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

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 In 2004, quarterly same-store sales dropped for the first time in five years as consumers regarded it as an out-of-date fried-fish shack.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.