Why America Is Addicted to Olive Garden

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CEO Clarence Otis is bringing Darden's brands together in a single building for the first time | Photograph by John Loomis

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Kitchen Monitors run Meal Pacing software created by Patti Reilly White and her IT group

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The Darden Menu

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.