Professional Documents
Culture Documents
: A Detailed Analysis
of Long-term Strategy
TABLE OF CONTENTS
Executive Summary.............................................................................................. 1
Introduction............................................................................................... 4
Analysis................................................................................................................. 5
Problem Analysis....................................................................................... 5
Situational Analysis....................................................................... 5
Market Analysis.....
Discussion..............................................................................................................
Alternative Analysis.....
Criteria Matrix..
Exhibits.....
Endnotes....
Executive Summary
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The following report provides a detailed analysis of the long-term strategy of Darden
Restaurants Inc. More specifically, two major issues outline the analysis: the lack of capital
discipline depicted by the prior Darden board members, as well as the movement away from the
values and missions that made Darden originally successful. Methods of analysis include market
analysis, financial analysis, alternative analysis, and a timeline analysis.
After extensive research, Risky Business Consulting recommends the following actions
be taken. First,
Introduction
Darden Restaurants Inc. is the largest full-service dining organization in America.
Established as a public company in 1995 by General Mills, Darden Restaurants operates some of
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the most recognizable brands within the industry including Olive Garden, Longhorn Steakhouse,
and until recently Red Lobster.
After decreasing financial performance from Red Lobster, Darden board members
pronounced the restaurant's sale to Golden Gate Capital in 2014. With a large backlash from
Darden shareholders, the current board of Darden was replaced. Headed by new CEO Gene Lee,
the new board brought a fresh perspective and a new strategy to Darden Restaurants Inc. The
forefront of the new boards strategy involved increasing capital discipline and a movement back
to the values and mission that made Darden successful. With this in mind, the Darden board
implemented a 100 day plan to enhance the short-term performance of the organization.
Although the 100 day plan appeared to be a success, expectations were very high for
Dardens long-term success in the industry. As a professional consulting firm, Risky Business
Consulting has been tasked with assisting the current board in positioning Darden Restaurant Inc.
for long-term success.
Analysis
Problem Analysis
After much analysis, Risky Business Consulting has discovered two main problems
Darden faces in regards to their search for a long term strategy. The first problem is the lack of
capital discipline in recent years. This includes the unfortunate sale of Red Lobster, and the
increased dividends that were disbursed to shareholders, despite the decrease in operations and
profits. These problems can be linked to the lack of strong leadership in place.
The second problem Darden is facing is the loss of company vision. Darden needs to
ensure that their goals align with shareholder values, and that they are employing strategies that
ensure operations are running more efficiently while maintaining employee satisfaction.
Market Analysis
Due to the issues recently encountered, Darden Restaurants Inc. has found themselves
lagging in a number of categories. At Risky Business Consulting, we feel one of the major issues
faced by the current Darden board is lack of market density, both domestic and international.
Exhibit 1 illustrated below depicts the lack of international industry density by Darden compared
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to competitors. In addition, Exhibit 2 illustrates the potential markets for Longhorn Steakhouse
and Olive Garden within the domestic market.
Although Dardens operating income has increased since the previous fiscal year, it must
be noted that the restaurant industry as a whole has seen major expansion. After facing a major
fall in performance during the 2008 recession, the restaurant industry is increasing rapidly. While
it is difficult to analyze sales growth compared to market growth, an analysis of Dardens
internal advancement can be evaluated.
Exhibit 3 below compares the 2015 and 2016 1st quarter profit margins for Darden
Restaurants Inc. As illustrated, decreasing operational costs within Olive Garden Restaurants has
increased profit margins by over 4% since 2015. An increase in both Olive Gardens and other
Darden operations have led to a 2.83% profit margin increase in Dardens consolidated
operations. Furthermore, although sales have increased in the current fiscal year, it must be noted
that a number of new restaurants opened throughout the year. Exhibit 4 indicates the sales per
restaurant for Darden Restaurants Inc. from the first fiscal quarter of 2015 to 2016. As shown,
there is an upward trend in sales per restaurant in every category of Dardens operations.
Although there are a number of financial performance indicators for Darden, it should be
noted that any plan set in place for Dardens long-term strategy must maintain this upward trend
in profit margin and sales revenue per restaurant. In addition, any plan set forth must provide an
increase in Dardens market density both domestically and internationally.
Discussion
Alternative Analysis
Please note, the following alternatives do not include information on the Real Estate
Investment Trust (REIT) brought forward by the new Darden board. As Darden has already
committed to the trust, we feel no changes should be made to the current structure. By investing
assets in the REIT, we feel Darden Restaurants Inc. will increase short-term cash flow and
provide elevated dividend yields to investors for the long-term. However, no more properties
should be sold to the REIT until other issues facing the organization are addressed.
Alternative 1:
The first alternative involves implementing no major changes to the structure of the
organization. Instead, we suggest focusing on continuing to improve company wide margins and
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enhance specialty marketing. In doing so, there is low-risk to Darden as they can focus on simple
growth moving forward which will result in low short-term costs for the company. Since the
takeover of the new board, Darden has shown significant profits and are doing well in several
aspects. This alternative believes that Darden should not look to make any major changes to the
organization seeing as though it has proven successful thus far. However, this alternative does
not allow for market expansion in future endeavors.
Alternative 2:
The second alternative involves some restructuring of the organization. This option
provides Darden with the opportunity to separate their company into two main components,
these being the Special Restaurants Group and the Developed Operations Group. This
alternative requires Darden to have two separate COOs; one for each of the departments.
Having two COOs provides a more focused approach as both COOs can focus on his/her own
departments activities. Secondly this approach can lead to an increase in potential investors-
those who want to invest only in the specialty restaurants, and those who are interested in
investing in the already developed restaurants. However, this alternative does not enhance
market growth and does not allow for Darden to compete within the industry.
Alternative 3:
The third alternative recommends two major actions take place. First, apply a separation
between the Special Restaurants Group and Developed Operations Group into two separate
divisions within the company as laid out originally by Barrington Capital Group. The Special
Restaurants Group, herein referred to as SRG, will involve the high growth restaurants of
Darden, while the Developed Operations will encompass Olive Garden and Longhorn
Steakhouse. With the increase of Dardens share price of $0.10 above expectations as well as the
turnaround of Olive Garden as per Exhibit 3 and 4, Risky Business Consulting feels this is the
ideal time to begin implementing the SRG spin-off. This spin-off involves creating a separate
corporation for the SRG in hopes of attracting new potential investors for the developing
restaurants. In order to confront each division's unique needs, both the Special Restaurants
Group and Developed Operations sectors will have their own chief operating officers as
illustrated in the new organizational structure in Exhibit 5. However, unlike the plan illustrated
by Starboard, we recommend maintaining the current structure of Darden as much as possible.
Although Risky Business Consulting recognizes the differing needs of the SRG, we feel that
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Darden would be best served by limiting their reorganization requirements in order to allow
Darden to better monitor a movement back to the values and operations which initially made the
company successful.
Second, we recommend implementing a franchising strategy for Developed Operations
into markets that show potential growth both domestically and internationally. Research into
other franchisees shows that implementing franchises in areas of potential growth can increase
market density for Darden Restaurants Inc. Moreover, some markets require local market
expertise that can only be acquired by the franchise model.
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their efforts in eliminating middle management which is currently decreasing bureaucratic
practices. Throughout all these changes, Darden should also continue to control its operation
costs through their company wide margin improvement plan. Finally, potential franchisees and
potential franchising markets should be investigated and a strategy should be established. Darden
should adopt the business format form of franchising as this will create a consistent business
strategy for all its restaurants including marketing, advertising and training. This form maintains
Dardens values, increases purchasing power, and allows for an increased chance of the franchise
succeeding. Dardens main goals for franchise success is included in Exhibit 9.
In the next two years following, Darden should start implementing their franchising
strategy created in year one. This strategy will be focused more on the already developed
restaurants such as Olive Garden and Longhorn Steakhouse. Their focus will be looking into
markets with the greatest franchising potential as per Exhibit 2 below.
Finally, years four and five will be focusing on re-evaluation of the company. Darden
will be ensuring that the new structure of the organization is running with the greatest possible
benefit. As well, they will be evaluating their franchising strategy. Finally, Darden should now
be considering potential franchisees for the SRG Spin-off. These potential franchisees will allow
Darden to enhance market growth in high-growth restaurants.
Exhibits
Exhibit 3
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Exhibit 4
Exhibit 5
8
Exhibit 6
Alternative Analysis Criteria Matrix
Weight % Alt. 1 Alt. 2 Alt. 3
Capital 30% 3 3.5 4.5
Discipline
Market Growth 20% 2 3.5 4.5
Potential
Employee 20% 2.5 3 4
Satisfaction
Company 30% 2.5 4 4
Values
Total 100% 2.5 3.5 4.25
Exhibit 1
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*Based upon Data provided by Starboard Value LP
Exhibit 2:
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*Based upon data provided by Starboard Value LP
Exhibit 7
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Exhibit 8
Exhibit 9
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Darden Franchisee Success Structure
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