Clarence Otis, chairman and chief executive of Darden Restaurants Inc., sees better days ahead for an industry that took a beating during the Great Recession of the recent past. Otis, whose company owns Olive Garden, Red Lobster, Long Horn Steakhouse, and other casual- dining chains, expected the job losses that cut consumer spending to abate in the first quarter of 2010.
“Restaurants, historically, are one of the first industries to benefit coming out of a recession.
People have deferred big-ticket items like cars, appliances and vacations, and a meal out is a low-ticket treat,” said Otis.
Darden planned to capitalize on the recovery
by doing the things it had been planning to do prior to the recession, such as investing in menu development and employee training, remodelling restaurants, and preserving cash.
Unlike many restaurant chains that turned to heavy discounting to lure customers, Darden avoided that. Buy-one-get-one-free or half-off promotions “run the risk of communicating to consumers that price is the primary attribute of
your brand and it overwhelms all the other things that go into developing a strong brand,” Otis said. Instead, Darden introduced new menu items at lower prices; that helped restaurants keep the same profit.
At its upscale Capital Grille chain, the com- Pany offered, for $40 per person, new seafood entrées paired with appetizers and wine from regions of the world where prices are lower or from newer vineyards that charge less than more established ones. Darden also reduced the pace at which it opened new restaurants.
The biggest lesson that was reinforced for him during the downturn, Otis said, was to spend conservatively and to keep debt low even when times are good.
- What managerial roles is Clarence Otis emphasizing in the case just presented?
- What challenges would restaurant managers face in implementing Otis’s approach to keeping the restaurants performing well during a slow period in the economy?
- If you have visited a Darden restaurant lately, what suggestions can you offer top- level management for attracting even more customers?
- Based on media reports, how successful do you think Clarence Otis has been in helping the Darden chain become a continuing success?
- What financial management practices of the Darden chain might be useful to you in man- aging your personal finances?