Who should Darden Restaurants buy next?

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Darden Restaurants is an American casual-dining restaurant company which is best known for owning Olive Garden and Longhorn Steakhouse. In 2018, they accrued total revenue of 8.1 billion dollars. This number is not high enough for Darden CEO Gene Lee. He hopes to raise annual revenue by acquiring other recognizable and yet struggling restaurant brands. In February of 2019, Lee made it clear that Darden is in the market to buy any casual dining chain with “annual systemwide sales at $300 million at the low end and $1 billion at the higher end.” In the past, Darden has bought and had a positive impact on struggling restaurant chains such as Cheddar’s Scratch Kitchen and Eddie V’s Prime Seafood. Based on Lee’s criteria, four restaurant chains stand out as potential acquisitions: Applebees, O’Charleys, Perkin’s Restaurant and Bakery, and Ruby Tuesday.

Applebees is one of the most popular and recognizable casual dining chains in the world. In 2018, they reported revenue of 2.5 billion dollars, meaning that Darden’s criteria would be more than met. In 2007, IHOP bought Applebees for $2.1 billion. This is a partnership which has never made sense to me, and business has been deteriorating since the deal has taken place. In 2018, Applebees shut down 99 restaurants. Many analysts expect Ihop to attempt to sell Applebees, and I think Darden would make the most sense as a potential buyer. 

 O’Charleys could also be a potential buy for Darden.O’charleys operates over 200 restaurants nationwide and in 2018 saw revenue of $276 million. In 2016, parent company Glacier Restaurant Group declared bankruptcy and announced their intent to sell the casual dining chain O’charleys. I believe Darden could maximize the brands profitability and expand the companies’ locations and revenue.

A third option for Darden could be Perkin’s Restaurant and Bakery. In the past, I have written about the fact that I am passionate about Perkin’s and one day plan to open a franchise. However, Perkin’s parent company Marie Callender’s is a total mess right now. They just filed bankruptcy for the second time and are losing money like crazy. The good news is that Marie Callenders’s is selling Perkin’s to help pay off its debts. So, I think Darden would be the perfect company to buy the restaurant chain. Perkin’s saw revenue of $335 million in 2018, and systemwide sales were up by 6 percent. Plus, purchasing Perkin’s would add something to Darden’s business that they don’t currently have: breakfast. The breakfast industry is a hugely profitable business, and I think it’s time for Darden to join in on that demographic.

A fourth option for Darden could be Ruby Tuesday. This might be the riskiest choice as Ruby Tuesday is in major turmoil right now. In 2017, the chain went private and subsequently closed down over 450 locations, as well as experiencing a 17 percent same store sales decline. In 2018, total revenue was $950 million. Despite the negative outlook, Darden could be a potential buyer. When Ruby Tuesday was bought in 2017, the price was only $146 million. When you compare this to their annual revenue, it could still be a profitable investment for Darden. And they may just be able to bring Ruby Tuesday back into a positive area.

As well as acquisitions, Darden has also expressed interest in disposing of some of their less profitable chains. In 2014, Darden shocked the restaurant industry when they sold seafood chain Red Lobster for $2.1 billion. In my opinion, this was a huge mistake. Behind Olive Garden, Red Lobster was essentially their most popular and recognizable brand. 

Moving forward, I would recommend that Darden part ways with Seasons 52, Yard House, and The Capital Grille. These restaurants just don’t have the popularity or support that Darden chains like Olive Garden and Longhorn Steakhouse do.

I will be interested to see what moves Darden makes moving forward. No matter what they do next, Darden is a major player in the restaurant industry. As a future restaurant owner, I will be keeping my eye on Darden.

 

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