SM
Key Consumer Challenges and
Restaurant Trends for 2011
February
February 2,
2, 2011
2011
William
William B.
B. Darden
Darden
“THE FOUNDER”
z
z Started selling fish
sandwiches in the train
yards of south Georgia
for 5¢
z
z Opened his first restaurant
in 1938 called “The Green
Frog”
z
z Not sure what the “Swamp
Boy Breakfast” was?
2
The
The First
First Red
Red Lobster
Lobster Was
Was Created
Created
RESTAURANT OPENED in 1968 in Lakeland, Florida
Lakeland, FL
WHICH GREW INTO DARDEN TODAY
3
Darden
Darden Today
Today –– A
A Fortune
Fortune 400
400 Company
Company
Just voted one of the 100 best places to work in the US by Fortune Magazine
z
z
Fiscal
Fiscal 2009
2009 sales
sales of
of $7.2
$7.2 billion
billion
z
z
Own
Own and
and operate
operate 1,800
1,800 restaurants
restaurants in
in U.S.,
U.S., Canada
Canada &
& Puerto
Puerto Rico
Rico
z
z
Employ
Employ over
over 170,000
170,000 people
people who
who serve
serve more
more than
than 400
400 million
million meals
meals
annually
annually (the
(the largest
largest casual
casual dining
dining company
company in
in the
the U.S.)
U.S.)
z
z
th largest
The
The 26
26th
largest employer
employer in
in Fortune
Fortune 500
500
z
z
Brands
Brands –– Red
Red Lobster,
Lobster, Olive
Olive Garden,
Garden, LongHorn
LongHorn Steak
Steak House,
House, The
The
Capital
Capital Grille,
Grille, Seasons
Seasons 52
52 &
& Bahama
Bahama Breeze
Breeze
Our
Our Supply
Supply Chain
Chain
z
z
$3
$3 billion
billion in
in purchases
purchases including
including energy
energy and
and equipment
equipment
–– 3300
3300 SKUs
SKUs
–– 35
35 million
million cases
cases moved
moved annually
annually
–– 60%
60% of
of products
products sourced
sourced internationally
internationally
z
z
10
10 distribution
distribution centers
centers in
in US
US delivering
delivering twice
twice aa week
week to
to 1800
1800 restaurants
restaurants
z
z
Five
Five seafood
seafood warehouses
warehouses with
with $150
$150 million
million of
of inventory
inventory
z
z
Darden-owned
Darden-owned and
and operated
operated smallwares
smallwares distribution
distribution warehouse
warehouse with
with
$50
$50 million
million in
in sales
sales
5
Darden’s Global Supplier Network
• 1500 Suppliers in 35 Countries
6
Darden’s
Darden’s Annual
Annual Beef
Beef Purchases
Purchases
z
z Darden uses a wide array of beef products
z
z The majority of the Darden’s beef volume originates from the loin
& the rib with some specialty cuts and grinds
z
z Annually,
Darden’s raw beef demand is near 50 million pounds
–– Made
Made up
up of:
of: Sirloins,
Sirloins, Tenderloins,
Tenderloins, Short
Short Loins,
Loins, Strips,
Strips, Export
Export Ribs,
Ribs,
Boneless
Boneless Ribs,
Ribs, Teres
Teres Major
Major (about
(about 25%
25% of
of US
US harvested),
harvested), Short
Short Ribs,
Ribs,
Ground
Ground Beef
Beef and
and Meatballs
Meatballs
z
z The
Darden concepts that focus on providing high quality, fresh
steaks are LongHorn Steak House and The Capital Grille
7
Unwind
Unwind and
and Savor
Savor aa Great
Great Steakhouse
Steakhouse Meal
Meal
Served
Served with
with Genuine
Genuine Western
Western Hospitality
Hospitality
z
z 350 restaurants in the U.S.
z
z Near $1 billion in annual sales
Build
Build Exceptional
Exceptional Guest
Guest Relationships
Relationships through
through
Personalized
Personalized Service
Service in
in an
an Exclusive
Exclusive Club
Club Atmosphere
Atmosphere
z
z 44 restaurants
z
z $250 million in annual sales
–– Only
Only prime
prime &
& choice
choice fresh
fresh beef
beef sold
sold
9
Consumer
Consumer Attitudes,
Attitudes, Challenges
Challenges and
and Restaurant
Restaurant
Trends
Trends
10
The
The 2010
2010 U.S.
U.S. Restaurant
Restaurant Industry
Industry
$386
$386 Billion
Billion in
in Sales
Sales
Quick Service
Midscale
$231B
$57B
16%
57%
5%
22%
Casual Dining
$83B
Fine Dining
$15B
Source:
Source: CREST
CREST
11
Darden is the largest casual
dining company in the U.S.
11 in
in 55 Consumers
Consumers is
is aa Steakhouse
Steakhouse User
User
Great
Great Opportunity
Opportunity To
To Turn
Turn More
More Consumers
Consumers Into
Into Steak
Steak Lovers
Lovers
Percent of Total Restaurant Visitors
Steakhouse User Definition:
Over past year was a steakhouse visitor
Prefer beef most often for dinner
In past year was a visitor to Outback,
LongHorn or independent casual dining
steakhouses
20%
Steakhouse
Users
12
Consumer
Consumer Attitudes
Attitudes and
and Drivers
Drivers in
in the
the Current
Current
Economic
Economic Environment
Environment
z
z The shrinking pocket book caused by the recession has forced
restaurants to shift focus to adapt to the guests’ changing needs
–– Today,
Today, consumers
consumers have
have more
more limited
limited food
food budgets,
budgets, especially
especially for
for eating
eating
out
out occasions,
occasions, as
as lost
lost jobs,
jobs, debt
debt payments,
payments, foreclosures
foreclosures and
and food/fuel
food/fuel
inflation
inflation erode
erode disposable
disposable income
income
‹
‹ Guests
Guests are
are splitting
splitting or
or not
not ordering
ordering appetizers
appetizers
º
º Some
Some evidence
evidence of
of more
more entrée
entrée sharing
sharing
‹
‹ Reduced
Reduced beverage
beverage consumption,
consumption, especially
especially higher-priced
higher-priced alcohol,
alcohol,
ordering
ordering water
water only
only (Lost
(Lost beverage
beverage sales
sales == lost
lost high
high margins)
margins)
‹
‹ Foregoing
Foregoing desserts
desserts or
or sharing
sharing
‹
‹ More
More use
use of
of coupons
coupons
‹
‹ Downsizing
Downsizing to
to less
less costly
costly entrees
entrees
‹
‹ Less
Less frequent
frequent visits
visits (Down
(Down 1%
1% in
in 12
12 months
months ending
ending August,
August, 2010)
2010)
º
º More
More at
at home
home meals
meals due
due to
to household
household financial
financial stress
stress
‹
‹ Want
Want more
more healthy
healthy // lower
lower calorie
calorie options
options (local
(local &
& fresh
fresh are
are drivers)
drivers)
‹
‹ More
More variety
variety that
that is
is attractive
attractive to
to the
the social
social group
group or
or family
family
13
Consumer
Consumer Attitudes
Attitudes and
and Drivers
Drivers in
in the
the Current
Current
Economic
Economic Environment
Environment
z
z It’s not just about the food today – it’s the total experience!
z
z Consumers’ eating out choices are more selective
z
z Guests consider the value of the total eating experience when
choosing a restaurant
–– Women
Women influence
influence the
the majority
majority of
of restaurant
restaurant visits
visits for
for the
the family
family
–– Guests
Guests have
have many
many choices.
choices.
‹
‹ The
The Restaurant
Restaurant Industry
Industry is
is overbuilt
overbuilt probably
probably by
by about
about 10%
10% at
at 579,000
579,000 units
units
(units
(units declined
declined about
about 1%
1% last
last year)
year)
‹
‹ Exterior
Exterior and
and internal
internal décor,
décor, speed
speed // friendliness
friendliness of
of service,
service, food
food quality
quality //
affordability,
affordability, crave
crave factor
factor and
and warm,
warm, respectful
respectful treatment
treatment of
of our
our guest
guest
‹
‹ Street
Street appeal
appeal has
has become
become even
even more
more important
important just
just to
to attract
attract guests
guests to
to come
come
through
through the
the door
door
14
LongHorn
LongHorn Brand
Brand Evolution
Evolution
The
The Original
Original LongHorn
LongHorn Steak
Steak House:
House: Atlanta
Atlanta -- 1981
1981
15
Roadhouse
Roadhouse to
to Steakhouse
Steakhouse
16
Roadhouse
Roadhouse Bar
Bar
Ranch
Ranch House
House Lounge
Lounge
Ranch
Ranch House
House Dining
Dining aligned
aligned with
with Western
Western
Hospitality
Hospitality and
and the
the Spirit
Spirit of
of the
the West
West
19
LongHorn
LongHorn Brand
Brand Promise
Promise –– Genuine
Genuine Western
Western Hospitality
Hospitality
The Spirit of the West
I can trust LongHorn
to help me
unwind and savor
a great steakhouse meal
served with
Genuine Western
Hospitality
20
What
What Do
Do Guests
Guests Value
Value in
in aa Steak?
Steak?
z
z Guests want a thick, juicy and tender steak that is cooked
properly and is always the same high quality on every occasion
z
z Top 6 words that consumers associate with high quality steaks
Prime
Prime ––
63%
63%
Tender
Tender ––
61%
61%
Fresh
Fresh ––
61%
61%
Juicy
Juicy ––
58%
58%
USDA
USDA Beef
Beef ––
Angus
Angus ––
54%
54%
53%
53%
But
But they
they are
are not
not confident
confident understanding
understanding USDA
USDA Grades
Grades
● The classic cuts still enjoy the highest awareness
–– Ribeye,
Ribeye, Sirloin,
Sirloin, Filet,
Filet, Prime
Prime Rib,
Rib, New
New York
York Strip
Strip &
& T-Bone
T-Bone
♦♦ They
They don’t
don’t really
really know
know what
what aa flat
flat iron,
iron, sierra
sierra or
or ranch
ranch cut
cut is
is yet
yet
–– But
But what
what they
they buy
buy most
most is
is also
also influenced
influenced by
by affordability
affordability as
as follows:
follows:
♦♦ Sirloin
Sirloin (23%),
(23%), Ribeye
Ribeye (16%),
(16%), Filet
Filet (16%),
(16%), NY
NY Strip
Strip (12%)
(12%) &
& T-Bone
T-Bone (8%)
(8%)
21
Key
Key Steakhouse
Steakhouse Visit
Visit Drivers
Drivers &
& Expectations
Expectations
Focus
Focus on
on the
the Overall
Overall Experience
Experience for
for the
the Guest
Guest
•Visit Drivers
•Visit Expectations
ƒ Consistently good
experience
ƒ Steaks cooked correctly
ƒ Steaks cooked correctly
ƒ Food prepared as ordered
ƒ Good selection of quality
steaks
ƒ Meal appropriately paced
ƒ Perfectly seasoned and
expertly grilled steaks
ƒ Attentive to my needs
ƒ Feel like a valued guest
ƒ Fresh, never frozen steaks
•22
Key
Key Beef
Beef Challenges
Challenges Facing
Facing Restaurant
Restaurant Industry
Industry
z
z How to drive brand recognition, differentiate offerings, create
food crave appeal and yet deliver value?
–– With
With limited
limited unit
unit growth,
growth, it’s
it’s aa very
very tough
tough market
market share
share battle
battle today
today
–– How
How to
to create
create aa compelling
compelling competitive
competitive advantage
advantage with
with so
so many
many
restaurant
restaurant choices
choices and
and great
great super
super market
market deli
deli options
options to
to steal
steal guests?
guests?
z
z A Key Challenge: Raw and Cooked Steak Consistency
–– Economics
Economics have
have forced
forced cattle
cattle to
to be
be grown
grown larger,
larger, making
making itit more
more difficult
difficult
to
to deliver
deliver consistently
consistently high
high quality
quality expectations
expectations to
to our
our guests
guests
‹
‹
Steaks
Steaks are
are sold
sold by
by weight
weight in
in foodservice.
foodservice. Larger
Larger cattle
cattle cause
cause steak
steak served
served to
to
be
be thinner,
thinner, increasing
increasing the
the risk
risk of
of overcooking
overcooking and
and poor
poor plate
plate presentation
presentation
–– A
A choice
choice steak
steak does
does not
not always
always eat
eat the
the same,
same, due
due to
to variation
variation across
across
cattle
cattle and
and breeds
breeds
To
To be
be able
able to
to deliver
deliver aa consistent,
consistent, outstanding
outstanding eating
eating experience
experience on
on every
every
occasion
occasion would
would be
be aa competitive
competitive advantage
advantage for
for aa steak
steak house?
house?
‹
‹ Animal
Animal genetics
genetics and
and care
care through
through the
the life
life cycle,
cycle, calf
calf selection
selection and
and the
the feeding
feeding
regimen
regimen all
all influence
influence final
final eating
eating quality
quality
‹
‹
º
º
Darden
Darden has
has been
been testing
testing in
in this
this area
area
23
Key
Key Beef
Beef Challenges
Challenges Facing
Facing Restaurant
Restaurant Industry
Industry
z
z Guest Visit Frequency
–– Increased
Increased competition
competition in
in an
an industry
industry with
with too
too many
many restaurants
restaurants
–– Beef
Beef menu
menu items
items tend
tend to
to have
have aa higher
higher menu
menu price
price point
point
–– Health
Health and
and Animal
Animal Welfare
Welfare concerns
concerns have
have taken
taken their
their toll
toll on
on beef
beef
–– Food
Food Safety:
Safety: E-Coli
E-Coli recall
recall media
media hype
hype has
has negatively
negatively impacted
impacted beef
beef use
use
–– Today,
Today, barriers
barriers to
to increased
increased visits
visits from
from high
high unemployment,
unemployment, debt
debt //
foreclosures,
foreclosures, higher
higher savings
savings rates
rates and
and reduced
reduced wealth
wealth from
from the
the recession
recession
have
have made
made consumers
consumers more
more cautious
cautious and
and more
more frugal
frugal
z
z Affordability
–– Beef
Beef loin
loin // Rib
Rib cuts
cuts are
are expensive
expensive versus
versus poultry
poultry &
& pork
pork
–– Now,
Now, protein
protein and
and commodity
commodity cost
cost inflation
inflation is
is squeezing
squeezing restaurant
restaurant
margins
margins that
that can
can not
not be
be fully
fully recovered
recovered through
through price
price increases
increases
–– Herd
Herd declines
declines and
and growing
growing US
US exports
exports will
will push
push beef
beef costs
costs higher
higher over
over
the
the next
next 2-3
2-3 years,
years, as
as domestic
domestic availability
availability declines
declines
‹
‹
Higher
Higher demand
demand from
from income
income and
and population
population growth
growth in
in emerging
emerging nations
nations and
and
ethanol
ethanol are
are the
the major
major drivers
drivers of
of higher
higher commodity
commodity costs
costs –– it’s
it’s aa global
global market
market
today
today
24
Key
Key Beef
Beef Challenges
Challenges Facing
Facing Restaurant
Restaurant Industry
Industry
z
z Discounting and Guest Perception of Cost / Value
–– To
To attract
attract more
more guests,
guests, some
some chains
chains are
are offering
offering 22 for
for one
one and
and other
other
lower
lower entrée
entrée price
price points
points to
to drive
drive traffic
traffic
–– This
This may
may work
work for
for aa period
period of
of time,
time, but
but the
the risk
risk is
is that
that your
your customers
customers
only
only visit
visit when
when you
you are
are couponing
couponing and
and offering
offering deals.
deals.
‹
‹ This
This establishes
establishes aa new
new value
value proposition
proposition at
at the
the lower
lower prices,
prices, as
as
regular
regular menu
menu items
items are
are perceived
perceived as
as now
now too
too expensive.
expensive.
–– Differentiate
Differentiate through
through the
the value
value of
of the
the total
total experience,
experience, while
while offering
offering
some
some additional
additional value
value options
options on
on the
the menu
menu to
to increase
increase traffic
traffic
z
z The
value shift to more lower cost steak cuts on the menu has
now made some of those cuts more expensive historically
–– At
At the
the beginning
beginning of
of 2011,
2011, top
top butts
butts had
had increased
increased the
the most
most over
over prior
prior
year
year (up
(up 23%)
23%) versus
versus the
the other
other major
major steak
steak cuts
cuts
–– End
End cuts
cuts and
and grinds
grinds are
are also
also higher
higher
–– Most
Most of
of the
the loin
loin and
and rib
rib cuts
cuts have
have not
not risen
risen as
as fast
fast and
and have
have value
value
historically
historically
25
How
How Are
Are Restaurant
Restaurant Companies
Companies Responding?
Responding?
z
z Along with more value-priced options,
some consumers are
accepting smaller but healthier portions.
–– Darden’s
Darden’s Seasons
Seasons 52
52 entrées
entrées do
do not
not exceed
exceed 475
475 calories,
calories, plus
plus seasonal,
seasonal,
local,
local, and
and healthy
healthy options
options are
are also
also change
change quarterly
quarterly
‹
‹
Desserts
Desserts are
are smaller
smaller “mini-desserts”
“mini-desserts” with
with 10-12
10-12 different
different flavor
flavor profiles
profiles
z
z More frequent menu changes, promos and ads build brand news
z
z Combining concepts on one site to reduce initial capital costs
z
z New builds will slow, as returns are stressed.
Focus will be on
driving traffic for market share
–– Curb
Curb appeal
appeal and
and meeting
meeting guest
guest expectations
expectations will
will be
be important
important
z
z Focus on operational efficiencies, economies of scale in supply
chain / other support systems and commodity risk management
z
z Product specifications: Does the guest reward us for all the food
quality we deliver?
–– Is
Is the
the specification
specification over-engineered?
over-engineered? May
May offer
offer opportunity
opportunity to
to take
take costs
costs
out
out of
of the
the system
system
26
How
How Are
Are Restaurant
Restaurant Companies
Companies Responding?
Responding?
● Renewed emphasis on delivering over the top hospitality to
ensure guests receive the great food experience they expect
and come back often
z
z Cattle/Beef
–– Continue
Continue supporting
supporting research
research to
to improve
improve steak
steak quality
quality and
and consistency
consistency
through
through genetic
genetic markers,
markers, calf
calf selection
selection and
and aa disciplined
disciplined feeding
feeding regimen
regimen
–– Closer
Closer alignment
alignment with
with specific
specific suppliers
suppliers may
may be
be important,
important, especially
especially as
as
the
the declining
declining cattle
cattle herd
herd becomes
becomes aa more
more critical
critical supply
supply factor
factor
–– Identify
Identify alternate
alternate muscle
muscle cuts
cuts that
that can
can be
be prepared
prepared to
to eat
eat similar
similar to
to the
the
premium
premium middle
middle meats
meats and
and the
the packers
packers are
are willing
willing to
to harvest
harvest
–– Continue
Continue reviewing
reviewing guest
guest acceptance
acceptance of
of lower
lower cost
cost beef
beef cuts
cuts in
in menu
menu
applications,
applications, in
in light
light of
of value
value driving
driving more
more consumer
consumer decisions
decisions
–– As
As domestic
domestic costs
costs escalate,
escalate, restaurant
restaurant companies
companies will
will be
be forced
forced to
to
source
source globally
globally to
to compete
compete
27