Darden: Something’s gotta give
The proposed Red Lobster spinoff provides rare insight into full-service restaurant dynamics at the mega-chain level.
December 23, 2013
By Bob Krummert
We’ll find out soon which of two proposals to restructure chain giant Darden’s restaurant brand portfolio—one championed by activist investors, the other floated by Darden itself—will prevail. But in the meantime, many full-service chain operators may be wondering what these moves say about where the casual dining segment is headed. Some may even be wondering if buying a Red Lobster franchise—never an option before—might now make sense.
The key issues were addressed in a conference call last week during which Darden officials announced second quarter 2014 results and explained the thinking behind the new direction they propose.
To recap, activist investment firm Barington Capital Group wants Darden to spin off both Olive Garden and Red Lobster into a new company, keep the company’s six other, faster-growing brands in the existing company and monetize the company’s significant real estate assets by creating a separate, publicly traded real estate investment trust. So, three companies instead of one.
Darden’s proposal is less far-reaching. Executive chairman/c.e.o. Clarence Otis told analysts it was “a comprehensive strategic action plan that includes spinning off Red Lobster, reducing new unit expansion, a more intensive focus on operating cost efficiency and refining our incentive compensation plan.” Olive Garden would remain a part of Darden and no REIT would be formed.
The lone point of agreement between the competing plans: Red Lobster has to go.
How come? One issue: the chain doesn’t attract moderately affluent consumers the way other Darden brands do.