being the best preference to each of their
consumers within the sit down restaurant industry. Restaurants are easily chosen not only
by their menu selection, but their price ranges as well. In order to continue to be desirable
to their consumers the marketing strategies have to stay competitive against other chain
restaurants such as: TGI Friday’s, Logan’s, Joe’s Crab Shack and other competitors.
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Having reasonable prices for a three-course meal option allows it to be more affordable
for families to choose their restaurants over others that may be more expensive, or not as
good of food as those that are apart of Darden Restaurants.
2. How to increase presence in un-served international markets
Darden has been successful in North American markets. Entering an untapped market in
other continents such as the European and Asian markets can double their success.
Franchisees can deliver Darden’s company name, while adapting to the foreign cultures
of the new markets and also bear some of the risk until the market is established. Once
established, rapid expansion will increase brand power and create a barrier for new
competition. This specific restaurant chain will be successful due to their restaurant
variety and distinguished management.
3. Seafood Supply
One of the main restaurants apart of the Darden Restaurant chain is Red Lobster and .
They are known for their seafood meals, and offered at a reasonable price. However,
throughout the year the fishing industry is regulated by the wild life commission in each
state and has to abide by their pricing, regulations, and other laws. The laws are for
regulations such as: the time of year that a certain type of fish is allowed to be caught,
how many, and their minimum size. Another law states the minimum that must be paid to
the government per pound of fish, which affects the pricing within the restaurants. When
there is a surplus of a type of fish in their inventory, it is more likely that a special will
arise through their marketing strategies in order to promote that specific catch over
another type of fish in order to create the most profit, and lessen their losses. The seafood
supply should be shipped from other locations in order to widen their supply chain, but
within a quick receiving time in order to keep their fish as fresh as possible.
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