buad 311-darden final marketing plan

Darden

Restaurants, Inc.

Marketing Plan Proposal

Block 3, Team 1

Ian Akamine Kaleigh Noon Daniel Perkes

Maggie Skorup Michael Zhang

Darden Restaurants, Inc. 2013 2

Table Of Contents Executive Summary 3 Situational Analysis 4 Internal Company Mission Company Overview Company Analysis Operational Structure Financial Performance Company Update External External Market Environment Competition Consumers Opportunities and Threats Marketing Plan Objectives 12 Marketing Strategy 14 Recommendation Segmentation Scheme Target Market Marketing Mix Plan for Implementation and Control 17 Timeline 17 Metrics 18 Financial Projections 19 Appendixes and Exhibits 20


EXECUTIVE SUMMARY Darden Restaurants, Inc. is a multi-brand corporation that owns eight different full-service restaurants. Since it was founded in 1968, Darden has rapidly expanded across the United States and has more than 2,100 restaurants and $8.5 billion in annual sales to date. As the engine behind many of America’s favorite restaurants and a series of chain restaurants now being made available in several countries abroad, Darden has the opportunity to further expand and develop its international presence. By expanding its specialty brands into the top international airports abroad, Darden will fulfill its top company objectives: to increase its competitiveness abroad and leverage its high-growth specialty brands. We are targeting family and business travelers with mid to high incomes who are interested in enjoying a familiar brand and set of meal options at a convenient location. Although Yum! Brands and local cuisine options will be our primary competitors; we plan to implement these changes over the next few years, beginning in two select international airports in the first year. We will use our positive brand image, memorable customers experiences, and stable finances to create a strong foothold in many countries business abroad.


SITUATION ANALYSIS Internal Company Mission

Darden’s core purpose is “to nourish and delight everyone we serve,” as supported by their core values: integrity and fairness, respect and caring, diversity, always learning/always teaching, being “of service,” teamwork, and excellence. As a reflection of these principles, FORTUNE magazine recognized Darden as one of the “100 Best Companies to Work For” in 2013. Darden’s mission is to be “the best, now and for generations...and a place where people can achieve their dreams.” Company Overview

Darden Restaurants, Inc. is the world’s largest company-owned and operated full service restaurant enterprise. Darden captured four percent (4%) of the full-service restaurant marketing in 2012, as defined by the National Restaurant Association’s 2012 full-service sales total of 202.2 billion dollars. Through its subsidiaries, Darden manages over 2,100 restaurants in the United States and Canada, as well as a small but growing number of international locations. Restaurants under the Darden banner target customers ranging from those who seek affordable, casual comforts to those wanting finer, more exclusive fare. Across its many chains, Darden maintains a strategy of building brand relevance and support through service and promotion, while internally emphasizing a unifying, motivating culture and a competitively superior leadership unit (Darden, 10-K). The three largest brands under the Darden umbrella are all but ubiquitous across the United States: the seafood restaurant Red Lobster, the Italian chain Olive Garden, and the casual American dining LongHorn Steakhouse. Together these three brands comprise roughly 1,930 locations. Additionally, Darden owns a dynamic portfolio of specialty brands, each numbering fewer than fifty locations that include The Capital Grille, Yard House, Bahama Breeze, Seasons 52, Eddie V’s, and Wildfish Seafood Grille. The Darden Group began with a single Red Lobster in 1968 and has developed the Olive Garden, Bahama Breeze, and Seasons 52 entities internally. Most of the restaurants in the internally developed group fall under Darden subsidiaries GMRI, Inc. or N and D Restaurants, Inc. LongHorn Steakhouse locations, as well as the specialty brands, are owned and operated by RARE Hospitality International, Inc., RARE Hospitality Management, Inc., and other subsidiaries. For a more detailed description of individual brands, refer to Exhibit 1 (Darden, 10-K).


Company Analysis: Strengths and Weaknesses

Strengths -Diverse group of restaurants, providing a wide range of foods and dining atmospheres -Strong brand recognition for 3 main brands -Leading presence in the U.S. -One of the top-ranked companies to work for -No franchises in the U.S. and Canada -An extensive management training program -Adapting to meet health-conscious consumers’ needs -Scale gives Darden bargaining power and helps reduce operating costs

Weaknesses -Lack a strong presence in the international market, particularly with regard to their 5 specialty brand restaurants -Perception of serving unhealthy dishes -Currently cutting expenses by $50m -Comprised only of chain restaurants -Declining profit margins in fiscal year 2012 -Decreasing liquidity since 2009 -Intense competition might put downward pressure on margins

Summary of Operational Structure

A General Manager (GM) leads every Red Lobster and Olive Garden, while a Managing Partner (MP) runs LongHorn Steakhouse restaurants. Each GM and MP is supported by three to five additional managers and anywhere from fifty to one hundred and twenty part-time hourly workers. The heads of each restaurant report to their assigned Regional Vice President and Managing Directors, who are preceded by a Senior Vice President of Operations (Darden, 10-K). The Bahama Breeze and Yard House locations are each operated by a General Manager, who is accompanied by one to three culinary managers. A team comprised of a MP, one to six managers, and one to three executive chefs operates locations of The Capital Grille, Seasons 52, and Eddie V’s. The specialty restaurants have a range of sixty-five to one hundred fifty employees, who are also mostly part-time. GMs and MPs report to a Director of Operations, who typically manages a total of three to ten restaurants in the same region (Darden, 10-K). Darden evaluates prospective locations on parameters such as area demographics, visibility, accessibility, and proximity to other activity centers. Darden is currently experimenting with hybrid restaurants as a strategy to reduce the cost of opening new locations. The handful of these Synergy restaurants that currently exist, house a separately run Olive Garden and Red Lobster that are positioned in the same building but accessible through distinct entrances. Four Synergy restaurants were constructed in the fiscal 2013-year and have yielded results that encourage further expansion (Darden, 10-K).


Review of Recent Financial Performance

Operating margins have fallen over the last three years, with costs and expenses ascending to 93.9% of total sales in fiscal 2013 from 92.0% in 2012 and 91.4% in 2011. Total sales have increased by approximately half a billion dollars each year driven primarily by acquired brands and newly constructed restaurants. Olive Garden, for example, has increased its total fleet by approximately thirty-five restaurants in each of the previous five years. LongHorn Steakhouse has gradually increased their pace from 16 additional locations in 2009 to forty-four new restaurants in 2013, whereas Red Lobster’s expansion has been modest at around five net-new locations in each of the last five fiscal years. For Olive Garden and Red Lobster, restaurant openings seem to be the only factor holding sales aloft as expenses increase and squeeze brand margins (Darden, 10-K).

Comps data illustrate the challenges facing Darden’s largest brands. Same-restaurant sales have fallen in three of the last five years for Olive Garden locations, while guest counts have experienced uninterrupted decline. Red Lobster has similarly exhibited negative same-restaurant sales and guest counts in three of the last five years along with a small decrease in average check in fiscal 2013. The seafood chain’s brand-wide sales also declined in three of the last five years. Unlike its companion brands, LongHorn Steakhouse grew in same-restaurant sales and same-restaurant guest counts and enjoyed sales growth of over ten percent in each of the most recent three years (Darden, 10-K; 2009-2013).

The Specialty Group has grown in the last five years from a marginal section of Darden’s operations to the most dynamic part of its portfolio. Through the acquisition of Eddie V’s in 2011 and Yard House in 2012, Darden has managed to expand its Specialty Restaurant Group from sixty-nine total locations in 2009 to one hundred sixty-nine restaurants that in 2013 generated just under one billion dollars in revenue. During that year, four of the brands in the specialty group exhibited sales in high-margin alcoholic beverages that doubled the industry average as a percentage of total sales, while the fifth, Bahama Breeze, comfortably exceeded the mean by seven percent. Overall sales growth from the Specialty Group has been robust since 2010, peaking at 58.3% over the previous year in fiscal 2013. While this figure was a one-time event reflecting the addition of 44 Yard House restaurants to the Darden banner, the trendier, higher-end Specialty Restaurant Group enjoys immense potential for future growth (Darden, 10-K; 2009-2013).

Company Update

Darden’s three largest brands declined in the opening quarter of fiscal 2014. LongHorn Steakhouse fared the best out of the three, an outcome achieved through a previously enacted company strategy to invest in the lowest performing restaurants. Overall, LongHorn recorded an increase in both same-restaurant sales and guest count from the previous year. All measures of guest satisfaction have also improved. Promotions, such as Chef Showcase, seem to have been well received by customers. Nevertheless, operating profits fell due to the increased cost of beef (Darden, 10-Q).

Olive Garden was less successful, as indicated by a 3.8% decline in guest count and a 4% decline in same-restaurant sales. July was the weakest of the summer months for the brand, which the company attributes to poor promotion of the month’s foremost promotion, “Two


Italian Dinners for $25.” On the other hand, guest experience improved in both quality and consistency across restaurants. The small plates “Taste of Italy” promotion was a success, and will be expanded upon in the future (Darden, 10-Q).

While guest satisfaction also improved for Red Lobster, Q1 yielded a decline in guest count by 5.9% and a 5.2% decrease in same-restaurant sales. Promotions in both June and July returned uninspiring results while August’s Endless Shrimp performed in accordance with expectations. The yet-mysterious disruption to the South East Asian shrimp supply exacerbates the pressure on margins exerted by general inflation in seafood prices (Darden, 10-Q).

As a result of the disappointing trends, the company committed to reducing annual costs by $50 million indefinitely into the future, which will result in the elimination of approximately eighty senior positions. Darden has set three strategic priorities to reverse the downward trend of its three largest brands: deliver more consistent experiences, continue to evolve those experiences for customers, and remain affordable for all customer types (Darden, 10-Q).

The specialty restaurant group enjoyed a 72.7% increase in sales, which was largely due to the opening of new locations. Twenty-eight additional openings are planned for the remainder of the fiscal year 2014. The integration of Yard House restaurants into Darden supply chains is proceeding on schedule, as are the necessary upgrades to their point-of-sale systems (Darden, 10-Q). External External Market Environment

As explained in the Quarter One (Q1) shareholder’s conference call, Q1 was a difficult quarter for the entire restaurant industry as it was volatile overall and was down in the summer. Not only did expected improvement in macroeconomic numbers not pan out, but protein prices also increased. The cost of beef and chicken are currently experiencing mid single-digit growth, while the cost of dairy is experiencing low double-digit growth. Moreover, the cost of seafood is expected to double in the near term, especially in light of the shrimp blight in Asia.

The recession deeply affected many consumers, so the restaurant industry must take steps to improve affordability and value for both financially constrained consumers, and financially- comfortable consumers. “These are guests who are more budget conscious because they are young and just entering the workplace or, at the other end of the spectrum, because they have recently retired and are beginning to live on fixed incomes. For other guests, financial constraint is due to macroeconomic factors having nothing to do with life stage that are weighing on employment and income growth. Whatever the reason, the result is a significant number of guests who increasingly base their restaurant choices on affordability” (Darden 2013 Annual Report).

America’s changing demographics and conditions within the political sphere also present both challenges and opportunities. According to Darden’s annual report, “The growing number of Millennial and multicultural guests is influencing taste and guest experience preferences.” Although America’s economic recovery has been slow, the recovery period has shown to be better for the restaurant industry than it was during the past recession. The Affordable Care Act affects every company and Darden is “investing to transition to the new healthcare landscape in a


way that maintains strong employee engagement” (Darden 2013 Annual Report). With regard to international markets, such as those in South East Asia and Latin America, they simultaneously present cultural and implementation challenges, and opportunities for increased profits. Direct Competition

Currently, Darden has multiple direct competitors which include Bloomin’ Brands, Brinker International, Ignite Restaurant Group, DineEquity Inc., and Cheesecake Factory. Bloomin’ Brands and Brinker International own restaurants most similar to Darden’s restaurants. Bloomin’ Brands is home to Outback, Carrabba’s, Bonefish, Flemming’s, and Roy’s. In 2013, Bloomin’ Brands plans to open 130 new restaurants, make lighter menu items, reposition all five brands, and create a broader price spread across each restaurant. Bloomin’ Brands’ new promotional marketing is “Dine” rewards, which rewards a customer every five times he or she dines at a Bloomin’ Brands restaurant (Bloomin’ Brands Inc.). Bloomin’ Brands strives to reach each socioeconomic class with its restaurant choices. Outback and Carrabba’s strive to be economical and price sensitive to lower socioeconomic classes. Carrabba’s has been the #1 Zagat rated Italian chain restaurant. The average cost per meal at these two restaurants is about $20. On the other hand, Bonefish, Flemming’s, and Roy’s serve higher-priced, better quality food that is aimed towards the middle and upper level socioeconomic classes. Bonefish is relatively cheap compared to both Flemming’s and Roy’s. The average cost per meal at Roy’s is about $45 per person. A second major competitor, Brinker International, owns Chili’s and Maggiano’s restaurants. Overall, Brinker International has been extremely successful over the past couple of years. Last year’s corporate sales volume was $2,846,098,000. To continue to drive their profits up and increase efficiency, Brinker International plans to increase kitchen efficiency, exercise better inventory control, and repurchase shares of common stock. Last year about 25% of their sales growth came from carryout and delivery services while 20% of the total sales revenue came from the banquet business. Lastly, Brinker International is very involved in the effort to help the community. For the past seven years, Chili’s has teamed up with St. Jude’s Children Research Hospital to help find a cure for childhood cancer by raising millions of dollars each year for research. Brinker International also has its own charity called the Brinker Family Fund, which was created to help any Brinker employee in need of financial assistance.

Brinker International is effective at implementing promotional deals in both of its restaurant brands. Chili’s is a Tex-Mex American restaurant, with its target clientele being middle and lower socioeconomic class families looking for a night out. In 2013, the average meal price, including alcoholic beverages, was $13.52 per person (Brinker International). Brinker International has about 1,400 Chili’s throughout the world. In the past year, Chili’s has seen its highest value ratings because of the “2 meals for $20” deal and the “$6 lunch break combo.” Furthermore, Chili’s unveiled its “plan to win” strategy last March, which is its new long-term goal for sustainable growth and is shown to have been extremely successful thus far. Brinker International’s other restaurant, Maggiano’s, is a higher end, Italian restaurant priced at $25.56 per person (Brinker International). Maggiano’s goal is to transport its guests to Italy for the night. The company’s marketing strategy includes a promotional deal where for each “classic


pasta” meal a consumer orders, the consumer gets a choice of “classic pasta” to take home as well.

Although there are other direct competitors to Darden, Bloomin’ Brands and Brinker International have been extremely successful in recent years due to changes in their business branding and marketing strategies. Darden, Bloomin’ Brands, and Brinker International encompass similar restaurants types and price ranges. Darden’s understanding of the competition and their branding strategies is important to their leadership of a highly successful and profitable business for years to come.

Indirect Competition

Darden also has numerous indirect competitors including Yum! Brands, Chipotle Mexican Grill, Inc., the Roark Capital Group, and Trader Joe’s grocery stores. Yum! Brands is based in Louisville, Kentucky and encompasses quick service restaurants Taco Bell, KFC, Pizza Hut and WingStreet. The company owns about 37,000 restaurants, 20% of which operate under the direction of the company and the remaining majority operating through franchisees and unconsolidated affiliates. Yum! Brands has been one of the fastest growing retail companies in the world since 2005, as it has been opening an average of three new restaurants per day in its targeted restaurant sectors abroad. The company has seen its highest yield to returns through its expansion into China, with cash paybacks within three years.

Nevertheless, restaurant segments in both domestic and foreign markets have been in decline recently. Yum! Brands has also been affected and between January 15 and June 15, 2013, the company’s overall revenues decreased by 8% to 5.44 billion dollars and their net income decreased by 22% to 618 million dollars. This revenue decrease reflects the overall American restaurant segment decrease by 13% to 709 million dollars and overall Chinese restaurant segment decrease of 7% to 1.45 billion dollars. Due to strong brand recognition and low-cost convenience food, KFC, Pizza Hut and Taco Bell continue to be “global leaders in the chicken, pizza and Mexican-style food categories, respectively” (One Source). There are 3,701 KFC restaurants in over 700 cities in the United States, with over 600 stores serving breakfast. The KFC chain is continuing to expand into new cities, as well as increasing its presence in existing markets. There are 626 Pizza Hut restaurants in the United States, and this number is growing as Pizza Hut is expanding to lower-income cities. Pizza Hut maintains a wide variety of food choices, offers consistent value and refreshes 25% of its menu a minimum of two times per year. 800 Taco Bell restaurants on the West Coast serve breakfast, while another chain strength includes its highly popular late-night option. Yum! Brands is strong in several areas and its current advantages over Darden include breakfast and late-night options, a strong social component supporting community projects and research highly, highly profitable expansion into the Chinese prepared food market, and online “e-clubs” providing customers with coupons, promotions and information (OneSource).

Another restaurant type that competes with Darden Restaurants is a sit-down restaurant with no wait service, such as Chipotle Mexican Grill, Inc. Chipotle’s restaurant locations span across the United States, as well as in Toronto, Canada and London, England. As of December 31, 2011, Chipotle operates 1,230 restaurants and utilizes 22 independently owned and operated regional distribution centers responsible for supplying ingredients and necessary operating


supplies to each chain location. Chipotle has seen a recent increase in demand for its products and services and between January 30 and June 30, 2013, Chipotle’s revenues increased by 16% to reach 1.54 billion dollars and net income increased by 14% to stop at 164.4 million dollars. As of June 30, 2013, Chipotle’s five-year sales growth ratio equaled 20.26 while the U.S. restaurant industry five-year sales growth ratio was only 7.61 (OneSource).

A third major indirect competitor of Darden is the Roark Capital Group, whose portfolio includes companies such as Schlotzsky’s Deli, Moe’s Southwest Grill, Arby’s, Il Fornacio, Auntie Anne’s, and McAlister’s Deli (roarkcapital.com). Schlotzsky’s Deli encompasses restaurant locations in 35 different U.S. states and 4 countries outside of the United States. This chain’s strengths include its online ordering option, strong catering service, menu variety, e-club and annual Bun Run to support Austin Sunshine Camps (schlotzskys.com). Moe’s Southwest Grill was founded in December of 2000 and operates 460 different locations in both the United States and abroad. Moe’s Southwest Grill is differentiated by its use of organic and natural ingredients in select dishes, unique music played and promoted at each location, support of the Juvenile Diabetes Research Foundation, sustainable mission and catering options (moes.com). Arby’s has restaurants in every U.S. state, excluding Rhode Island and Vermont. Its abroad locations can be found in Canada, Turkey, the United Arab Emirates and Qatar. Arby’s has strong brand recognition and established its own Arby’s Foundation to bring an end childhood hunger in America (arbys.com). Il Fornacio provides upscale Italian dining at its 21 locations that are primarily on the West Coast, with one in Reston, Virginia. Il Fornacio offers online ordering, breakfast, lunch and dinner, an annual food festival, retail markets in several locations, and catering at prestigious West Coast hotels (ilfornacio.com).

An additional option available to customers is the comfort and convenience of dining at home, as offered by high-quality grocery stores. Trader Joe’s is one such grocery store that was founded in 1958 and operates a chain of 367 stores across the United States that are located in over 25 states and the District of Colombia. Trader Joe’s strengths include its wide variety of food products, extensive private label products, operation of leaner and plainer grocery stores, and minimal product packaging. The company’s stores provide groceries ranging from organic foods to gourmet and imported food options to unusual frozen foods and frozen prepared meals. Their use of minimal packaging has significantly reduced their operating costs, giving them a competitive advantage over their direct competitors. Trader Joe’s also utilizes a minimal marketing promotion, choosing not to promote their coupon, discount or gift card offerings online, and instead promoting the quality and uniqueness of their products in-store. According to Art Turock, principal at Art Turock and Associates in Kirkland, Washington, “the company’s true edge over conventional chains is the fact that 80% of the offerings are private label, with a quality and uniqueness the chains cannot duplicate,” while other retailers’ private label products only make up about 25% of their grocery merchandise. In this way, customers can’t purchase these products anywhere else and Trader Joe’s has the ability to frequently introduce and develop new products, thereby keeping a large variety of options (Onesource).


Customer Analysis

As a company that serves over 400 million meals per year, Darden devotes much of its efforts to operating restaurants that are customer-centric. Otis, Darden’s CEO, describes the company as being analytic, as opposed to intuitive, with regard to understanding its customers. For example, questionnaires are used at each restaurant location to monitor customers’ experiences and opinions on a daily basis (Salter). The company focuses not only on sales per restaurant as a key data piece, but also on customer potential and the number of customers served per week as equally crucial measurements of success (Derven). Darden’s various restaurant chains target value-minded customers who consider costs when making food-related purchase decisions, and yet have sophisticated palates at the same time (Carpa). Targeted customers not only have changing tastes and preferences, but they also continue to seek offerings with higher-quality ingredients and convenient, “flexible experiences that fit their schedules” (Darden 2013 Annual Report). Furthermore, the changing tastes and preferences of guests that are both financially constrained and financially comfortable have been shown to be attributed to “an increasingly multicultural and multigenerational” society (Darden 2013 Annual Report).

Since 2011, Darden has directed its resources towards satisfying the health-conscious consumer segment, both on individual and family levels. The company has committed to reduce its caloric and sodium contents in all menu items by 10% by the end of 2016 and by 20% by the end of 2021. This gradual timeline for change implementation is expected to minimize adverse reactions from regular customers. Furthermore, Darden has partnered with Michelle Obama’s “Let’s Move!” campaign and Partnership for a Healthier America. In order to satisfy the needs of a health-conscious family, Darden is removing carbonated soft drinks and french fries from all kid’s meal menu choices. They will be substituted with low-fat milk and side dishes of fruits and vegetables; however, only at the request of an adult, can these new substitutions be replaced with the former, unhealthy options (Business Source Complete).

As of 2013, Darden has begun recognizing and targeting customers who “feast on new and trendy” (Carpa). This consumer segment likes trying new meals when dining out and is enticed by new menu options at restaurants that they frequent. In an attempt to satisfy this segment, Darden has intensified its focus on creating seasonal menus and introducing new meal selections every so often. In order to execute these changes, Darden began collaborating, both within the company’s various departments and with its outside food vendors and chefs, to combine existing ingredients in new ways and greatly reduce the turnaround time in discovering, perfecting and implementing new dishes (Carpa).

Olive Garden, in particular, is a restaurant chain that clearly values the role of the customer. The typical Olive Garden customer comes in search of efficient service and a short wait time, a good environment for children, and authentic Italian food, which is why some of their chefs and staff members spend time in Italy each year. In an effort to better connect customers with the company’s large-scale operations, Olive Garden’s President shares customer letters with the Executives at the beginning of each meeting, who in turn share them with each location’s management and employees. It is in this way that Olive Garden reminds its employees of each customer’s invaluable role and highlights the key social role restaurants are able to play in special occasions and family celebrations (Salter).


Opportunities and Threats

Opportunities -Open more higher-end, specialty restaurants -Further international expansion -Expand and advertise skinny menu in Olive Garden & Red Lobster brands -Marketing through social media -Increase alcohol sales in 3 major brands -Expand curbside pick-up to Longhorn Steakhouse brand -Increase curbside pick-up advertising -Open a new restaurant chain altogether -Strategic acquisitions -Rapidly expand synergy restaurants

Threats -Competitors have well-received international locations -Price competition -Changes in U.S. consumer eating habits -Protein prices rising -Overall U.S. restaurant segment revenue decrease by 13% in the last fiscal year -Changes in government regulations -Rising labor and food safety expenses -Highly competitive full-service dining sector

MARKETING PLAN OBJECTIVES

Darden’s marketing objectives include increasing profits throughout each of its brands and reaching a wider customer base, particularly that of the younger population and international market segments. It is Darden’s objective to increase profits significantly within the next five years by refreshing its image in current domestic markets and expanding its presence overseas. Opportunities for Growth Option One: Further International Expansion in Airports Darden's lack of a strong presence in the international food market is a weakness, since competition is reaping the monetary and brand benefits of rapid global expansion. International customers who are wary to try new Darden products would pose a threat to such expansion; therefore, Darden would have to be strategic in its promotion of oversea chain openings. In spite of these potential complications, international markets are a huge potential opportunity for the company. To start its spread internationally, Darden can open several specialty restaurants in large international airports, first opening in Heathrow and Frankfurt. These restaurants would be strategically placed, either nearest to passengers’ gates or in popular retail and dining areas, depending on the restaurants’ primary target market clientele. Meal preparation times would also be listed for each entree category, to ensure that customers in a hurry can reach their gate in time. This would expand Darden within reach of the indirect competition, such as Yum! Brands, while also starting a new line to compete with its direct competition.


Option Two: Increase Alcohol Sales in Three Main Brands

A second option would be for Darden to focus on increasing its sales in high-margin alcoholic beverages within its three main brands. Research shows that of an average bill of $16.50 at Olive Garden only 7.5% comes from alcohol sales, while only 7.8% of an average bill of $20.50 at Red Lobster is attributed to alcohol sales. Of an average bill of $18.75 at LongHorn Steakhouse, 9.8% comes from alcohol sales (see Exhibit 2). Compared to the industry average of alcohol, which accounts for fifteen percent (15%) of sales, each of the three main brands has room for drastic improvement. In order to cater to a younger target segment, while maintaining the family atmosphere that it has already created, Darden's three major brands should focus on increasing these alcohol sales percentages. The company's three major brands should have Happy Hour specials offered throughout the week, promote specialty drinks with in-restaurant posters and table-top pamphlets, include a drink and appetizer rewards program, and possibly expand outdoor seating to include an outdoor patio and bar in select locations. Target locations could include large cities and college towns. Option Three: Recreate Image of Three Main Brands as Healthier Dining Options

A third option would be to recreate the image of Darden’s three main brands as healthy, full-service dining options. Many of Red Lobster and LongHorn Steakhouse’s television advertisements feature images of rich, high-fat and high-calorie dishes. Although Olive Garden offers “Lighter Italian Fare” as a part of their menu, this section features only five entree options, each of which are under 575 calories. LongHorn Steakhouse has a “Flavorful Under 500” section in their menu, which features lighter portions of smaller sizes, while Red Lobster has a very small list of “Lighthouse” selections. Darden has an opportunity to adapt to meet the changing needs and desires of American diners, many of whom are becoming increasingly more focused on choosing healthy, nutritious meals when dining out. Although Darden has implemented these small light menus in its 3 main brands, they are clearly not each chain’s focus. More energy should be put into expanding its light-menu options in each of the three main brands and offering more creative, fresh and delicious food combinations prepared with natural ingredients and cooking techniques. Extensive promotional efforts would accompany such menu improvements, utilizing in-restaurant posters and table-top pamphlets, new television advertisements, online advertisements, and social media. Opportunity Challenges

One particularly daunting challenge looms over all but the airport expansion option: rebranding. With regard to alcohol sales, consumers do not currently view Red Lobster and Olive Garden as places to go in search of drinks. Many of the older restaurants were not designed to emphasize the presence and operation of a bar. Similarly, high-margin alcohol can be difficult to sell to crowds attracted to the value of promotions such as Red Lobster’s Endless Shrimp or Olive Garden’s Endless Pasta. The expansion of a light menu would encounter the same challenge in creating the association between the restaurant and healthy, low-calorie fare, overcoming years of advertised offerings of unlimited pasta with rich sauces and seafood submerged in clarified butter. The necessary investment in rebranding the Darden’s main three will keep both options on the shelf for the present.


SWOT Analysis of International Market

Strengths -The global restaurant industry grew by 8.5% in 2011 to reach a value of $2,457.1 billion -In 2016, the global restaurants industry is forecasted to have a value of $3,482.5 billion (up 41.7% since 2011) -Low asset specificity -Fixed capital is versatile -An abundant amount of suppliers -Inability of many players to establish a true competitive advantage

Weaknesses -Not yet established as a strong competitor -Not benefiting from economies of scale

Opportunities -Asia-Pacific region accounts for 44.6% of the global restaurants industry profits

Threats -Existence of large companies, such as McDonald’s and Yum! Brands -Legislation pertaining to food safety and minimum wage, which imposes extra costs

MARKETING STRATEGY Recommendation Darden owns five specialty brand restaurants, which have grown to contribute greatly to the total revenue of the company. We have two goals in our marketing strategy: to expand internationally and to expand the footprint of our specialty group. Darden can accomplish these goals simultaneously by placing the specialty brands, including Yard House, The Capital Grille, Bahama Breeze, and Seasons 52, into large international airports abroad. We believe that implementing the specialty brands in international airports would be the best option for Darden at this stage of the company’s life. The implementation of the specialty brands in international airports would bring Darden significant profits. Restaurants in airports are a staple in today’s economy. Flying is the number one means of transportation when it comes to getting across the world, so there will always be customers at these restaurants. Darden’s brands are world renowned, signifying that the opportunity is attainable for Darden with their current brands, objectives, and financials. Moving into international airports will give Darden the ability to acquire a foothold in the international market. Executed in tandem with planned domestic expansion, an increased presence abroad will allow the Specialty Restaurant Group to maintain the momentous growth it has achieved since 2010.


Segmentation Scheme

With the spread of Darden restaurants into international airports, the consumer base is already segmented to travelers. Within this group, there are two primary types of travelers: business travelers and family travelers. We will further segment the travelers by the amount of time they will be spending in the airport:

1. Time-constrained customers (layover of less than one hour): Since the majority of these customers do not have time to dine-in, they will be purchasing take-out meals. Not only do they have to factor in the time it will take for their dish to be prepared, but they will also be concerned with the time it takes for them to get from our restaurant to their gate. In order to meet the needs of customers choosing not to dine-in due to time restrictions, we will place some of our restaurants as close to the gates as possible and put the estimated preparation time next to each entree category on the menu. Waitstaff will also be trained to ask customers the departure time of their next flights in an attempt to most efficiently serve customers in this segment who choose to dine-in.

2. Time-abundant customers (layover of one hour or more): This customer segment has the time to enjoy a sit-down meal with us before their next flight. To best accommodate this customer segment, we will also open restaurants in the busiest and most attractive retail sections of the airport. Furthermore, we will create a welcoming and relaxing atmosphere, complete with free Wi-Fi for all restaurant patrons.

Target Market

Being able to reach our target markets will allow Darden to be competitive in a large portion of the airport dining market. Both the business travelers and the family travelers will be segmented further according to the amount of time they have to wait in the airport terminal before their flight. Families need a friendly dining experience that can satisfy both adults and their children, whereas the business travelers seek a delicious meal while they are on the job. The ability to have wait times posted for seating availability, as well as for meal preparation, will be helpful in successfully meeting the needs of our target customers.

The business travelers will normally be in these airports for a layover between their international flights. Today, traveling for business is quite common and traveling by airplane is one of the easiest and most convenient ways to connect businesspeople across the globe. Darden’s specialty restaurants in international airports will appeal to the business traveler target market because the food served is high quality and delicious. Our restaurants will meet the business travelers’ needs in a timely manner and provide them with a fresh and sophisticated meal.

The family travelers are usually on vacation and can choose the cheapest route to get to their final destination, making layovers an inevitable part of the trip. The ability to cater to the family traveler in higher volume layover airports will give Darden the ability to place our brand above others with convenience and dependability. Most traveling families want to have a casual meal that appeals to everyone in the family, and as they are in the vacation mindset, they are typically more willing to spend more at a mid-upper end, full-service restaurant. Darden is one of the most family-orientated restaurant companies in the world, with our family-friendly restaurant


atmospheres and meal options. Having the ability to reach families with our specialty brands is very important to us. Marketing Mix

Product: As we expand into international airports, we will open four of our five specialty brand restaurants: Bahama Breeze, Yard House, Seasons 52, and The Capital Grille. These brands will offer travelers a wide range of meals with fresh, healthy ingredients. Bahama Breeze is unique in its offering of Caribbean-inspired foods, and it has three unique menus for lunch, dinner and fresh fish selections. Its lunch and dinner menus feature rice bowls, salads, quesadillas, tacos, and burgers (Bahama Breeze). Yard House is unique in its offering of an extensive American menu that includes salads, pastas, sandwiches, tacos, grilled burgers, personal pizzas, seafood and steak. It has a special Kids Klub menu featuring healthy, small entree options. It also has an extensive taproom selection of beers (Yard House). Seasons 52 is a fresh grill restaurant that features a constantly evolving menu, with new ingredient combinations and seasonal specials, as well as entrees made only with natural ingredients and natural cooking techniques. Each item on both its lunch and dinner menus is less than 475 calories, including a variety of flatbreads, salads, sandwiches, and seafood and meat entrees (Seasons 52). Rounding off Darden’s specialty group is The Capital Grille, which offers premium dry-aged steaks, prime seafood, and an extensive wine menu.

Promotion: In order to successfully educate potential customers about the new specialty brand locations, we will utilize the ad-space on flight and travel websites such as Expedia, Travelocity, and Priceline in an effort to communicate with all target markets. Business travelers frequently use these websites to plan their stay, while family travelers are likely to stumble upon these ads as they map out all of the details of their trip itinerary. The more broad American traveler segment will be likely to see these ads, as these sites are highly popular resources in the United States. Ads for our specialty brands will also be featured in airport terminals, where passengers getting off of flights and waiting before they board their flight will be reminded of the delicious options available through Darden’s specialty brands. We will also place ads inside plane magazines, so that passengers can learn about our offerings from the comfort of their airplane seat.

Place: Darden currently lacks a strong presence in the international market, particularly with respect to its five specialty brands. Between August 2011 and August 2016, Darden plans to build 37 restaurants in Mexico, which will include the Red Lobster, Olive Garden and The Capital Grille brands (Onesource). While the three major brands will also see future expansion into the global dining markets in Middle East, there is a great opportunity to place Darden’s specialty brands abroad. Darden’s move into international airports will begin with Darden’s specialty brands being placed into approximately two airports per year. We will begin by placing the restaurants in some of the most populated airports such as Heathrow International Airport in London, England and Frankfurt International Airport in Frankfurt, Germany. These two international airports are hubs for layovers and connecting flights, so there will be a constant influx of customers. Our initial plan is to target the business and family traveler segments within these two airports. London and Frankfurt are the perfect locations to further develop


Darden’s presence in the international market. Once Frankfurt and Heathrow are successful, Darden can expand its specialty brands to other large international airports, especially those in the European and Asian market.

Price: In the international airport restaurants, there will be no change in price on the menus. There will already be a constant flow of people in the airport that will need food and furthermore the posted, short wait times will also attract customers. Some companies do choose to change the price of their goods in airport restaurants since client’s options are limited; however, we believe that by not changing our prices, Darden will remain loyal to our company objectives and client base. The airport restaurants will be carrying the same high-level service and food quality, thus there is no reason to change the price.

Bahama Breeze entree prices range from $8.00 to $22.00 (Bahama Breeze). Yard House menu presents a price range of entrees from $9.00 to $26.00 (Yard House). At Seasons 52, dinner entrees fall in between the range of $11.75 to $26.95 (Seasons 52). Capital Grille entree prices range from $9.00 to $49.00 (Capital Grille).

IMPLEMENTATION AND CONTROL

We will enter one or two airports per year as we begin to implement this marketing strategy. In airports where there are multiple terminals, we can implement more than one brand. For example, a Seasons 52 can be in Terminal One while a Bahama Breeze can be in Terminal Two. This will increase the total amount of foot traffic we get, and it will increase brand exposure. Customers with long layovers can choose which Darden brand they prefer.

The first step in implementation is to decide which airports to target, and when. The next step is to contact those airports, and to contact distribution partners in those regions. Heathrow and Frankfurt are both attractive options because they are high-traffic European airports with customers who will be excited by our brand offerings. There are many travelers in these airports who are there for layovers, so these airports are an excellent place to begin targeting the business and family traveler segments. After we address any difficulties we initially face in these locations, we can use our experience to engineer more successful roll-outs in other airports globally.

TIMELINE

In the third quarter of 2014, we will begin construction of our restaurants in Heathrow and Frankfurt. Each airport will get two to three Darden brands, depending on space availability within the terminals. All Heathrow and Frankfurt locations will open in the second quarter of 2015.

In the third quarter of 2015, we will monitor and adjust our offerings in Heathrow and Frankfurt to maximize profits and customer satisfaction. In the fourth quarter of 2015, we will begin construction of restaurants in one new international airport, likely in Asia. At this airport, we plan to deliver two to three Darden brands. The Darden restaurants at this Asian airport will open in the third quarter of 2016, after which we will continue to monitor progress of all of our


international airport brands. In 2017 and beyond, we will continue to expand our presence in airports around the world.

METRICS

As we implement this marketing strategy, there are many metrics that we will look at to ensure that every restaurant we open is placed in the best location. We will also ensure that every customer is fully aware of Darden’s offerings, and fully satisfied with their dining experience.

We will keep track of how many customers each restaurant receives every hour, and how those numbers are related to departures and arrivals at that airport. We will also monitor the source and destination of these flights. We want to understand what countries our customers are arriving from, and what countries our customers are flying to. We plan to use loyalty programs to give perks to repeat customers, while also gathering more specific information from them through surveys so that we can meet their needs completely.

We will keep track of the financial performance of our new restaurants, and we will compare that performance with our other airport restaurants, and with our competitors. Additionally, a comparison between the performance of airport restaurants and the performance of our mainstream offerings will be made and analyzed. We will compare the performance of various countries versus the United States. We also hope to learn enough about our customers so that we can attempt to target them with both airport offerings and mainstream restaurant offerings.


FINANCIAL PROJECTION Airport Darden 5 Year Projected Income Statement

($ in millions) 2014 2015 2016 2017 2018 Sales 0.00 37.07 78.16 123.09 172.66 Costs and expenses:

Cost of sales: Food and beverage 0.00 6.82 14.35 22.65 31.77

Restaurant labor 0.00 6.71 13.83 21.36 29.34 Rent expense 10.85 22.35 34.53 47.42 61.06 Total cost of sales 10.85 35.89 62.71 91.44 122.17 Restaurant construction expenses 2.00 2.00 2.00 2.00 2.00 Selling, general and administrative 0.00 2.11 4.35 6.71 9.22 Depreciation and amortization 0.00 0.93 1.85 2.78 3.70 Interest, net 0.00 0.30 0.59 0.89 1.18 Total costs and expenses 12.85 41.22 71.50 103.82 138.28 Earnings before income taxes -12.85 -4.14 6.66 19.27 34.38 Income taxes 0.00 -1.45 2.33 6.75 12.03 Earnings from continuing operations -12.85 -2.69 4.33 12.53 22.35 Locations that we are paying rent on 5.00 10.00 15.00 20.00 25.00 Restaurants Operating 0 5 10 15 20

(Refer to Exhibit 4 for notes on financial projection)


Appendixes and Exhibits Exhibit 1

Brand CategoryNumber of locations in US (as of May 26, 2013) Features

Average Check (fiscal 2013)

Percent sales due to alcohol (as of May 26th, 2013)

Net New Openings in fiscal 2013

Projected Net New Openings in fiscal 2014

Olive Garden Italian

822(Largest full-‐service Italian Restaurant operator in US)

Wines and Coffees imported from Italy, variety of appetizersm soups, salads, breadsticks, pastas, sauteed items $16.50 7.5% 36 15

Red Lobster Seafood678 (largest full-‐service seafood specialty restaurant

Fish, shrimp, crab, lobster, scallops, other seafood $20.50 7.8% 1 1

LongHorn Steakhouse Casual steakhouse 430 (primarily Eastern US)

American West themed; Steaks and chicken, as well as salmon, shrimp, ribs, pork burgers, prime rib $18.75 9.6% 44 37 to 40

The Capital Grille Premium Steakhouse49 (primarily major metropolitan areas)

Dry-‐aged steaks, seafood, broad wine list $71.25 29.8% 3 4 to 5

Yard House Contemporary American 44

Classic Rock-‐inspired; 125+ craft beers, 300+ kegs enclosed in glass room for viewing; burgers and steaks, tacos, salad, sandwiches, seafood, and vegetarian options; bar also features selection of wine, martinis, and sake Not yet Available 39.2% 4 7 to 8

Bahama Breeze Caribbean 33Seafood, Chicken, steak; variety of specialty drinks $23.50 22.1% 3 3 to 4

Seasons 52 Up-‐scale Grill and Wine Bar 31

seasonal menus, fresh ingredients, all items under 475 calories; international wine list of 90+ wines, approx 60 available by glass; private and chef-‐hosted tables, piano bar with live music every night. $40.75 26.9% 8 7 to 8

Eddie V's (Wildfish Grille)Prime Seafood 12Prime seafood, USDA prime beef and chops, oyster bar; nightly live music $88.00 33.3% 1 1 to 2


Exhibit 2 Average Check Per Person (Fiscal 2013) Restaurant Average Check Alcohol % sales

Olive Garden $16.50 7.5%

Red Lobster $20.50 7.8%

LongHorn Steakhouse $18.75 9.6%

The Capital Grille $71.25 29.8%

Yard House Not yet Available 39.2%

Bahama Breeze $23.50 22.1%

Seasons 52 $40.75 26.9%

Eddie V's) $88.00 33.3%

(Source: Darden, 10-Q)


Exhibit 3 Marketing Positioning Diagram

Exhibit 4 Notes on Financial Projections Source: http://bbs.winshang.com/dispbbs-90000.html Rent at BCIA is between 3,000 and 4,000 RMB per month per square meter. That’s between $45.78 and $52.17 per month per square foot. Average monthly rent = (45.78+63.52)/2 = $54.65 per square foot. Average yearly rent = $655.8 per square foot. The yearly total rent expense at BCIA = Total Area * 655.8 Average restaurant size in BCIA is 3117.4 square feet. 3117.4 * 655.8 = $2.04M The rent expense in Beijing Capital International Airport is $2.04M per year.


Average monthly rent at Heathrow is $69.71 per square foot. Average yearly rent at Heathrow is $836.52 per square foot. Average restaurant size in Heathrow is 2765.12 square feet. Average total yearly rent = 2765.12 * 836.52, or approximately $2.3M per year. There are 5 restaurants being opened. 2014 Rent expense = 5*(2.04+2.3)/2 = 10.85 We estimate that construction expenses will be $400,000 per location. Source: http://www.restaurantowner.com/public/811.cfm Average unit sales in Specialty Group Restaurants in 2013: $6.7M per year per location. Source: Darden 2013 Annual Report. Average size of full-service U.S. restaurant: 8000 square feet Source: Darden 10-K 2013 Average size of an airport location: 3000 square feet Assume that airport turnover is 8/3 that of normal restaurants. We have five restaurants open in 2015. Inflation is 3% in our projection. 2.2% annual increase in global air travel Source: http://www.faa.gov/about/office_org/headquarters_offices/apl/aviation_

forecasts/aerospace_forecasts/2013-2033/media/Forecast_Highlights.pdf3%+2.2% = 5.2% 2015 revenue (millions of dollars) = 6.7*3000/8000*(8/3)*5*1.052^2 2015 revenue = 37.07 2015 Food and Beverage costs $2628.6M is total food and beverage expense for all Darden restaurants in 2013. Darden operated 2,132 restaurants in 2013. We have five restaurants open in 2015. 2015 Food and Beverage costs = 2628.6/2132*5*1.052^2 2015 Food and Beverage costs = 6.82 2015 restaurant labor costs $2698M is total restaurant labor expense for all Darden restaurants in 2013. Projected Inflation is 3%. 2015 restaurant labor costs = 2698/2132*5*1.03^2 2015 restaurant labor costs = 6.713


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