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Darden Restaurants, Inc.

Darden Restaurants, Inc.

5900 Lake Ellenor Drive
P.O. Box 593330
Orlando, Florida 32809-3330
U.S.A.
Telephone: (407) 245-4000
Fax: (407) 245-5114
Web site: http://www.darden.com

Public Company
Incorporated:
1995
Employees: 128,900
Sales: $4 billion (2001)
Stock Exchanges: New York
Ticker Symbol: DRI
NAIC: 72211 Full-service Restaurants

Operating more than 1,168 units throughout the United States and Canada, Darden Restaurants, Inc. began its existence in 1995 as the worlds largest full-service restaurant organization, occupying the casual dining niche between fine dining and quick-service restaurants. Specifically, the company was spun off from General Mills to its stockholders as an independent company, overseeing the restaurant chains Red Lobster, The Olive Garden, and, until late 1995, China Coast.

Founded in 1968 and acquired by General Mills, Inc. in 1970, Red Lobster grew to become the nations largest seafood and casual dining restaurant chain. Launched in 1982, The Olive Garden became the largest chain of casual but full-service Italian restaurants. China Coast was an unsuccessful ethnic restaurant chain that operated during the 1990s. Darden Restaurants two newest concepts, Bahama Breeze and Smokey Bones BBQ Sports Bar, were introduced in the late 1990s and together had 30 restaurants in operation by 2001. Controlling nearly 8.5 percent of the $47 billion casual dining market, Darden Restaurants served approximately 3,000,000 meals per year through its restaurant outlets.

The First Red Lobsters in the Late 1960s

William B. Darden, reared in Waycross, Georgia, opened, at the age of 19, a Depression-era Waycross lunch counter that he called The Green Frog, promising Service with a Hop. He went on to own some local motel and hotel properties and all or part of about 20 Howard Johnson restaurants. Inspired by the great popularity of seafood in two of his eight restaurantsone in Orlando and the other in JacksonvilleDarden opened his first Red Lobster restaurant in Lakeland, Florida, in 1968. Its manager was Joe R. Lee, a native Georgian who later became chief executive officer of Darden Restaurants.

Darden wanted to market a chain of moderately priced, family-style, full-service seafood restaurants. He chose to open in Lakeland because it was as far from the ocean as possible in Florida, and he wanted to test his concept outside of coastal areas. The first Red Lobster proved a booming success, so much so that Darden and his partners had to work full shifts to meet the objective of getting food to the table within ten minutes of the order.

By 1970, there were three Red Lobsters in operation, all in central Florida, and two more under construction. The three units, which despite their name specialized in the fried fish and hush puppies favored by southerners, averaged $800,000 each in annual sales, and earnings were solid, but the company lacked the cash to grow. For General Mills, a diversified food products giant, acquiring Red Lobster Inns of America made sense because General Mills fish sales accounted for about $80 million of revenue, or one-ninth of its total sales. Darden was hired to oversee the chain and open a restaurant headquarters in Orlando. He later became a General Mills vice-president and senior consultant, retired in 1984, and died in 1994.

General Mills upgraded Red Lobster into a midpriced seafood dinner house that was a model of corporate efficiency. Lee, who rose to become president of Red Lobster in 1975, carried a slide rule with him everywhere in the early 1970s to calculate prices and portion weights, and to quantify whatever else could be quantified. He also carried a thermometer in order to assure that entrees had been cooked to the proper temperature before being served. In 1971 Red Lobster established an in-house department for purchasing seafood on a worldwide scale. The company also established, long before the rest of the industry, a computerized point-of-purchase system to track how much of any given item was selling where.

Rapid Growth in the 1970s

Red Lobster grew in each year of operation, and it grew rapidly. By the end of fiscal 1971 there were 24 restaurants with total sales of $9.1 million, and by the end of fiscal 1972 there were 47 with sales of $27.1 million. When Lee was named president of Red Lobster in 1975, there were 97 restaurants with 9,500 employees. In 1976 the General Mills subsidiary opened a microbiology laboratory in Orlando to ensure the quality of its products. Red Lobster ended that fiscal year with 174 units in 26 states and total sales of $174.1 million.

Because of higher costs, attributed in large part to increased fuel bills for truck transportation and fishing boats caused by the Arab oil embargo of 1973-74, Red Lobster again felt the need to upgrade in the mid-1970s. It carpeted the floors, re-styled the interiors, and added a few fresh dishes to its predominantly frozen menu, and it sharply jacked up prices to pay for the improvements. The strategy worked. By the end of 1980 Red Lobster, with 260 units and almost $400 million in annual sales, had reached ninth place among fast-food companies and accounted for more than half of total sales by seafood fast-food companies. Although a sit-down chain, frequently with lounges, it was considered fast food by some analysts because most entree items were delivered frozen.

Alternatively, however, by 1982 Red Lobster was rated as the nations largest dinner-house restaurant chain, this being the name for a restaurant offering table service and a full lunch and dinner menu. With an average annual return on invested assets of 22.3 percent before taxes, it was one of the most profitable chains in its field, and its growth had come entirely without franchising.

Wider Choices in the 1980s

Red Lobster provided General Mills with $75 million in operating earnings during fiscal 1982. By early 1983 there were 350 establishments in 36 states. The first of dozens of franchised Red Lobsters in Japan opened in Tokyo in 1982, and the first Canadian unit opened in 1983. Securities analysts attributed the chains success, in large part, to Red Lobsters position as the only nationwide seafood dinner chain and its extraordinary quality-control measures. According to one of its executives, while seafood could be 16 days old and still legally sold as fresh, Red Lobsters seafood, although frozen, was fresh frozen at five regional warehouses, each with a quality-control laboratory.

During 1982, however, Red Lobster decided to pursue a new direction. The chains research, according to Lee, indicated that its customers resented waiting in line yet did not like being hustled out, and wanted a more casual dining experience, with an atmosphere conducive to drinks, appetizers, and finger food to share instead of massive entrees. Accordingly, a prototype unit opened in Kissimmee, Florida, in 1984 was a grazers delight, with a seafood bar serving up oysters, shrimp, clams, calamari, and other appetizers with drinks, and a glass-enclosed grill where fresh seafood was broiled over mesquite-wood flames. Red Lobster restaurants had deliberately been built without windows so that diners would not take up time seeking a table looking out, but the new unit had picturesque views. Waiters were instructed to relax instead of speeding diners through the dinner cycle.

In 1984, General Mills authorized a $104 million remodeling program for Red Lobster, the largest capital-spending item in the parent companys history. All 370 units were to be overhauled, with the menu 40 percent longer to include such items as seafood salads and pastas, and six or eight fresh fish entrees available, twice as many as in the past. Dinner prices were lowered to draw more customers, with the expectation that patrons would make up for the difference by increased spending on appetizers and alcoholic beverages.

Red Lobster continued to reinvent itself and reward its parent company in subsequent years, passing $1 billion in North American sales during 1988. By then it was General Mills second largest revenue producer, trailing only the cereals division and accounting for about one-fifth of the parent companys business. A food industry analyst told the New York Times, They have a concept that works extremely well, but they also constantly refresh their franchise. . . . If Cajun food is hot, theyll put five Cajun entrees on the menu. Whatevers hot, theyll do it.

By this time Red Lobster was offering more than 100 seafood items every day. To supply its units it was buying about 58 million pounds of seafood every year, combing the worlds oceans for the latest novelty. These included popcorn shrimp, caught off the shores of Brazil, slipper lobster from Thailand, and Pacific orange roughy, a whiterfish from New Zealand to supplement North American standbys from Florida stone crab and Maine flounder to Alaska salmon. By 1995 Red Lobster was purchasing seafood from 44 countries.

The array of options allowed the chain to draw in new customers by featuring bargain specials. Close contact between the chains buyers and thousands of entrepreneurial fishing operations, and delivery by overnight air express services, enabled much of the catch to reach units daily while still fresh. The price of Red Lobster dinner entrees ranged from about $7 to $19 in 1995. Lunch entrees ranged from about $4.30 to $7. Red Lobster also offered a lower-priced childrens menu.

Company Perspectives:

We take pride in providing a terrific dining experience to every guest, every time, in every one of our restaurants. That is how we will be the best company in the casual dining industry, now and for generations.

Questionnaires and focus groups also convinced Red Lobster of the importance of good service to securing follow-up trade. It held a four-day training course for servers before each restaurant opened and then required the staff to attend follow-up monthly classes. After 1986 waiters and waitresses were encouraged to display individuality in serving customers rather than relying on mechanical recitations of what the restaurant had to offer. The uniform of shirts and slacks was replaced by a maroon apron under which servers wore clothing of their own choice. They also were motivated by Red Lobsters reputation for good benefits, flexible hours, chances for advancement, and the hope of earning more than $100 in tips on good nights.

The Olive Garden: 1982-95

Fearing saturation in the seafood market, however, General Mills had decided years earlier to expand its restaurant group, which included York Steak House as well as Red Lobster. In 1982, following five years of painstaking research and about $28 million for development funds, the company opened the first Olive Garden restaurant in Orlando. By the end of 1985 there were eight such units, and by mid-1989 there were 145, making it General Mills fastest-growing business and probably the fastest-growing major chain in the United States.

A 1991 Forbes article found the dinner portions, averaging only $10, enormous, but called the salad soggy with dressing, the chicken bland, and the fettucine alfredo like something out of a TV dinner. The public, however, flocked to these outlets. Average sales per Olive Garden were $2.8 million that year, compared with $3 million for Red Lobster, and both were high for the industry. The Olive Garden ended fiscal 1992 with $808 million in sales and 341 outlets. It reached the $1-billion-a-year sales mark in 1993. The menu, in 1995, included not only Italian specialties such as veal piccata, baked lasagna, and chicken marsala but a variety of veal, beef, and seafood dishes. Dinner entree prices ranged from about $7 to $14.25, and lunch entree prices ranged from about $4.25 to $8.75. A limited-menu Olive Garden Cafe concept in food court settings at regional shopping malls was being tested. There were seven such units in late 1995.

Ill-Fated China Coast: 1990-95

The success of The Olive Garden encouraged General Mills to expand its ethnic food format. After three years of development and test marketing the restaurant group launched China Coast in 1990 as the first national Chinese food chain. This eatery opened with an eight-page menu, in Newsweeks words, about as long as the list of emperors in the Ming Dynasty. The interiors were festooned with bamboo, paper lanterns, and Chinese-character wall scrolls, and the servers wore Chinese-style jackets. Eventually the China Coast chain grew to 51, but it failed to thrive and was ordered closed in 1995. During fiscal 1995 China Coasts sales came to only $71 million, and Wall Street analysts estimated that it lost $20 million that year. Thirty China Coast restaurants were converted into Red Lobsters or Olive Gardens.

Forming Darden Restaurants in 1995

General Mills decided in 1995 to spin off its restaurant operations into a new company so that it could concentrate more on its consumer food products. Lee, the chairman and chief executive officer, named the new company Darden Restaurants in honor of his mentor and Red Lobsters founder. Stockholders received one share of Darden Restaurants common stock for each share of General Mills common stock they held. In their last fiscal year under General Mills auspices, Darden Restaurants constituent units had combined net income of $108.3 million.

Investors failed to rally around Darden Restaurants, whose stock ended its first day of trading on the New York Stock Exchange below the $12 to $13 a share expected by analysts. One securities analyst said that the restaurants had been accounting for only one-quarter of General Mills operating profits while absorbing half of the companys capital spending for expansion and renovation. Nevertheless, its market capitalization of $1.8 billion made it second in size only to McDonalds among the nations publicly traded restaurant companies.

Key Dates:

1968:
William B. Darden opens his first Red Lobster restaurant in Lakeland, Florida.
1970:
General Mills, Inc. acquires the Red Lobster chain.
1975:
Joe R. Lee is named president of Red Lobster; 97 restaurants are in operation.
1982:
General Mills opens its first Olive Garden restaurant in Orlando, Florida.
1984:
Red Lobster begins a $104 million remodeling program.
1988:
North American Red Lobster sales surpass $1 billion.
1990:
The China Coast restaurant chain is launched.
1993:
Olive Garden secures $1 billion in sales.
1995:
General Mills spins off its restaurant operations as Darden Restaurants Inc.; plans are put in motion to close the China Coast restaurant chain.
1996:
Darden Restaurants begins testing its Bahama Breeze Caribbean Grille restaurant concept.
1997:
The firm posts a $91.03 million loss; 48 poor performing restaurants are closed.
1998:
After successful restructuring efforts, Darden Restaurants secures $102 million in profits.
1999:
The company establishes the Culinary Institute of Tuscany in Italy to train Olive Garden chefs; new restaurant concept Smokey Bones BBQ Sports Bar is launched.
2001:
Darden Restaurants continues expansion; net income reaches a record $197 million.

Darden Restaurants indicated in early 1996 that the China Coast experience would not keep it from trying other ethnic formats. In March of that year it began test marketing Bahama Breeze Caribbean Grille, with a menu drawn from Spanish, French, African, Dutch, Indian, and American influences. Entrees, priced between $5 and $15, were to include Bahamian conch chowder, slow-roasted ribs, Caribbean paella, jerk chicken, and rum-glazed yellowtail dolphin, washed down with Caribbean-island beer and other drinks. Lee predicted that, whether Bahama Breeze went into operation or not, Darden Restaurants would add at least two chains to its repertoire by 1998.

Darden Restaurants executives expressed confidence that they were on the right track toward long-term robust growth. Casual dining, according to the company, was the fastest-growing segment of the full-service restaurant market, with sales increasing at more than twice the overall markets rate since 1988 and representing, in 1995, 32 percent of full-service restaurant sales, or $29 billion. The trend toward casual dining, it argued, was reflected in the less formal dress code in the workplace and would continue in years to come. Moreover, the company noted that 40- to 60-year-olds were the most frequent visitors to casual dining restaurants, and that the population aged 45 and older was expected to grow by 40 million through 2010.

At the end of fiscal 1995, Darden Restaurants was operating 1,250 restaurants in every state except Alaska. A total of 73 were in Canada. Red Lobster restaurants were being remodeled, with weathered wood accented by nautical artifacts for a wharfside effect, to be completed by the end of fiscal 1997.

The Late 1990s and Beyond

Despite the companys positive outlook for the future, Darden Restaurants began to experience financial setbacks in 1997 due to market saturation. As such, the company was forced to shutdown some of its poor performing restaurants. Lee commented on the restructuring in a 1997 Nations Restaurant News article claiming, There are some situations where we oversaturated and there were some areas where the market changed. The article also stated, Lee described the closings and write-offs as a strategic move to increase positive cash flow. By the end of the fiscal 1997, 48 restaurants were closedincluding 26 outlets in Canadaand the firm posted a $91 million loss as a result of the restructuring charges.

Determined to get Darden Restaurants back on track, management focused on reviving the Red Lobster and Olive Garden chains and also eyeballed its Bahama Breeze concept to bolster sales. After its lackluster performance in 1997, the company rebounded and secured profits of $102 million in 1998. The following year, the company established the Culinary Institute of Tuscany in Italy. The facility was created to train Olive Garden chefs in an authentic Italian environment. New Red Lobster restaurants were opened with open floor plans and larger bar areas. Olive Garden restaurants also received a new look and were designed to resemble a Tuscan farmhouse. Darden Restaurants also began testing a new restaurant concept entitled Smokey Bones BBQ Sports Bar and opened its first unit in Orlando in late 1999. The restaurant could seat 300 and had a U-shaped bar in the center. Decorated similar to a mountain lodge, the outlet catered to sports fans with 40 televisions throughout the restaurant and monitors at each table.

Having successfully overcome the sluggish sales of 1996 and 1997, Darden began to actively pursue new store openings. By the end of 1999, there were 669 Red Lobster restaurants, 464 Olive Garden outlets, six Bahama Breeze units, and one Smokey Bones BBQ Sports Bar, and additional store openings were slated for the upcoming year. Profits for 1999 reached $140.5 million on revenues of $3.46 billion.

Darden Restaurants entered the new millennium on solid financial ground. Sales increased 7 percent over the previous year while earnings climbed to $173.1 million. During the year, Red Lobster and Olive Garden achieved their tenth and 23rd consecutive quarter of sales increases, respectively. The company as a whole recorded its 14th consecutive quarter of earnings increases. The company posted its best financial year to date in fiscal 2001. During the year, sales reached $4 billion, while earnings increased to $197 million. The number of Bahama Breeze restaurants rose to 21, while nine Smokey Bones were in operationnational expansion for the sports concept was scheduled to begin in 2002. In addition to its financial gains, the company was named by Fortune magazine as one of the top 50 companies for minorities for the third year in a row.

Dardens strategy for 2000 and beyond included a constant reviving of the Red Lobster and Olive Garden chains, expansion of existing new concepts, and the acquisition and development of new concepts. According to Darden, casual dining sales were projected to increase between 6 to 8 percent over the next ten years. Although the American economy began faltering in 2000, the company claimed that historically, the casual dining industry had weathered past economic downturns quite well and that sales had grown during the 1990-91 recession. As such, Darden management remained confident that the company would experience success in the years to come.

Principal Operating Units

Red Lobster; Olive Garden; Bahama Breeze; Smokey Bones BBQ Sports Bar.

Principal Competitors

Brinker International Inc.; Landrys Restaurant Inc.; Metromedia Company.

Further Reading

Carlino, Bill, Darden Gives Up on China Coast, Shutters Units, Nations Restaurant News, September 4, 1995, pp. 1, 7.

, Darden Is Watching Which Way Bahama Breeze Blows, Nations Restaurant News, January 29, 1996, pp. 1, 53.

, Jeffrey J. OHara, Nations Restaurant News, October 9, 1995, pp. 176, 178.

, William Darden, Nations Restaurant News, February 1996, p. 68.

Darden Expanding Four Chains, Food Institute Report, June 25, 2001, p. 2.

Darden Posts FY 97 Loss of $91 Million After Restructuring, Nations Restaurant News, June 30, 1997, p. 12.

Darden Turns Olive Garden and Red Lobster Around, Food Institute Report, November 8, 1999.

Darden Ups 2nd-Q Earnings As It Digs Out of Early Slump, Nations Restaurant News, January 15, 1996, p. 12.

Gindin, Rona, and Richard L. Papiernik, Darden Tests More BBQ Units; Analysts Eye Strategic Growth, Nations Restaurant News, March 20, 2000, p. 1.

Harris, John, Dinnerhouse Technology, Forbes, July 8, 1991, pp. 98-99.

Lavecchia, Gina, Bahama Mama, Restaurant Hospitality, November 1998, p. 64.

McGill, Douglas, Why They Smile at Red Lobster, New York Times, April 23, 1989, Sec. 3, pp. 1, 6.

Miller, Annette, and Karen Springen, Egg Rolls for Peoria, Newsweek, October 12, 1992, pp. 59-60.

Papiernik, Richard, Darden Faces Up to Its Problems, Finds Its Own Solutions, Nations Restaurant News, March 31, 1997, p. 11.

, New Stock Sparks Trades But No Wall Street Fireworks, Nations Restaurant News, June 19, 1995, pp. 3-4.

Phalon, Richard, Amicable Divorce, Forbes, May 8, 1995, pp. 70, 74.

Ponti, James, A Guy Named Joe, Orlando, November 1995, pp. 32-39.

Red Lobster Looking Abroad, New York Times, February 14, 1983, p. D3.

Romeo, Peter, and Scott Norvell, Looking Leeward, Restaurant Business, November 20, 1995, pp. 40, 44-46.

Saporito, Bill, When Business Got So Good It Got Dangerous, Fortune, April 2, 1984, pp. 61-62, 64.

Robert Halasz

update: Christina M. Stansell

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Darden Restaurants, Inc.

Darden Restaurants, Inc.

5900 Lake Ellenor Drive
P.O. Box 593330
Orlando, Florida 32809-3330
U.S.A.
(407) 245-4000
Fax: (407) 245-5310

Public Company
Incorporated:
1995
Sales: $3.16 billion (1995)
Employees: 124,730
Stock Exchanges: New York
SICs: 5812 Eating Places

Operating more than 1,200 units throughout the United States and Canada, Darden Restaurants, Inc. began its existence in 1995 as the worlds largest full-service restaurant organization, occupying the casual-dining niche between fine-dining and quick-service restaurants. Specifically, the company was spun off from General Mills to its stockholders as an independent company, overseeing the restaurant chains Red Lobster, The Olive Garden, and, until late 1995, China Coast. Founded in 1968 and acquired by General Mills, Inc. in 1970, Red Lobster grew to become the nations largest seafood and casual-dining restaurant chain. Launched in 1982, The Olive Garden became the largest chain of casual but full-service Italian restaurants. China Coast was an unsuccessful ethnic-restaurant chain that operated during the 1990s.

The First Red Lobsters

William B. Darden, reared in Waycross, Georgia, opened, at the age of 19, a Depression-era Waycross lunch counter that he called The Green Frog, promising Service with a Hop. He went on to own some local motel and hotel properties and all or part of about 20 Howard Johnson restaurants. Inspired by the great popularity of seafood in two of his eight restaurantsone in Orlando and the other in JacksonvilleDarden opened his first Red Lobster restaurant in Lakeland, Florida, in 1968. Its manager was Joe R. Lee, a native Georgian who later became chief executive officer of Darden Restaurants.

Darden wanted to market a chain of moderately priced, family-style, full-service seafood restaurants. He chose to open in Lakeland because it was as far from the ocean as possible in Florida, and he wanted to test his concept outside of coastal areas. The first Red Lobster proved a booming success, so much so that Darden and his partners had to work full shifts to meet the objective of getting food to the table within ten minutes of the order.

By 1970, there were three Red Lobsters in operation, all in central Florida, and two more under construction. The three units, which despite their name specialized in the fried fish and hush puppies favored by southerners, averaged $800,000 each in annual sales, and earnings were solid, but the company lacked the cash to grow. For General Mills, a diversified foodproducts giant, acquiring Red Lobster Inns of America made sense because General Mills fish sales accounted for about $80 million of revenue, or one-ninth of its total sales. Darden was hired to oversee the chain and open a restaurant headquarters in Orlando. He later became a General Mills vice-president and senior consultant, retired in 1984, and died in 1994.

General Mills upgraded Red Lobster into a midpriced seafood dinner house that was a model of corporate efficiency. Lee, who rose to become president of Red Lobster in 1975, carried a slide rule with him everywhere in the early 1970s to calculate prices and portion weights, and to quantify whatever else could be quantified. He also carried a thermometer in order to assure that entrees had been cooked to the proper temperature before being served. In 1971 Red Lobster established an inhouse department for purchasing seafood on a worldwide scale. The company also established, long before the rest of the industry, a computerized point-of-purchase system to track how much of any given item was selling where.

Rapid Growth in the 1970s

Red Lobster grew in each year of operation, and it grew rapidly. By the end of fiscal 1971 there were 24 restaurants with total sales of $9.1 million, and by the end of fiscal 1972 there were 47 with sales of $27.1 million. When Lee was named president of Red Lobster in 1975, there were 97 restaurants with 9,500 employees. In 1976 the General Mills subsidiary opened a microbiology laboratory in Orlando to ensure the quality of its products. Red Lobster ended that fiscal year with 174 units in 26 states and total sales of $174.1 million.

Because of higher costs, largely attributed to increased fuel bills for truck transportation and fishing boats caused by the Arab oil embargo of 1973-74, Red Lobster again felt the need to upgrade in the mid-1970s. It carpeted the floors, re-styled the interiors and added a few fresh dishes to its predominantly frozen menu, and it sharply jacked up prices to pay for the improvements. The strategy worked. By the end of 1980 Red Lobster, with 260 units and almost $400 million in annual sales, had reached ninth place among fast-food companies and accounted for more than half of total sales by seafood fast-food companies. Although a sit-down chain, frequently with lounges, it was considered fast food by some analysts because most entree items were delivered frozen.

Alternatively, however, by 1982 Red Lobster was rated as the nations largest dinner-house restaurant chain, this being the name for a restaurant offering table service and a full lunch and dinner menu. With an average annual return on invested assets of 22.3 percent before taxes, it was one of the most profitable chains in its field, and its growth had come entirely without franchising.

Wider Choices in the 1980s

Red Lobster provided General Mills with $75 million in operating earnings during fiscal 1982. By early 1983 there were 350 establishments in 36 states. The first of dozens of franchised Red Lobsters in Japan opened in Tokyo in 1982, and the first Canadian unit opened in 1983. Securities analysts attributed the chains success largely to Red Lobsters position as the only nationwide seafood dinner chain and its extraordinary quality-control measures. According to one of its executives, while seafood could be 16 days old and still legally sold as fresh, Red Lobsters seafood, although frozen, was fresh frozen at five regional warehouses, each with a quality-control laboratory.

During 1982, however, Red Lobster decided to pursue a new direction. The chains research, according to Lee, indicated that its customers resented waiting in line yet didnt like being hustled out, and wanted a more casual dining experience, with an atmosphere conducive to drinks, appetizers, and finger food to share instead of massive entrees. Accordingly, a prototype unit opened in Kissimmee, Florida, in 1984 was a grazers delight, with a seafood bar serving up oysters, shrimp, clams, calamari, and other appetizers with drinks, and a glass-enclosed grill where fresh seafood was broiled over mesquite-wood flames. Red Lobster restaurants had deliberately been built without windows so that diners would not take up time seeking a table looking out, but the new unit had picturesque views. Waiters were instructed to relax instead of speeding diners through the dinner cycle.

In 1984, General Mills authorized a $104-million remodeling program for Red Lobster, the largest capital-spending item in the parent companys history. All 370 units were to be overhauled, with the menu 40 percent longer to include such items as seafood salads and pastas, and six or eight fresh-fish entrees available, twice as many as in the past. Dinner prices were lowered to draw more customers, with the expectation that patrons would make up for the difference by increased spending on appetizers and alcoholic beverages.

Red Lobster continued to reinvent itself and reward its parent company in subsequent years, passing $1 billion in North American sales during 1988. By then it was General Mills second-largest revenue producer, trailing only the cereals division and accounting for about one-fifth of the parent companys business. A food-industry analyst told the New York Times, They have a concept that works extremely well, but they also constantly refresh their franchise. If Cajún food is hot, theyll put five Cajún entrees on the menu. Whatevers hot, theyll do it.

By this time Red Lobster was offering more than 100 seafood items every day. To supply its units it was buying about 58 million pounds of seafood every year, combing the worlds oceans for the latest novelty. These included popcorn shrimp, caught off the shores of Brazil, slipper lobster from Thailand, and Pacific orange roughy, a whitefish, from New Zealand to supplement North American standbys from Florida stone crab and Maine flounder to Alaska salmon. By 1995 Red Lobster was purchasing seafood from 44 countries.

The array of options allowed the chain to draw in new customers by featuring bargain specials. Close contact between the chains buyers and thousands of entrepreneurial fishing operations, and delivery by overnight air-express services, enabled much of the catch to reach units daily while still fresh. The price of Red Lobster dinner entrees ranged from about $7 to $19 in 1995. Lunch entrees ranged from about $4.30 to $7. Red Lobster also offered a lower-priced childrens menu.

Questionnaires and focus groups also convinced Red Lobster of the importance of good service to securing follow-up trade. It held a four-day training course for servers before each restaurant opened and then required the staff to attend follow-up monthly classes. After 1986 waiters and waitresses were encouraged to display individuality in serving customers rather than relying on mechanical recitations of what the restaurant had to offer. The uniform of shirts and slacks was replaced by a maroon apron under which servers wore clothing of their own choice. They were also motivated by Red Lobsters reputation for good benefits, flexible hours, chances for advancement, and the hope of earning more than $100 in tips on good nights.

The Olive Garden, 1982-1995

Fearing saturation in the seafood market, however, General Mills had decided years earlier to expand its restaurant group, which included York Steak House as well as Red Lobster. In 1982, following five years of painstaking research and about $28 million for development funds, the company opened the first Olive Garden restaurant in Orlando. By the end of 1985 there were eight such units, and by mid-1989 there were 145, making it General Mills fastest-growing business and probably the fastest-growing major chain in the United States.

A 1991 Forbes article found the dinner portions, averaging only $10, enormous, but called the salad soggy with dressing, the chicken bland, and the fettucine alfredo like something out of a TV dinner. However, the public flocked to these outlets. Average sales per Olive Garden were $2.8 million that year, compared to $3 million for Red Lobster, and both were high for the industry. The Olive Garden ended fiscal 1992 with $808 million in sales and 341 outlets. It reached the $l-billion-a-year sales mark in 1993. The menu, in 1995, included not only Italian specialties such as veal piccata, baked lasagna, and chicken marsala but a variety of veal, beef, and seafood dishes. Dinner entree prices ranged from about $7 to $14.25, and lunch entree prices from about $4.25 to $8.75. A limited-menu Olive Garden Cafe concept in food-court settings at regional shopping malls was being tested. There were seven such units in late 1995.

Ill-Fated China Coast, 1990-1995

The success of The Olive Garden encouraged General Mills to expand its ethnic-food format. After three years of development and test marketing the restaurant group launched China Coast in 1990 as the first national Chinese-food chain. This eatery opened with an eight-page menu, in Newsweeks words, about as long as the list of emperors in the Ming Dynasty. The interiors were festooned with bamboo, paper lanterns, and Chinese-character wall scrolls, and the servers wore Chinese-style jackets. Eventually the China Coast chain grew to 51, but it failed to thrive and was ordered closed in 1995. During fiscal 1995 China Coasts sales came to only $71 million, and Wall Street analysts estimated it lost $20 million that year. Thirty China Coast restaurants were converted into Red Lobsters or Olive Gardens.

Darden Restaurants

General Mills decided in 1995 to spin off its restaurant operations into a new company so that it could concentrate more on its consumer food products. Lee, the chairman and chief executive officer, named the new company Darden Restaurants in honor of his mentor and Red Lobsters founder. Stockholders received one share of Darden Restaurants common stock for each share of General Mills common stock they held. In their last fiscal year under General Mills auspices, Darden Restaurants constituent units had combined net income of $108.3 million.

Investors failed to rally around Darden Restaurants, whose stock ended its first day of trading on the New York Stock Exchange below the $12 to $13 a share expected by analysts. One securities analyst said that the restaurants had been accounting for only one-quarter of General Mills operating profits while absorbing half of the companys capital spending for expansion and renovation. Nevertheless, its market capitalization of $1.8 billion made it second in size only to McDonalds among the nations publicly traded restaurant companies.

Darden Restaurants indicated in early 1996 that the China Coast experience would not keep it from trying other ethnic formats. In March of that year it began test-marketing Bahama Breeze Caribbean Grille, with a menu drawn from Spanish, French, African, Dutch, Indian, and American influences. Entrees, priced between $5 and $15, were to include Bahamian conch chowder, slow-roasted ribs, Caribbean paella, jerk chicken, and rum-glazed yellowtail dolphin, washed down with Caribbean-island beer and other drinks. Lee predicted that, whether Bahama Breeze went into operation or not, Darden Restaurants would add at least two chains to its repertoire by 1998.

Darden Restaurants executives expressed confidence that they were on the right track toward long-term robust growth. Casual dining, according to the company, was the fastest-growing segment of the full-service restaurant market, with sales increasing at more than twice the overall markets rate since 1988 and representing, in 1995,32 percent of full-service restaurant sales, or $29 billion. The trend toward casual dining, it argued, was reflected in the less formal dress code in the work place and would continue in years to come. Moreover, the company noted that 40-to-60-year-olds were the most frequent visitors to casual-dining restaurants, and that the population aged 45 and older was expected to grow by 40 million through 2010.

At the end of fiscal 1995 Darden Restaurants was operating 1,250 restaurants in every state except Alaska. Seventy-three were in Canada. Red Lobster restaurants were being remodeled, with weathered wood accented by nautical artifacts for a wharfside effect, to be completed by the end of fiscal 1997. Of the companys units, 788 were on owned sites and 462 on leased sites. The companys long-term debt was $303.7 million in August 1995.

Principal Subsidiaries

GMRI, Inc.

Further Reading

Carlino, Bill, Darden Gives Up on China Coast, Shutters Units, Nations Restaurant News, September 4, 1995, pp. 1, 7.

, Darden Is Watching Which Way Bahama Breeze Blows, Nations Restaurant News, January 29, 1996, pp. 1, 53.

, Jeffrey J. OHara, Nations Restaurant News, October 9, 1995, pp. 176, 178.

, William Darden, Nations Restaurant News, February 1996, p. 68.

Harris, John, Dinnerhouse Technology, Forbes, July 8, 1991, pp. 98-99.

McGill, Douglas, Why They Smile at Red Lobster, New York Times, April 23, 1989, Sec. 3, pp. 1, 6.

Miller, Annette, and Springen, Karen, Egg Rolls for Peoria, Newsweek, October 12, 1992, pp. 59-60.

Papiernik, Richard, New Stock Sparks Trades but No Wall Street Fireworks, Nations Restaurant News, June 19, 1995, pp. 3-4.

Phalon, Richard, Amicable Divorce, Forbes, May 8, 1995, pp. 70, 74.

Ponti, James, A Guy Named Joe, Orlando, November 1995, pp. 32-39.

Red Lobster Looking Abroad, New York Times, February 14, 1983, p. D3.

Romeo, Peter, and Norvell, Scott, Looking Leeward, Restaurant Business, November 20, 1995, pp. 40, 44-46.

Saporito, Bill, When Business Got So Good It Got Dangerous, Fortune, April 2, 1984, pp. 61-62, 64.

Robert Halasz

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Darden Restaurants, Inc.

Darden Restaurants, Inc.

5900 Lake Ellenor Drive
Orlando, Florida 32809
USA
Telephone: (407) 245-4000
Fax: (407) 245-4000
Web site: www.redlobster.com

LIFE ON LAND IS DRY CAMPAIGN

OVERVIEW

Darden Restaurants, the largest casual-dining restaurant group in the world, operated three distinct restaurant concepts: the Olive Garden, Bahama Breeze, and Red Lobster. With about 700 locations, Red Lobster was the nation's leading full-service seafood restaurant chain, offering fresh seafood at moderate prices. Red Lobster had a disappointing year in 1997, with same-store sales falling 3.9 percent on average unit sales of $2.6 million. Hoping to increase sales and revitalize the Red Lobster brand, Darden Restaurants released its "Life on Land Is Dry" campaign.

Created by the ad agency Euro RSCG Tatham, the $80 million radio and television campaign began in October 1997 and portrayed the seafood restaurant as an escape from life's dry daily routine. To reinforce the slogan, Euro RSCG Tatham created spots that contrasted images of dry, barren landscapes with images of couples and families frolicking at the seashore. The new campaign—which began with television spots during programs like the Major League Baseball playoffs and prime-time programs Friends and 3rd Rock from the Sun—carried the theme "Life on Land Is Dry." The commercials, together with ancillary marketing changes like new menus and the addition of an elevated bar to some restaurants, were designed to create a more energetic personality for the Red Lobster chain. The campaign ended in mid-2000.

"Life on Land Is Dry" marked a strategy shift for Red Lobster. The campaign promoted Red Lobster as a fun-loving restaurant instead of promoting the chain's prices, selection, or food quality. The strategy proved to be effective. During the campaign's second year Red Lobster reported double-digit gains in same-store sales for the first time in nearly a decade.

HISTORICAL CONTEXT

Red Lobster was a pioneer in television advertising among casual-dining chains, putting commercials on the public airwaves long before similar chains such as Chili's, Bennigan's, and T.G.I. Friday's joined the fray. For many years Red Lobster advertisements employed the tagline "Red Lobster for the Seafood Lover in You," developed by its longtime partner Grey Advertising, one of the world's largest ad agencies with billings of more than $5 billion. Grey Advertising's other accounts included Cover Girl makeup, Pantene shampoo, and Kool-Aid fruit drink.

Over time, however, casual-dining competition grew keener, with a host of clever ads vying for the attention of consumers. As Red Lobster's sales began to decline in the mid-1990s, Grey Advertising tried to come up with a new approach that would differentiate the seafood chain from its rivals. In 1997 the agency created a campaign for Red Lobster that provided more emphasis on fresh seafood. The slogan was "Prepared so fresh you can taste it." This campaign reflected Red Lobster's desire to expand its audience not only to those looking for lobster and shrimp but also to people who enjoyed fresh fish. It did not, however, resonate with consumers. "That wasn't the personality we were looking for," Red Lobster spokesman Andrew Dun said. "In today's restaurant world, having a fresh product isn't enough to be differentiated."

In the first quarter of 1997 Red Lobster sales of $475.3 million were about 1 percent below the same period a year earlier. Same-store sales, a measure that excluded new and closed outlets, were down 3.6 percent. The chain worked feverishly to combat the sales slump by introducing a new menu, lowering prices, and sinking more money into employee training to ensure that servers and managers understood the new menu.

None of this seemed to work, however, and in the summer of 1997 Darden Restaurants announced it would review its Red Lobster advertising and consider switching agencies. Prominent ad agencies were asked to submit proposals as part of the review process. Adweek, an industry trade publication, reported that campaigns Darden rejected early on included one by Saatchi & Saatchi that said, "Life is a beach. And we've got the food." The company also passed on a J. Walter Thompson proposal with the theme "Inside every Red Lobster there is a great little seafood place." After extensive review, incumbent Grey Advertising, New York-based Deutsch, and Euro RSCG Tatham, a Chicago ad agency with a strong consumer-products resume, emerged as finalists for the $90 million account. A test of the three agencies' ad strategies determined the winner.

In September Darden selected Euro RSCG Tatham to develop the new Red Lobster campaign. At the time Euro RSCG Tatham was the world's eighth-largest advertising agency, with billings of $7 billion. It had no significant restaurant accounts, although it was working with consumer-product and food companies promoting brands such as Sara Lee, Head & Shoulders, and Old Spice. Euro RSCG Tatham began work immediately on the estimated $80 million campaign. Its contract for the Red Lobster account was structured with an incentive. The more Red Lobster improved, the greater the revenue for the ad agency. Grey Advertising continued to handle Darden's Olive Garden business.

Tatham officials soon began dropping hints in the trade press about the direction of the new Red Lobster campaign. The agency said that it would continue advertising Red Lobster on television but that it would also look at more targeted advertising, such as direct mail and the Internet. New advertisements would include an emphasis on atmosphere as well as on food. "Red Lobster has more to sell than food on the plate," a Tatham official declared. "They have a place, an attitude, a feeling … all of which we will portray in the advertising." Tatham's new ads, featuring the tagline "Life on Land Is Dry," debuted on October 6, 1997.

TARGET MARKET

Red Lobster was a leading player in the market category known as casual dining, whose appeal was primarily to aging baby boomers. This was the group that came of age simultaneously with fast food. As they aged, analysts said, these customers would want full-service, sit-down dining. Although more receptive to ethnic influences on the menus, they still wanted familiar food at moderate prices. "The major challenge [in appealing to this market] would be the economy," said Ron Paul, president of the restaurant-industry consulting firm Technomic. "Casual dining is doing very, very well now because consumers are willing to spend the dollars it takes." But when the economy took a downturn, he noted, consumers traded down to fast food.

COMPETITION

The 1990s were a golden age for casual dining establishments. The restaurants' themes, or concepts, varied, but their menus did not stray far from mainstream tastes. Some companies stuck with one specialty, such as Uno Restaurant Corp. and its famous deep-dish pizza of Chicago. Many chains, however, developed several concepts. Darden Restaurants, for example, was able to establish the two dominant chains in casual dining—the Red Lobster seafood concept and the Olive Garden, which had an Italian theme.

With its focus on seafood, Red Lobster was in the enviable position of having no serious national competitors. Its closest rival, Landry's Seafood Restaurants, operated about 120 seafood restaurants in 26 states. The nation's number two operator of casual-dining seafood restaurants, Landry's operated four chains: Landry's Seafood Houses, the Crab House, Joe's Crab Shack, and Willie G's Oyster Bar. By contrast, steak chains such as Outback Steakhouse and Lone Star Steakhouse & Saloon were in a crowded field and struggled to trumpet points of differentiation.

MARKETING STRATEGY

"We're taking a brand that already has a lot of positive attributes and making it more casual, more energetic," said Wyman Roberts, executive vice president of marketing for Red Lobster, upon announcing the chain's new ad campaign. "Like all brands, we need to evolve into something appropriate for these times."

In Red Lobster's judgment the times called for repositioning the restaurant as a welcome break from the otherwise dry world. The first two 30-second television spots, entitled "Escape" and "Pack Your Bags" and featuring the tagline "Life on Land Is Dry," began airing in October 1997 during prime-time programs such as Monday Night Football, Friends, 3rd Rock from the Sun, Home Improvement, and the Major League Baseball playoffs. The new commercials set footage of Americans of all ages enjoying fun on the beach to upbeat original music. The beach images, shot on both U.S. coasts, in Cape Cod and Los Angeles, were designed to associate the fun and excitement of water experiences with the freshness of Red Lobster fish and seafood. "By tapping into people's memories of great beach vacations and sunny days spent relaxing in backyard pools, we capture their passion for life by the water including their hunger for fresh fish and seafood," said Gary Epstein, managing partner of Tatham.

Subsequent spots in the campaign used contrast to make the same point. Scenes of people doing everyday, mundane tasks on land, using shots of the Los Angeles freeway and the deserts of Lancaster, California, were juxtaposed against the "escape" implied in Red Lobster seafood. "Research showed that our customers long for experiences that take them away from the grind of their everyday routines," Roberts observed. "With this understanding of our customers' needs, we hope to get them excited about seafood and the entire experience of dining at Red Lobster restaurants. In fact, this ad campaign is the first chapter in the larger story of efforts to restructure and rejuvenate Red Lobster."

The "Life on Land" campaign also included a number of beach-themed commercials featuring musical accompaniment from big names such as Rod Stewart and LeAnn Rimes. One spot launching a promotion for snow crab legs featured three older women cavorting across the sand while Rod Stewart's song "Hot Legs" played in the background. The promotion offered one pound of crab legs for $9.99. Another spot employed country-and-western prodigy Rimes's baleful rendition of "Blue" to promote a $14.99 Maine lobster dinner. "It's the story of the end of the season and a woman reflecting on the great summer and the experiences she's had at the seashore. Red Lobster is trying to do a good job of just tapping into that," said Roberts.

To complement its brand-building efforts on network TV, Red Lobster also released a $12 million radio campaign focusing on promotional messages. Radio stations in 60 markets across the country aired 60-second spots supporting the "Life on Land Is Dry" theme. The initiative, which doubled Red Lobster's annual radio spending without eating into TV buys, followed successful local tests that involved sponsorships of local disc jockeys.

RESTAURANT MAKEOVERS—NEXT OPRAH!

What could be done when a restaurant's image had become stale, its identity out of step with the times? The same thing an individual would do in order to spruce up his or her personal appearance: get a makeover. "Re-imaging" was what restaurant industry analysts called it, and it worked wonders for a number of older chains, including Red Lobster. Some of the other operations that successfully reinvented themselves were:

  • KFC. The old gray Colonel just ain't what he used to be. In June 1997 bearded Southern patriarch Harland Sanders (long since deceased in real life) saw his image reconfigured into an edgy "supergraphic" designed to attract younger customers. The restaurant formerly known as Kentucky Fried Chicken also added a host of nonfried items to its menu, including Rotisserie Gold roasted chicken, Chunky Chicken Pot Pie, and the Bacon Ranch Chicken Twister, KFCs take on the popular "wrap" sandwich.
  • The Melting Pot. Fondue just did not have the same appeal it had in the 1970s. As a result, this Tampa, Florida-based chain of 43 fondue restaurants found itself in a prolonged sales slump. Market research indicated that the Melting Pot was perceived as a romantic, special-occasion restaurant that the average customer visited only once or twice a year. To combat this perception the chain unveiled a new logo, remodeled its interiors and exteriors, and launched a new ad campaign positioning itself as "an out-of-the-ordinary dining experience" suitable for any night of the week, not just special occasions.

In 1999 the campaign aired another beach-based commercial, titled "Wingtips," which featured a woman walking barefoot across a pristine beach. The spot's voice-over encouraged consumers to "Breathe. Smile. Eat. Make a mess. Make a memory." The spot deviated from the campaign's other commercials by ending with the tagline "Escape to Red Lobster." The "Life on Land Is Dry" campaign ended in mid-2000.

In addition to the multimedia advertising push, Red Lobster also made a number of cosmetic changes designed to improve the restaurant experience for both its patrons and employees. Dress-code changes for staff allowed servers to wear shorts and colorful shirts with fish motifs instead of the traditional black pants, white shirts, and ties. The company also eliminated its long-standing ban on beards for male workers. The changes were designed to improve morale in this notoriously high-turnover industry.

Significant additions were also made to the Red Lobster menu. More boldly flavored entrees like Louisiana Lacy's Catfish and Hickory Planked Salmon were added, together with a new seafood pasta line backed by TV commercials. "In the past, I think we were guilty of creating a menu that leaned toward the middle of the road," said Tim Rosendahl, the seafood chain's vice president of food and beverage. "Now our seafood gumbo, for example, is much more authentic. It's got a real kick."

Finally, Red Lobster announced a renewed effort to increase awareness of the restaurant's alcoholic beverage offerings. Elevated bars, akin to the ones seen in Bennigan's and T.G.I. Friday's outlets, were installed in select Red Lobster restaurants, while a teal-colored corrugated roof was designed to provide a tavern-on-the-beach feel. With this push the chain hoped to tap a potential new profit engine, since its alcohol sales were only about half the industry average. In the past, Roberts explained, "We did not really push or even acknowledge in our restaurants that it's OK to have a drink."

OUTCOME

Red Lobster's sales slump appeared to have bottomed out by the end of 1997. Sales of $417.8 million, with 49 fewer restaurants, were more than 4 percent below the prior year. Sales on a comparable store basis were down 0.2 percent. On the plus side, profit margins were substantially improved over 1996 because of lower cost of goods sold and reduced selling expenses. More importantly, the company was satisfied with the new course being charted by Euro RSCG Tatham. "Red Lobster has made great progress compared to one year ago and is in the midst of a refocusing on guest satisfaction similar to that successfully undertaken by [t]he Olive Garden," said Joe R. Lee, Darden Restaurants chairman and CEO. "While we celebrate the improvements, we realize we must maintain our focus on great food and great service in order to provide an outstanding dining experience every time."

The company continued to make progress through 1998. After nearly a decade of stagnating or declining fortunes, the chain saw double-digit gains in same-store sales in the third quarter of that year. The 11.6 percent increase marked the biggest such gain in eight years. Analysts credited much of the sales success to the revamped ad campaign. "It's a much classier campaign," observed Stacy Jamar, a restaurant analyst for Salomon Smith Barney. "It's a more appealing image than before." "They [Euro RSCG Tatham] have really done a good job with established brands," added Lehman Brothers analyst Mitchell Speiser. "It has taken a while to turn Red Lobster around because there was a negative perception that it was an old chain and not too relevant. They have done a great job of changing the perception and pruning the portfolio."

FURTHER READING

Howard, Theresa. "Red Lobster Goes Overboard for Diners." USA Today, May 7, 2001, p. B4.

Jensen, Trevor. "Red Lobster Keys on Food, Fun." Adweek (midwest ed.), November 6, 2000, p. 7.

Kramer, Louise. "Red Lobster Ads, Make-Over Seen Turning the Tide." Advertising Age, October 12, 1998.

"A Lobster Campaign." Oklahoma City Journal Record, October 15, 1997.

Mehegan, Sean. "Red Lobster Fights a Drop in Customers with a Campaign Inviting Diners to 'Share the Love.'" New York Times, July 7, 2003, p. 8.

Strother, Susan. "Red Lobster Goes Fishing in Ad Market." Orlando Sentinel, May 2, 1997.

                                        Robert Schnakenberg

                                               Kevin Teague

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