On a Tuesday morning in April, the presidents of three of the largest restaurant chains in the country slip into an unmarked white van in Orlando, Florida, and embark on an unprecedented mission — sharing their latest trade secrets.
You know their brands: $3 billion — plus Olive Garden, with its heaping bowls of pasta and all-you-can-eat breadsticks; $2 billion — plus Red Lobster, which introduced middle America to the wonders of fried shrimp; and nearly $1 billion LongHorn Steakhouse, whose variations on a theme include steak stuffed with fontina cheese and wild mushrooms.
You probably don't know they're part of the same company, Darden Restaurants. It's the country's largest full-service restaurant operation, the 29th-largest employer in the United States, and a pioneer of what's known as "casual dining," which accounts for 39% of all sit-down restaurant meals. Like Procter & Gamble, low-profile Darden runs a portfolio of ubiquitous brands. The company generated $6.7 billion in revenue in its last fiscal year, owns and operates 1,770 restaurants, and serves more than 400 million meals a year — the equivalent of feeding the entire U.S. population, with seconds for residents of California, Florida, New York, and Texas.
At the helm of this quiet giant is the 53-year-old son of a janitor from Watts, the Los Angeles neighborhood that made headlines for riots in 1965. "You hear people in the restaurant industry say, 'I have a feel for the business,' " says CEO Clarence Otis. He's not one of those people. "On the continuum of intuitive restaurants versus systematized, analytic restaurants, we're very analytic," he says. "The direction of our business is based on understanding customers."
Otis is sitting in his corner office in Orlando, unperturbed by an April storm. High winds, clouds as dark as a cast-iron skillet, and pounding rain envelop the whitecaps outside his window on Lake Ellenor. As he describes the economic and demographic forces buffeting the industry, and how Darden has prepared for them, he's not easily distracted. Lean and fit, he has the air of someone with the patience to study a spreadsheet and the self-discipline to resist Olive Garden's "never-ending pasta bowl."
He'll need both traits to weather the storm facing the restaurant industry. Darden is in the process of altering the Red Lobster recipe — a big risk — to serve healthier food and improve sluggish sales. Meanwhile, Olive Garden's streak of 57 consecutive quarters of same-restaurant sales growth ended last fall, and the company that grew earnings in 9 of the last 11 years is expected to fall short this year. True, Darden is faring better than most of its competition: The company beat analysts' earnings forecasts for the last two quarters, and by May, its stock had tripled from its low last November. Still, the challenges in this climate are huge, especially given Darden's plan to add as many as 55 restaurants in the coming year.
Hence the Orlando tour. The secret to Darden's success has been a combination of leading-edge technology that helps make a notoriously unpredictable business more efficient, purchasing practices out of the Wal-Mart playbook, and decentralized brand-management honed during the 15 years the company was owned by consumer-products giant General Mills. Now Otis is pushing a new tactic: no-holds-barred sharing of information between brands. "I want to come stand in the kitchen on Friday night at 8 o'clock and see it when you're slammed," LongHorn president Dave George tells an Olive Garden executive.
"Anytime," is the response. "Anytime."
As a kid, Otis would escape the racial strife and isolation of 1960s Watts through reading. Every couple of weeks, he'd check out a dozen books from the local library. By ninth grade, he had finished nearly every novel and biography in the collection. Encouraged by a guidance counselor, he earned a scholar-ship to Williams College, went on to law school at Stanford, and then to Wall Street (Carl Icahn was a client). At the age of 31, Otis became a vice president at First Boston and later helped turn around Chemical Securities' public-finance department. (Institutional Investor named one bond he helped create at Chemical the "deal of the year.") In 1995, a headhunter recommended him to Darden, which had just been spun off from General Mills. Otis signed on, drawn to a company poised for growth.
Darden was already an institution. Its founder, Bill Darden, at just 19 years old, opened his first restaurant in 1938 — a lunch counter in Waycross, Georgia, with 10 stools, two booths, and curb service. (My dad, who grew up in Waycross, was a fan of the fried shrimp.) Darden called the place the Green Frog and promised "service with a hop." It was fast and affordable, and became a must-stop for families on their way to and from Florida. Over the next 30 years, Darden added nearly two dozen Howard Johnson franchises, but his breakthrough was Red Lobster, which opened in Lakeland, Florida, in 1968. He saw that a seafood restaurant that was nicer than still-young fast-food and more affordable than white-tablecloth restaurants would fill a niche.
Otis moved up, from treasurer to chief financial officer of Darden and then president of its Smokey Bones Barbeque & Grill chain. In 2004, he was tapped to run Darden, becoming one of the few African-American CEOs in the Fortune 500. He plotted a new course for major growth, and began making changes. He sold Smokey Bones, after deciding the 127-restaurant chain lacked national appeal, and, in 2007, engineered Darden's first acquisition: a $1.4 billion deal for Rare Hospitality, parent of LongHorn Steakhouse and the upscale Capital Grille.
Now, Otis says, Darden's future growth will come primarily through taking market share. Even before the financial crisis tightened consumers' budgets, he was aware that Americans were dining out less frequently. Today, the average American has 79 sit-down meals in restaurants per year, 16% fewer than 15 years ago, according to analyst Harry Balzer of market-research firm NPD Group. Meanwhile, the number of casual-dining restaurants has grown at roughly twice the rate of population.
Part of Darden's strategy is an updated version of the comment cards Bill Darden put on tables at the first Red Lobster. Over the past year, Darden's 22-member customer-insight team invited 16 million customers across its six chains to answer guest-satisfaction questionnaires. The company won't disclose results but claims the feedback predicts shifts in traffic at individual locations. "In restaurants, consumers are always shopping the competition, which reinforces the need to monitor how you're doing," says J.J. Buettgen, head of consumer insights. "We sample guests every day. We want to know how their last meal was."
Given the competitive pressures, says Otis, it's more important than ever for the company's 180,000 employees to work collaboratively. Its three major brands should operate as test labs, sharing the best ideas and even personnel, while maintaining their distinctive identities. Nothing embodies Otis's vision for Darden better than its new headquarters, a $100 million state-of-the-art building in Orlando. More than 1,400 executives and restaurant support staff are scheduled to relocate there in October; until now, they have worked in 12 buildings spread out over 2 miles. In the new arrangement, the brands' test kitchens will operate side by side, to both practically and symbolically epitomize Otis's mandate for sharing.
"When we talk about working smarter, that means stronger working relationships across different levels of the organization," he says. "We have a lot of great brand leaders who aren't taking advantage of each other's expertise." In other words, a restaurant tour of brand presidents should be the norm, not an anomaly.
David Pickens, 53, the president of Olive Garden, knows firsthand how grueling — and how fulfilling — restaurant work can be. At 17, he started as a line cook at a Red Lobster in Nashville. The pace was relentless, the pay wasn't great, and he never saw the people he cooked for. It was just a job. Then he became a waiter, interacting with customers, shaping their dining experience, and getting rewarded for it. He set his sights on becoming a restaurant manager, got the job at 21, and never looked back, opening and overseeing restaurants for Red Lobster, Olive Garden, and the short-lived China Coast.
"I went from Nashville to Memphis to St. Louis to Evansville, Indiana, back to Nashville and Memphis and then to Little Rock to Houston to Philadelphia to New York and finally here to Orlando," says Pickens. "Got all that?"
We're talking over dinner at an Olive Garden in Orlando. ("Chicken marsala? Good choice. That's in my top five.")
The Olive Garden brand is built around the notion that guests are treated like family, but Pickens knows that isn't likely to happen unless employees feel like family too. Employees, he says, need to believe that serving meals and cleaning tables and cooking pasta in a hot kitchen is meaningful. "It's very difficult for the experience of the guests to exceed the experience of the staff," Pickens says. "We put the two together."
Pickens starts every meeting with Olive Garden senior executives by reading letters from customers and employees — a woman's description of her celebration at Olive Garden after having survived cancer; the reunion of an EMS worker, a 911 operator, and the boy they saved from drowning; the story of a young woman who dined every Tuesday at the table where her fiancé proposed before he was shipped off to Iraq. The managers share the letters with their staffs.
Pickens has brought a leather-bound collection of these letters to our dinner. Between bites of bruschetta, he reads one about Molly, a girl with Down syndrome who enjoyed coming to the restaurant with her family so much that she dreamed of working there. Pickens's voice breaks as he reads the letter. He shows me a photo of Molly, who got hired as a hostess. "A big part of my role is not just to make sure we do well financially but to reinforce what we stand for," he says. "I want staff to realize we have a brand that people love."
Olive Garden promises "an idealized Italian family meal, whether you're Italian or not," says Pickens. When General Mills launched the chain in 1982, it was an affordable Italian restaurant — a safe choice, nothing surprising. By the 1990s, it had hundreds of locations, but the menu had grown stale and sales were in decline. "It lost its culinary and cultural soul," says John Caron, Olive Garden's head of marketing.
Darden turned to research. "The key consumer insight was that people missed the emotional comfort and connectivity that comes with family," says chief operating officer Drew Madsen, then the chain's head of marketing. "People come to a restaurant for both physical and emotional nourishment. The physical is the food; and the emotional is how you feel when you leave."
Olive Garden executives began tying everything to this mythical Italian family, adopting the tagline, "When you're here, you're family." New locations were designed to suggest Italian farmhouses, with a large family-style table, modeled on one in a Florentine trattoria. Then executives formed a partnership with actual Italians: Olive Garden's Culinary Institute of Tuscany (CIT). It was a "stroke of genius," says Dennis Lombardi, a veteran food consultant. Eleven times a year, the company sends 14 top employees, many of whom have never set foot in Italy, to spend a week in an 11th-century village in Tuscany and learn from Sergio and Daniela Zingarelli, a husband and wife who operate a restaurant, winery, and inn. The couple and other local experts expose the Americans to everything from how olive oil gets pressed to how to layer flavors in a Bolognese sauce. The Olive Garden employees buy fresh vegetables at a market in Florence and prepare a multicourse Italian meal. "It's like getting into Harvard," says Pickens. "It's not, of course, but you know what I mean." Since 1999, some 850 employees have attended CIT; 80% of them are still with the company.
There are also what Caron calls "ideation trips" to CIT, during which chefs work in local Tuscan restaurants. They have come back with dozens of ideas that have served to expand and update Olive Garden's menu. Gone are the days of puzzling hybrids like Italian nachos. Today, many items on the dinner menu carry a CIT logo, designating that they were inspired by a staffer's experience in Italy.
These experiences — and menu items — provide an authenticity that's rare for a chain. Take risotto, an Italian staple that made its way into Olive Garden only two years ago. In a pilot program at a small number of restaurants, diners were initially tepid. As attitudes changed, the test kitchens took on the preparation challenge; risotto requires 20 minutes to cook, longer than customers are willing to wait. Chefs eventually found a more expensive variety of rice that could be cooked most of the way through in advance, finished off just before serving, and still retain the desired taste and texture. Risotto is now part of a CIT-inspired entrée designed to entice more adventurous diners who might not have considered Olive Garden: Chianti-braised short ribs (minus the bone — a concession to American tastes) and portobello mushroom risotto. It's Otis's favorite.
The restaurant business looks really simple: Put food on a plate and smile," says Christopher Muller, a professor at the Rosen College of Hospitality Management at the University of Central Florida. "Yet it's an incredibly complex undertaking."
Essentially, Darden runs 1,770 just-in-time manufacturing plants that create in minutes a wide range of products selected, consumed, and judged by customers who show up unannounced. Foodies may scoff, but standardizing the preparation of Chianti-braised short ribs and risotto at hundreds of restaurants by thousands of employees requires innovation and creativity. And the inventory can't just sit around on the shelf. Leftover ingredients are refrigerated in day-stamped plastic bags, and anyone using an outdated item is fired on the spot.
Patti Reilly White, 53, chief information officer, leads the 170-person team at Darden that introduces order and predictability to this volatile business. She's another Darden veteran (18 years and counting), a former government consultant who liked that the company preferred to develop its own software. In the 1970s, Darden had worked with Burger King to build the first restaurant point-of-sale system; it tracked sales in real time, eliminating the need for managers to call in the previous day's results. These days, managers rely on Guest Forecasting, another software program developed internally.
"In every area where technology can be applied, Darden has a considerable lead on other businesses," says Muller, who has followed the industry for 20 years. Darden was computerizing its guest surveys in the 1990s, he says, when other restaurants were relying on comment boxes.
On a Thursday night in April, Erin Harvell, the culinary manager at the Olive Garden in Wayne, New Jersey, reviews the week's forecasts in a tiny office off the kitchen. They're within 1% to 4% of the actual turnout. The biggest gap — 630 guests instead of 660 — was on a rainy night. Guest Forecasting spells out the appropriate staffing and food preparation — how many fettuccine Alfredo orders to expect, how much sauce to make in the morning. Over the past two years, Darden has reduced unplanned hours by more than 40% and trimmed excess food costs by 10%. "We don't want zero waste," says White, "because we don't want to run out of anything on the menu." The goal is no more than 9% waste, and the system tells each restaurant how it's doing.
In the kitchen, cooks are hustling, directed by a program called Meal Pacing that White's team introduced across the company two years ago. Traditionally, an expediter would try to ensure that meals for a given table were ready at the same time so the shrimp entrée didn't sit at the window getting cold while the 14-ounce steak was still on the grill. Meal Pacing displays the optimal work flow for each party on eight screens in the kitchen and monitors each station's progress, with color-coded warnings when one falls behind. The screens also show if the staff is meeting Darden's one-minute rule: Food should arrive at the table within one minute of being ready.
Meal Pacing, says White, is the ideal restaurant support tool in that it benefits employees as well as guests by taking much of the guesswork out of juggling scores of simultaneous orders. The restaurants can turn tables faster in peak times, which increases revenue. And guest-satisfaction scores are up.
Now White's group is addressing wait times. Other than Capital Grille and Seasons 52, Darden restaurants don't accept reservations, and the crowds can get ridiculously big. Some guests are willing to wait an hour or more, but Darden knows it's losing business when they do. White is running one pilot program with handheld devices to speed things up; waiters submit orders and payments at the table, eliminating lag time. This summer, she's launching another project to share wait times across restaurants so that a hostess can steer customers to nearby Darden establishments that aren't as busy. The next logical step, White says, would be to give customers online access to that information.
After all, as Bill Darden used to say, "not everybody's a gourmet, but everybody can tell time."
The next place where Darden's drive to collaborate across restaurants could really pay off is LongHorn. Steak is the second-biggest sector in casual dining, and LongHorn gives Darden a ready-made challenger to No. 1 Outback Steakhouse. LongHorn generated $900 million in revenue over the past 12 months with fewer than 330 restaurants — and only one west of Oklahoma. The challenge is differentiating the chain in a homogeneous category, which is where president Dave George is hoping Darden's brand expertise will help.
George, 53, is barrel-chested and gregarious, the kind of guy you want manning the backyard grill. (The appetizer of crispy shrimp with peppers and garlic butter was his idea.) Before the acquisition, he marveled at Olive Garden's 14-year streak of quarterly same-store sales growth. "Every year, even in down times," he says. "Man, that's impressive. It's [Babe] Ruthian." Now he's privy to its secrets, and he's eating them up. "I call it the consumer-insight gold mine. We had insights at Rare, but quite frankly, I think Darden knew more about Rare's customers. Nobody looks at the customer more."
LongHorn is still being Dardenized. After surveying 35,000 consumers about every menu item and every last detail about its restaurants, the chain stripped burgers of unwieldy garnishes and replaced the deer heads on the wall with cowboy sculptures by Frederic Remington. Guest traffic, which had been trailing the sector, has beaten it in recent quarters. Otis and George are planning for dozens and then hundreds of new LongHorn restaurants. Darden, which owns about 60% of its restaurant sites, is shopping in a buyer's market these days. "Olive Garden has been reaping the benefits of doing this for years," George says. "We believe we could be Darden's next $2 billion brand."
And that's not based on "a feel for the business." Otis and his team are crunching the numbers. "We're not even in half the country," he says.
Meanwhile, Darden is pushing ahead with an ambitious plan to revitalize its second-biggest brand. Red Lobster, which proudly deep-fried for 40 years, is changing the way it cooks. Not unlike U.S. automakers, the chain failed to adjust to changing market tastes. In 2004, quarterly same-store sales dropped for the first time in five years as consumers regarded it as an out-of-date fried-fish shack. "You see this all the time in large organizations," says industry expert Muller. "They tend to suffer from hubris, from past success. They say, 'This is what we've always done.' "
Darden has been experimenting with what COO Madsen calls "stealth health" since it opened the first Seasons 52 in 2003. With 60 wines by the glass, entrées with no more than 475 calories, and desserts so mini they're served in shot glasses, the upscale chain is cool enough and healthy enough to attract Tiger Woods, who lives near one of the Orlando locations. But Otis and Madsen are moving slowly with Seasons, which opened its eighth location only this year.
The risks are much higher with Red Lobster. "It is an enormous gamble for a multibillion consumer brand," says Muller. "They're moving away from their core business and chasing new business, and doing it in a down economy." The changes are far deeper than those that worked to revive Olive Garden back in the 1990s. Last November, chain president Kim Lopdrup and his team launched a menu around wood-fired grilling, which required retraining cooks on how to avoid overcooking seafood at a higher heat while still making the all-important grill stripes. Red Lobster has spent $10 million on the makeover, including new equipment for 690 restaurants. You'll still find fried scallops and popcorn shrimp there, but grilled items make up a third of the menu. And each location now prints a new fresh-fish menu twice a day.
There's no turnaround yet; sales dipped 4.6% in the most recent quarter (less than the industry average). The chain is remodeling restaurants and opening a handful. And, says David Palmer, an analyst with UBS, it's managing costs better. It's also winning new fans. In March, Men's Health dubbed Red Lobster "the best sit-down chain in America." When a magazine devoted to fitness sings the praises of a restaurant that has been known for all-you-can-eat fried shrimp, things are moving in the right direction.
Continuing that progress presents Darden with its most pressing supply problem. "Is there Red Lobster without lobster?" is not an existential question for this company. The North American lobster harvest fluctuates every year, but demand continues to grow. So two years ago, Darden began sponsoring an experiment to boost the population. Scientists working with the government of New Brunswick, in Canada, catch pregnant lobsters and care for their offspring until they're mature enough to burrow into the ocean's sandy bottom, then release the tiny animals into the wild. Then Darden waits and hopes — for six years or more. So far, says Bill Herzig, Darden's senior vice president of supply-chain innovation, "it looks like good science."
The ability to get high-quality seafood at good prices has given the company a critical edge for years. Bill Darden himself bypassed wholesalers and created the first national seafood distribution network for a restaurant; Joe Lee, Otis's predecessor, expanded the network to Asia. These days, Roger Bing, vice president of seafood purchasing, and his team travel the globe buying seafood — again without brokers — in more than 32 countries, often contracting with fish farms for set yield at a set price.
But today, overfishing has made the seafood side of the business increasingly complicated — not just for Red Lobster but for all the Darden brands. "It's a supply-and-demand issue," says Ian Olson, the company's director of sustainability, a newly created position. "There are 6 billion people on the planet today, and it'll be 9 billion by 2050. There's no better way to say it: There are only so many fish in the sea." Even before scientists predicted in 2006 that world fish stocks could collapse by 2048, Darden had begun removing endangered wild fish, such as Chilean sea bass and orange roughy, from its menus and using its clout as one of the world's largest buyers to push the industry toward sustainability. To promote fish farming and to set standards to minimize its environmental impact, Darden cofounded the Global Aquaculture Alliance, a nonprofit trade association that partners with governments and NGOs. Once GAA agreed on shrimp aquaculture rules, Darden required its suppliers to adopt them, much as Wal-Mart has successfully pushed its vendors to reduce packaging. "We recognize our responsibility," says Olson. "We want to make sure we preserve the ecosystem, but it's even better if we enhance it."
The demand for other ingredients is bound to rise as well, particularly as China's and India's growing middle classes consume more. So the company has begun a plan to transform the supply chain, which it expects will save $20 million a year. It is studying Wal-Mart to "understand the components of cost" with its vendors and become a better and more informed negotiator, says senior vice president Barry Moullet, whose group purchases $2.4 billion of goods a year from 1,500 suppliers. It's hedging wheat purchases, much the way airlines purchase fuel. An automated ordering system will eventually replenish a restaurant based on electronic-tagged inventory and guest-traffic forecasts.
"We're developing tools to control risks," Moullet says. "This should give us an advantage for years to come."
At the last stop on the morning tour, the presidents of Olive Garden, Red Lobster, and LongHorn do what you expect restaurant executives to do: chow down. Over steaks and salads at LongHorn, they talk shop at a back table in the dining room, dissecting things customers don't notice. Red Lobster's faux-wood floor tile, which lasts longer than real wood and is less slippery. Olive Garden's stone exterior, which requires less upkeep than painted wood. LongHorn's layout of food-prep and storage spaces, a small improvement that saves valuable time.
"This was the biggest opportunity yet to see what's behind the scenes and how each of us makes it happen," LongHorn's George tells me after lunch. When LongHorn joined Darden, he says, "I thought this bigger company with tens of thousands more employees and more restaurants than Rare would be less connected. But that's untrue."
Many major brand leaders would die for the opportunity to consult with people who run businesses of similar scale and wrestle with the same issues on a daily basis. But the teams at T.G.I. Friday's and Applebee's can't get together any more than those at Coke and Pepsi can. That is one of Darden's unique strengths, having several brands under the same roof — and in adjacent offices and R&D kitchens at the new Orlando headquarters.
The key is finding the best mix of independence and collaboration. All of Darden's chains may use the same technology to pace their cooking and predict their dinner traffic, and they may serve shrimp from the same Thai fish farm, but each brand needs to remain distinctive. "It's all about balance," says COO Madsen. "There's an art and science to this."
Efficiency and soul. Innovation and continuity. Darden wants it both ways. Think of it this way: Red Lobster may be serving more grilled salmon and less fried flounder. But no one is messing with the cheese biscuits.