Technology Revamp On Order At Olive Garden, Red Lobster Chains
March 02 2012 - 04:29PM
Dow Jones News
Olive Garden and Red Lobster are getting a technology makeover,
as parent company Darden Restaurants Inc. (DRI) fights to stay
relevant with younger guests and its own employees.
Darden--which also owns LongHorn Steakhouse and a few small,
specialty chains--is consolidating all of its brands on to a single
new digital technology platform, in a multiyear process that will
began as early as the summer. Its plan is to allow for the sharing
of guest data across brands for marketing purposes; improve its
"to-go" ordering systems; offer online and text-ahead seating; sell
e-gift cards; and potentially create a customer loyalty
program.
To some industry watchers, it's odd that Darden doesn't already
have a unified platform with these capabilities. Darden is the
long-time industry leader for casual dining, with its organic sales
growth outpacing its competitors' for years. Plus, it has the
strong cash flow to support such projects. Yet as it stands, the
company admits it has lost much of its appeal to consumers in their
20s and 30s.
"As we look ahead, in order to remain relevant, we have to have
an even more robust ability to interface with consumers and with
employees digitally, and so it means some incremental investment in
our current platform," said Chief Executive Clarence Otis on a
conference call last week. "We don't think that without this kind
of platform, we're going to stay relevant to the younger
demographic as guests, or as employees."
From an employee perspective, the software changes will allow
them to view their schedule and request time off online.
"Right now, they have a demographic problem," said John Gordon,
chain restaurant analyst at Pacific Management Consulting Group,
particularly in that their most loyal consumers at the core chains
are in their mid-50s.
Casual-dining analyst Malcolm Knapp agrees Darden is "a little
late" to the game. But it's not as if competitors like DineEquity
Inc. (DIN)--the parent company of Applebee's and IHOP--or Brinker
International Inc.'s (EAT) Chili's boast all these features yet
either.
"Usually that technology innovation comes out of the fast-food
industry first," he said, pointing to Domino's Pizza Inc. (DPZ),
whose online ordering system drives a large share of its sales. "It
wouldn't surprise me if they took a look at other chains and said:
'Hey you know, we really need to step up our game,'" Knapp
added.
Darden generates nearly $1 billion in annual operating cash flow
and plans to spend some $500 million on building and remodeling
restaurants in fiscal 2013, which starts May 29. It has allocated
another $175 million to $190 million for "other" projects, like
restaurant maintenance and the tech overhaul.
Chief Operating Officer Drew Madsen said "it's going to take a
while to build," and the benefits are likely to come over several
years. The company wouldn't provide more specifics on the cost but
said it plans to elaborate on its June conference call.
Darden's move to a single technology platform is in line with
its plan to extend "best practices" across its platform, as it
recently consolidated each of its brands' headquarters under one
roof in Orlando, Fla.
"One of our competitive advantages today is the strong media
budgets that we use to drive limited-time-offers and build brand
equity," Madsen said. "We'll continue to do things like that, but
this will allow us to be much more targeted and do things that
could be specific to individual guests, and certainly
affinity-based [or like-minded] groups of guests."
Casual dining chains have traditionally focused on mass appeal
rather than targeted marketing, so loyalty programs are relatively
untapped in the industry. Now that Starbucks Corp. (SBUX) and
Panera Bread Co. (PNRA) have seen major benefits from theirs, such
as more guest visits and higher spending with each check, fan clubs
that give guests discounts for birthdays or other special offers
are becoming more popular in the casual-dining industry.
Otis said that down the line, the new platform has the potential
to include a loyalty program "that makes a lot of sense for guests
and gives them whatever they think is value, whether that's just
the ability to jump to the front of the line on a Friday or
Saturday night, or something else."
-By Annie Gasparro, Dow Jones Newswires; 212-416-2244;
annie.gasparro@dowjones.com