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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?
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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
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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
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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
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Consumer Consumer Attitudes, Attitudes, Challenges Challenges and and Restaurant Restaurant Trends Trends
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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
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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
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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
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LongHorn LongHorn Brand Brand Evolution Evolution The The Original Original LongHorn LongHorn Steak Steak House: House: Atlanta Atlanta -- 1981 1981
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Roadhouse Roadhouse to to Steakhouse Steakhouse
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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
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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
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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
Consistently good experience
Steaks cooked correctly
Steaks cooked correctly
Food prepared as ordered
Good selection of quality steaks
Meal appropriately paced
Perfectly seasoned and expertly grilled steaks
Attentive to my needs Feel like a valued guest
Fresh, never frozen steaks
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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
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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
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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
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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
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