In 1993, the company's concept and marketing whizzes thought they could serve up another winner. Consumer research suggested there would be strong demand for a nationwide chain of casual-dining Chinese restaurants. Buoyed by its market data and the success of Red Lobster and Olive Garden, General Mills hit the expansion accelerator. Within two years, the company had opened 51 China Coast restaurants and had several more under construction.
China Coast, however, saw its fortune cookie crumble. The company tried to expand the chain too fast, and management couldn't master wok cooking on a chain-wide basis. The quality of food and service varied widely among the new restaurants, and China Coast's image suffered. After two years, China Coast closed its doors.
Failure in the restaurant business is hardly unusual, but for the research-driven pros at Red Lobster and Olive Garden, the failure of China Coast stung. The restaurant division experienced more change as well, as General Mills spun off Red Lobster and Olive Garden into a separate publicly traded company in 1995.
The company, now known as Darden Restaurants, is at a critical juncture. Cautiously, the company is poised to roll out not just one, but two new national chains: Bahama Breeze, a Caribbean-themed restaurant, and Smokey Bones BBQ and Hometown Sports Bar. In charge of the expansion: Darden CEO Joe R. Lee, a quiet 60-year-old whose unassuming manner belies his ambitions for the company. "We want to be the leader in the casual dining restaurant sector ... now and for generations," he says. "We want to be first choice for consumers, whether it's seafood, Italian, barbecue or vacation-island theme."
While the Red Lobster and Olive Garden names are familiar to millions of diners, corporate parent Darden and Lee have attracted less attention than the company's size might suggest. One Florida money manager who says he keeps an eye on the company's stock was surprised to learn Darden is based in Orlando.
In fact, Darden is one of Florida's biggest companies (No. 10 on Florida Trend's Top 250 list) and has grown to become the world's largest casual dining chain with annual sales of $3.7 billion. There are 477 Olive Garden restaurants in the U.S. and Canada and 661 Red Lobsters. Darden is the largest U.S. importer of Italian wines. It is this country's largest buyer of seafood. It employs more than 122,000 workers, who perform everything from cooking to marine biology research.
"Here we are, 33 years later, and Red Lobster is still -- by far -- the No. 1 seafood restaurant in the country. And Olive Garden is the No. 1 Italian restaurant in the country," says Lee during a recent sit-down in Darden's headquarters in Orlando. "The trick is having a good concept from the beginning, of course,'' he says. "But then the real trick is to keep it fresh and relevant over time."
A taste of the business
Lee's appreciation of relevance began during his college years at Valdosta State College in Georgia, when he took a part-time bartending job at Ramada Inn. A job as fill-in night manager followed, and before long Lee decided on a career in hospitality. He talked his way into a manager-trainee position with the late Bill Darden, who in the 1960s was one of the most prominent restaurateurs in Georgia.
Darden owned The Green Frog, a popular Waycross, Ga., restaurant that attracted customers from as far as 50 miles away. Darden was a franchisee of Howard Johnsons, Kentucky Fried Chickens and Bonanza steak houses throughout southeast Georgia and north Florida. He also owned the Thunderbird supper club in Jacksonville.
Darden dreamed bigger. He was convinced the country, especially the land-locked Midwest, was ripe for a chain of seafood restaurants. He pitched the idea to Howard Johnson Jr., who had taken over that company from his father. Johnson wasn't interested. Darden put together his own group, which included a young Joe Lee, who was brought on board to manage the first restaurant.
The first Red Lobster opened in 1968 in Lakeland, a town far enough inland to test the concept, yet still close enough to the coast to ensure delivery of fresh seafood. And its spring training facility for the Detroit Tigers attracted visitors from the Midwest. The first restaurant was such a success as soon as it opened that the stoves were removed and replaced with bigger and faster cookers. "Those were very exciting times," Lee recalls.
Among those who benefited financially from Red Lobster's arrival was a Lakeland attorney named Lawton Chiles. He bought the land and built the first Red Lobster sites, leasing the building to the operators under long-term deals. Rental income from the restaurant buildings -- the Chiles family still owns four buildings -- gave Chiles the financial means to run for U.S. Senate, says his son, Ed Chiles.
Meanwhile, buoyed by the restaurant's initial success, Darden quickly began building what he envisioned as a regional chain, planning Red Lobsters for Orlando, St. Petersburg, Jacksonville, Tallahassee and Atlanta. Success attracted more than hungry customers. At the time, General Mills, the giant cereal maker in Minneapolis, was looking to diversify and began combing the country for promising restaurant chains. Red Lobster caught the eye of General Mills execs.
In 1970, just two years after Darden and his group opened the first Red Lobster, General Mills acquired the chain -- at the time consisting of just three restaurants and two more under construction.
General Mills' ownership gave Lee and the other Red Lobster execs the financial and marketing muscle to expand, and Red Lobster grew rapidly. Then, in the early 1980s, General Mills brought the intensive research it used as a marketer of mass consumer food products to the restaurant group as it went about developing a new concept to complement Red Lobster.
The research showed there was room for a casual-dining Italian chain -- situated somewhere between pizza joints and mama-and-papa run restaurants. The company's creative division -- led by Blaine Sweatt -- developed the concept for Olive Garden, and the company opened the first one in 1984.
Major overhauls
Lee, meanwhile, was climbing the corporate ladder at General Mills. In the early 1990s, he was a serious candidate for the chairman's job. As part of the General Mills culture, senior officers like Lee were routinely put into positions outside their area of expertise. Lee, for example, became chief financial officer, a post that greatly expanded his understanding of
sophisticated financial transactions and Wall Street.
In 1995, when General Mills' then-Chairman H. Brewster Atwater decided to spin off the restaurant group, Lee left General Mills to become chairman and chief executive of Darden -- a name Lee selected as a tribute to his first mentor, who had left Red Lobster in 1983 and died in 1994.
While Olive Garden and, especially, Red Lobster are mature brands, Darden has greatly extended their longevity by regularly refreshing menus and overhauling the restaurants roughly every seven years. Both Red Lobster and Olive Garden have undergone major repositionings in the last five years. The effort has shown in the numbers. Darden's same-restaurant sales increases over the past two years have been among the industry's highest.
Darden is also emphasizing alcohol and beverage sales, which have a higher profit margin than food sales. The average Darden customer's alcohol and beverage consumption formerly amounted to 8% of the total bill, compared with an industry average of 13%. Darden has brought its alcohol and beverage sales up to 11% of the ticket, partly by moving bars to more visible locations in its restaurants. Investors have taken notice. Darden's stock price hit all-time highs in May, reaching the upper $20s.
Still, in order to deliver the strong earnings growth Wall Street demands, Darden knows it can't rely solely on seeking more profits from its existing base of restaurants. "Darden has to have another concept that's big," says Erik Gordon, research director of the Center for Retailing at the University of Florida. "They know it."
The company is convinced that the island-themed Bahama Breeze chain is a sure-fire hit. To date, Darden has opened 19 Bahama Breeze restaurants, which feature several bars and live entertainment on outside decks and casual dining inside with an open kitchen area. Annual sales are averaging $6 million, about twice as much as Red Lobster and Olive Garden.
High hopes
Bahama Breeze is expected to begin contributing to Darden's bottom line next year. "There's no question that Bahama Breeze is a success," says Malcolm M. Knapp, publisher of the Knapp-Track, which follows the casual dining industry.
Smokey Bones is a somewhat less certain bet, however. Darden has opened nine Smokey Bones restaurants and is encouraged by the early result, yet it still refers to the concept as a test. Lee says a determination on whether to proceed with a large-scale rollout will be made later this year. Mark Kalinowski, an analyst at Salomon Smith Barney, likes what he's seen so far. He recently upgraded his recommendation for Darden's stock from neutral to a buy partly because of Smokey Bones. "I have a much better comfort level with Smokey Bones," he says.
All told, Lee says, Darden expects to meet its annual earnings-per-share compounded growth target of 15% to 20% from a combination of increased sales at Olive Garden and Red Lobster and the startups. "We need two new concepts," he says. "Ten years from now we'll need two more."
Another run at Chinese? "There is a niche for Chinese," Lee says. "We just went too fast before, but the niche is there. Let's just say we're looking at five or six niches that aren't being filled," he says with a smile.