Microcosm of Challenges in Casual Dining

There is a battle going on between Darden Restaurants and one of the private equity companies with an ownership stake in Darden regarding the make‐up of the current board of directors. As part of this battle, the private equity company, Starboard Value LLC, put out a pretty brutal 300-page assessment of the challenges faced by Olive Garden right now. I don’t necessarily want to take sides in the argument, but I think a reader of the document could apply these lessons to any of a number of casual chains out there right now.

The lessons I take from this report include the following:

Authenticity counts. Whether you’re an Italian chain, or Mexican, or any other type of restaurant, consumers demand “authentic.” This includes flavors, preparation styles, and drink styles. Too often restaurant concepts try to be “all things to all people” (this also leads to menu bloat and increasing complexity, further deteriorating the experience).

CapEx and investment by itself don’t turn chains around. Darden by all accounts has invested heavily in CapEx and acquisitions, with a return that some feel is questionable. Investing to maintain and refresh a brand is important, but it needs to occur in a broader strategic context.

Front line people need to be heard. One of the complaints is that feedback from GMs at the unit level no longer are heard or have an impact. It’s important to understand what’s happening at the unit level and embrace the insights and recommendations of those that are directly serving the guest.

Training is critical. Darden is one example of a chain that has numerous policies in place that are not regularly adhered to at the unit level. Making sure servers, bartenders and managers understand and adhere to policies is critical.

Finally, the alcohol program should drive profitability. Darden’s concepts, including Olive Garden and Red Lobster before its divestiture, rank significantly below peers regarding percent of sales from alcohol. Focusing effort here can lead to a huge increase in sales and profitability (Starboard estimates Darden could boost EDBITDA by $56 million by growing alcohol sales).

My perspective? The problems listed above can apply to any of a number of concepts, and the chains that are truly successful in this environment do an outstanding job of addressing the issues listed above. Let’s hope more chains start putting these initiatives on the front burner.

Note: This article originally appeared in Beverage Concept Watch, a monthly update on beer, wine, spirits and related trends delivered to members of Technomic’s Adult Beverage Insights Group


David Henkes

David Henkes, a Vice President at Technomic, has been with the firm since 1996. He works with leading suppliers, restaurants, distributors and trade associations to identify growth opportunities in today’s challenging marketplace. He also heads the Beverage Alcohol practice at Technomic. On Twitter, you can follow him @DavidHenkes.

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