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Darden Restaurants Shedding Franken-Chain Concept

Source: Wikimedia Commons.

In theory, the conjoined restaurant concept should have helped Darden Restaurants (NYSE: DRI  ) generate revenues in markets too small to support both Red Lobster and Olive Garden separately, but as we've ultimately seen, the Franken-chain idea that had both concepts joined at the hip in one location couldn't generate any growth either, and now they're all being closed down.

As part of Darden's seafood restaurant spinoff-at-any-cost plan, the restaurant operator will convert its six dual Red Lobster-Olive Garden locations into freestanding Olive Garden restaurants. Two cobranded restaurants have already been shut down and the remaining four will be closed over time, though there's no timetable to complete the conversion.

When launched, the concept seemed to have merit. Two separate restaurants in small markets would have cannibalized each other to their respective detriment. As larger markets had largely been saturated with the sister chains -- there are over 700 Red Lobster restaurants and more than 830 Olive Gardens -- trying to branch into outlying, less densely populated areas was a potential growth path. 

The hybrid restaurants were around the size of one regular Olive Garden restaurant, but divided in half. Although they'd each have their own menus and distinct decor, the combo chains would share a kitchen, bar, and bathrooms.

Success by others trying out such dual restaurants over the years has been hit-or-miss at best. Dunkin' Brands has successfully paired its doughnut shops with Baskin-Robbins ice cream stores. Of the 10,000 total restaurants Dunkin' has in the U.S., it operates more than 1,180 of them as multibrand locations.

Similarly, Yum! Brands (NYSE: YUM  ) believed "multibranding" was a massive growth opportunity. In one late-1990s annual filing, for example, it said that where it then had almost 350 combined restaurants to its name, it could see as many as 3,900 such locations opening. By 2003, it noted that multibrand restaurants accounted for 12% of its restaurant base and represented "the biggest sales and profit driver in the restaurant industry since the introduction of the drive-thru window." However, by 2010, it said it was reducing its emphasis on co-branding as a long-term growth strategy.

So the combination units didn't quite turn out to be the biggest innovation in dining that Yum! imagined, but at certain times and in certain instances, there can be synergies realized. But even Darden's stand-alone units can't avoid the tectonic shift occurring in dining, with customers gravitating away from casual- and family-dining restaurants and toward fast-casual chains. A multibrand location means losses are just multiplied.

Red Lobster has been the poorest-performing concept it owns, and Olive Garden isn't much better. Conjoining two ailing chains into one healthy one didn't pan out as planned, and now as the spinoff proceeds apace, Darden is shedding the chain like a crustacean molting its shell. That's not enough to mollify investors who want the restaurant operator to do more, and it's not certain the soon-to-be-rebranded Olive Garden locations will appreciably improve Darden Restaurants' turnaround effort.

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Read/Post Comments (4) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 12, 2014, at 11:13 PM, imDanielle2 wrote:

    When will these places just close down? Tired of hearing about them every day and them not able to survive anymore.. Sometimes it is just time to just give it up!

  • Report this Comment On May 13, 2014, at 1:57 PM, ScamuelJones wrote:

    You mean the Darden people are fools enough to think will forget that they banned or barred the U. S. flag from being displayed in their restaurants and they people will come back to be customers? Bbwwwwaaaaaaahhhhaaaaaaaa! No Way Jose!

  • Report this Comment On May 13, 2014, at 2:27 PM, sailpret wrote:

    Darden never banned the flag from its restaurants. This is an urban legend, started by a less than truthful email in 2011. ONE restaurant in Alabama refused to let a group display their group's flag and the American flag during a ceremony because they weren't in a private dining area. They had a rule about not putting up banners during parties in the public dining area, and got as little over zealous at ONE restaurant. Darden released this statement:

    We are very sorry for any misunderstanding about this issue. We do not have a policy at Olive Garden concerning bringing the American flag into our restaurants. Some members of our team were misinformed about company policy by our corporate office. As a company we take responsibility for that and we regret it. We take pride in how we communicate to our restaurants and we are correcting this so it doesn’t happen again. Like all Americans we have nothing but the utmost respect and admiration for the American flag and everything it symbolizes, and we welcome anyone who wishes to bring the flag into our restaurants. In fact, we periodically provide American flag collar pins to our employees to wear while serving guests.

  • Report this Comment On May 16, 2014, at 10:47 AM, sal4951 wrote:

    Olive Garden isn't true Italian!!

    Any way, there food isn't that good, sauce isn't that great, taste like crap, and pasta isn't that expensive to make. You pay $9 bucks or more for a bowl of spaghetti and the meatballs and marinara is nasty!! And they wonder why, they are struggling, REALLY!!!!

    Those of us who grew up in an a Italian household know what a good sauce should look AND taste like.

    Here in Texas, they wouldn't know what good Italian food was like anyway.

    Have been to Olive Garden three times in my life ONLY because someone else paid for my meal...

    F.Y.I... The key to ANY GOOD pasta dish is the sauce...pasta is pasta...if the sauce tastes like crap then the whole entre' is going to taste like crap! Just an F.Y.I.

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Rich Duprey

Rich has been a Fool since 1998 and writing for the site since 2004. After 20 years of patrolling the mean streets of suburbia, he hung up his badge and gun to take up a pen full time.

Having made the streets safe for Truth, Justice and Krispy Kreme donuts, he now patrols the markets looking for companies he can lock up as long-term holdings in a portfolio. So follow me on Facebook and Twitter for the most important industry news in retail and consumer products and other great stories.


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