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