Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Darden Restaurants, Inc. (NYSE:DRI)

Morgan Stanley Retail & Restaurant Conference

April 04, 2013 8:00 am ET

Executives

Andrew H. Madsen - President, Chief Operating Officer and Director

C. Bradford Richmond - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Analysts

John S. Glass - Morgan Stanley, Research Division

John S. Glass - Morgan Stanley, Research Division

Back for Part 2 of the restaurants. We have Darden Restaurants, hometown favorite. And with us, we've got Drew Madsen, who is the company's President and Chief Operating Officer; and Brad Richmond, the company's Chief Financial Officer.

I wanted to start, Drew, maybe and talking about -- most broadly -- because this has been discussed at length, but most broadly, what are the key issues as you see them unfolding at both your core brand Olive Garden, which I think has had some difficulties in traffic over the last years. And now in the context of industry, kind of what -- just label the groundwork. What's happened in the industry that has gotten us to this point? What are some of the brand issues? You can talk specifically about your strategies going forward in Olive Garden. But what has sort of gotten us to this place and time?

Andrew H. Madsen

Yes. Well, starting with the broadest part first, the industry. There are consumer dynamics and competitive dynamics that we think add up to what amounts to a new era. So as you look at the total restaurant industry over the last 5 or 6 years, total traffic including new units, has been down meaningfully every year over that time period. And it's down most in casual dining and in mid-scale dining, but it's also down in core QSR. And so there is clearly a challenge with total traffic. And when we look underneath that, what's causing that, we think, are the consumer and competitive dynamics that I mentioned.

So on the consumer side, you've got a group of consumers who are more financially constrained than they would like to be. Whether that's because of life stage, they're younger, they're earlier in their career, a millennial generation, just don't have as much money as they'd like, or because of their economic circumstances because of the recession. They still haven't -- maybe they're still unemployed, maybe their wages aren't growing the way they want them to grow. But there's a large group of consumers, who are more financially constrained than they would like and can't go out as often. That I think is the biggest change. And we see that most prominently in the market share of full service dining by household income. So market share of full service dining is down 5 or 6 percentage points in households under $60,000. It's flat in the $60,000 to $100,000 group, and it's up meaningfully in the $100,000 plus. So category participation and category frequency in that household segment is just under pressure. So that's one big consumer dynamic.

A second dynamic is that there are meaningful demographic shifts. So that's both generational, ethnicity, racial diversity and the 2 biggest parts of that, that we're focused on are the millennial generation, which is bigger and growing. And they are looking, in many cases, for a different type of full service restaurant experience. And then the Hispanic population, which is growing. And they're looking for a couple of things: to be invited in directly; and then second, for some different flavor profiles than we tend to have on the menu. So those are the consumer dynamics that are leading to a drop in traffic, and that's resulted in some additional competitive dynamics.

So in inside casual dining, it's led to a very intense market share contest in the short term. More people competing for slightly less traffic. And that has really manifested itself in elevated discounting, elevated dealing that until the last couple of quarters, we haven't participated in as consistently or as deeply as some of our bigger competitors. So that's one dynamic. Second dynamic competitively is just the continued growth and emergence of fast casual and other segments that are innovating and better addressing the needs, in some cases, of the demographic groups I mentioned earlier, particularly millennials.

So as we step back from it, we say, "We've got a great portfolio of brands, industry-leading brands in many cases. We've got a tremendous support platform for those brands that's more effective and more efficient, we believe, than most of the people we compete against. We've got a great team of employees and leaders, a lot of experience and expertise. And we've got pretty consistent, pretty durable cash flow to reinvest in the business." But we have to make some changes in terms of how we go to market and the experiences we offer to address the consumer and competitive dynamics I mentioned. So that's kind of the broad landscape. Olive Garden, you wanted to talk about?

John S. Glass - Morgan Stanley, Research Division

Yes. Let me maybe ask a specific question, which is maybe a launching place for that. You've identified price value as a key element. The brand has always had value, but maybe the value, the proposition shifted elsewhere. There's a fair amount of investor skepticism that -- which would suggest that people don't believe you can get there without addressing the average check somehow. It was -- the company's strategy is to keep the average check maybe static, drive incremental traffic, which may result anyway in your undercomping the industry even if your traffic isn't parallel because your check would be lower. And others would say, "Look, you actually have to lower the average checks somehow." So how do you think about that dynamic specifically in the context of the turnaround that you think you've got underway at Olive Garden?

Andrew H. Madsen

Yes. Well, for Olive Garden in particular, one of the biggest differentiators of Olive Garden as a brand and as a business model is the breadth of appeal. So relevance to a wide group of guests for a wide range of occasions that has led to 3 things: average unit volume around $4.7 million, that's well above most of the scale competitors; a little over 800 units now, but we think it can be about 950 because of that breadth of appeal; and because of that volume per restaurant, very strong unit margins, 17% plus range. All of which are great strengths. But because of that breadth, people come to Olive Garden like they do many of our brands for different reasons. So there are clearly some customers that are looking for more affordability.

One of the things that has driven Red Lobster and Olive Garden, in particular, to have such high average unit volumes is historically they've outperformed, by a wide margin, the industry in that under $60,000 household group. So where the industry dropped by 4 or 5 percentage points in terms of market share in that under $60,000 group, Red Lobster and Olive Garden dropped meaningfully more there. So there's clearly some guests who need more affordability. But Olive Garden is underdeveloped relative to the casual dining industry. So not polished casual, not fine dining. It's underdeveloped relative to the casual dining industry in the higher income group. And the customer that's looking for a little more distinctive experience, a little higher quality, willing to pay for it. And we can talk about this if you want, but that was actually the focus of Olive Garden leading into the recession, and that's what drove check growth that was a little higher than the industry leading into the recession.

So we don't believe it's appropriate or necessary for an across-the-board check reduction because not every guest is looking for that. And in fact, we wouldn't be addressing the needs of some of the guests that are coming today if that was our singular focus. On the other hand, there are clearly a large number of guests at Olive Garden that would come more often if the experience is more affordable. And we're going to address that in the short term promotionally, but over time, on core menu evolution. And we do think that's going to lead -- and at the same time, we're going to work on some more distinctive dishes at the other end, that in combination, we think is going to lead to a check growth that's clearly slower, meaningfully slower, than it has been over the last 4, 5, 6 years.

John S. Glass - Morgan Stanley, Research Division

And just to put numbers around that, where do you think your check growth has been over the last 4, 5, 6 years? And where -- do you see it literally being flat, like no check growth with pricing being offset by negative mix? Or is there a little bit of a price surge, check growth expected?

Andrew H. Madsen

Yes. Well, historically, it's sort -- it has been a little over 2%, and that was largely pricing and we didn't have a lot of menu mix change before the recession. This year, I think in the third quarter, the most recent quarter, was flat. Check at Olive Garden was flat. A quarter before that, I forget exactly, maybe 1.5%, something like that. So we're not going to talk too specifically about next year, but somewhere above the flat, half-a-point point, somewhere in that range.

John S. Glass - Morgan Stanley, Research Division

Okay. And there's been, most recently, menu chatter about, maybe thinking about different...

Andrew H. Madsen

Brad will check all these numbers, by the way. I was pretty close.

John S. Glass - Morgan Stanley, Research Division

There's been some chatter about maybe introducing pizza as a platform. That's a great value platform. It's got favorable food cost. Is that the kind of -- do you see the brand evolving into that type of food category, for example, it would offer great value that maybe is not just a tactic, maybe that's actually a way to expand the brand? Is that along the lines of what you're thinking about going forward?

Andrew H. Madsen

Well, one of the things that Olive Garden has to do to increase relevance today on the what-you-get side is to offer more daypart-appropriate selections. So Olive Garden has a very well-developed business at lunch, much bigger business at lunch than Red Lobster or LongHorn have, bigger than the average in casual dining. But we haven't put enough innovation into our lunch business over the last several years. Soups, unlimited soups, salads and breadsticks is a big driver of the lunch occasion. And so we need more daypart-appropriate items, particularly at the lunch occasion. So that's why panini sandwiches were introduced recently. That's why calzones were introduced recently. Pizza would be another example. But we're not trying to make it a -- we're not trying to move the brand from a great full service, casual dining restaurant towards a more pizza-dominant restaurant. We just want to have daypart-appropriate selections.

John S. Glass - Morgan Stanley, Research Division

And Brad, the question that comes up commensurate with these discussions around getting more focused on value and maybe having restrained average check has to do with margins, right? There's a skepticism that maybe Darden had over-earned -- and particularly the Olive Garden brand, had over-earned during some of the flush periods where your check growth was a little bit higher than average. How do -- and is that correct in some respects? Is there a reduction, perhaps, required in the enterprise's margin to achieve these goals? Or do you think that's not the case?

C. Bradford Richmond

Well, I think it depends on the margin level we're talking about. Because Olive Garden has been a strong brand for a number of years, has tremendously strong average unit volumes. And those volumes helped yield a very strong margin. New restaurants are coming on at a margin level, earnings level, much greater than their required hurdle rate. And so, it performs very well. But as Drew was talking about, are there better trade-offs to be made to enhance overall sales and overall profitability? And a little bit of around our business model is there's pretty much leveraging, if you will. Food cost is going to stay roughly in line when you're -- with what you would expect, year-over-year basis, because we do take some pricing, as Drew mentioned, a little bit less than we've been taking historically. But there's tremendous leveraging on restaurant labor, restaurant expenses. And because Olive Garden in this case uses a nationally advertised platform, that really doesn't change a lot with the volume.

And so there is tremendous leveraging that comes with just a little bit of traffic growth. So we don't really get a lot into each brand's margin profile on a forward-looking basis, but obviously, they're a very big driver of that. That we see from where we are today that margin should expand. To your point, they've been quite strong, they were expanding at a pretty rapid rate, and maybe we did overshoot a little bit. But given from where we are today, annual margin expansion that probably won't happen on a quarter-by-quarter basis because of calendar movement, motion movement, but 10 to 30 basis points is still where we see that we can be with a little bit of trade-off on the check. And that's for Darden, overall. Yes. And just like Drew said, it's not going to be because we're taking the whole check down across the board, that's not what all of the guests in Olive Garden need. Clearly, a portion of them need that, but there's a lot that's looking for more enhanced offering. So we don't see clearly any large margin erosion. We think that it's -- from where it is, it should grow, but more modestly than it has in the past.

John S. Glass - Morgan Stanley, Research Division

Just to put numbers around that since I'm looking at -- I think in 2011, your operating margins, enterprise-wide, peaked at about 9.9%, so nearly 10%, which was really industry-wide, and I think the high from the industry standpoint. Today, based on your current forecast one more quarter to go, you're just about 7.8%. So you're -- so we're talking about working off of that high-7s level. And actually, I think next year, you've got some cost associated or some reversion to cost, maybe you could explain that just one more time to us. But there was an incremental cost last [ph] year -- which actually drive margins down even a little bit more, if I'm not mistaken. It's that the right level to work off of the 7.5% level?

C. Bradford Richmond

Yes, I think that's a good starting point. And moving back closer to 10% is reasonable. That's not probably in the next couple of years or so. Because that was -- those margins are built on a more robust economy. And we do know that our industry, particularly our businesses, there's a strong correlation to employment growth and disposable income. And those have been greatly compressed in the past few years during the recession and the modest recovery we're having. So growth in those. We would expect to get a large share of that. The leveraging that we get in our business should get us back to close to our historical levels, and in time, even beyond that. But if you look more to particularly next year, our base business model is very healthy. It's going to be able to grow earnings at a good rate. There are some adjustments to talk to for next year that are unique, one being the healthcare implementation and its impact on us, and that's in that $0.05 to $0.06 range. Remember our fiscal year starts in June so, so it's roughly a half-year impact.

And the other item is the -- our bonus, our incentive pay. We have a very strong pay for performance philosophy. And we carry that from the restaurant manager all the way up, obviously, to Drew, myself and our CEO. And so that has been much less than the targeted amount. And it was last year as well, year-over-year basis, it's less this year than last year. And so as we look forward to next year, we're establishing that bonus pool to the intended amount would be roughly, I think, has a $0.30 to $0.32 impact should we achieve our goals and pay out the full amount. If we're falling short on that goal, as we have this year, that is a direct reduction in our expenses. And so on the incentive part, we're definitely participating in that. And there have been years, prior to the past years, where we've been above it, and the same thing, we're delivering more than expected. Part of that goes back to the bonuses for our teams. 2/3 of that bonus is really driven by our frontline restaurant managers and multiunit supervisors. That's the big bulk of that. It's very motivating for them. We've had 2 years where it has been less than the target or intended amount, and so we're working pretty hard to make the right decision and set the right expectations or goals for ourselves so that we can get closer to that targeted payout. So not saying that, that impact will be a full $0.30 to $0.32, but depending on our performance, it could be that much.

John S. Glass - Morgan Stanley, Research Division

And just on -- as a -- when you look at the compensation of goals from management and how you guys earn your -- some of that piece, and I understand some of this is at frontline restaurant operators. Do you feel like the current compensation structure is adequate to motivate management correctly? And what I mean, more specifically, is yours has a little bit more lean to them, more towards top line growth. And I'm not going to get this exactly right, I think with your operating income growth or net income growth may be less specifically associated with either earnings growth or maybe returns of some sort. I understand that you don't control that, that is a board issue, but can you maybe just frame for us what it is? What -- I think it's a fairly simple formula, what you are driven off of? Do you think that is the correct go forward given that the change in -- the company's strategy is changing?

C. Bradford Richmond

Yes, I think it served us very well even prior to our spinoff from General Mills, it's that same basic philosophy and it's served us since our spinoff from General Mills in 1995, and it has worked really well to be motivating the right behavior without overly influencing behavior as well. CD&A in the proxy statement goes for a great discussion about the components and how it's calculated. But roughly, the calculation is, for the senior folks, it's 70%. In our case, EPS. For a restaurant manager, it's their restaurant performance and 30% is based on their sales. And these are sales versus a targeted growth number. So we don't get paid for just growing sales, it has to be a growth above a target. So in the case of the Yard House acquisition, there is no financial incentive in the annual plan for the acquisition of those additional sales, additional earnings. It's like, we know they come in, we expect this, based on the acquisition performance, you have to earn above that to get any bonus for that.

So I can use last year as a good example. Last year, we paid out about 60%, 65% of our targeted bonus. And that was for same-restaurant sales, that was at 1.8%, which clearly was well above the industry, but we set pretty high goals for ourselves. So a growth of nearly 2% in same-restaurant sales where the industry was flat. So we really outpaced that. We only paid out 65%, 60% to 65% of the intended bonus. So that's pretty aggressive goals that we set for that payout. What I would say is they're all really driven -- the foundation of this is driving total shareholder return. And so it really works backwards from that. We do use sales as a driver. The biggest one is EPS, because we're really tying that back to cash flow. Because the big movement of that is how you're managing the margin for the year and how you're doing on same-restaurant sales. Because when we're developing the targets that we're earning against, we pretty much know what new restaurant growth, how many weeks we're going to get, what sales, what earnings we generate from that. So the real variable and where all the focus is managing those brands to achieve that target.

For the senior folks, that's about 25% of the total compensation. 25% is roughly base salary. The other 50% is really around the equity pay, and that is divided into options and performance stock units, which are based on those same targets for the annual plan, which you've got to beat that growth rate that's in there for both sales and earnings. It is weighted 50-50, though, because of the longer term nature. We know we've got to grow these sales. Our model is designed and it has delivered good earnings growth, good cash flow growth for achieving that type of sales growth.

John S. Glass - Morgan Stanley, Research Division

And just before I leave, just to clarify. An acquisition you don't have visibility -- you know over time you may want to make acquisitions, but specifically the Yard House, that would have no benefit to you as a -- would count not toward your sales or your earnings growth and was accretive.

C. Bradford Richmond

Exactly. So really simply -- we buy them, whatever the acquisition pro forma was when we acquired them, and this gets layered onto the expectations that we have to earn above that expectation.

Andrew H. Madsen

We certainly think it will benefit us in the next year.

John S. Glass - Morgan Stanley, Research Division

Understood. That would -- that's very helpful. I want to be -- just to go back to the operating business and talk about Red Lobster, which has -- that was -- we thought that was the focal point several years ago for several years. And that does seem to be a brand that you did everything was a long a period of time. But from menu innovation renovation, branding, logo, advertising, you've really done the full suite of that. So first of all, looking at current results, do you think those initiatives in total have been successful? Have they gotten to you to where you want to go? And how would you assess your current performance looking in this kind of more value-sensitive environment? What you need to do incrementally to that brand to continue to drive traffic?

Andrew H. Madsen

Yes, I would say the multiyear journey has been positive, but it isn't complete. And so the reason I say that -- and let me go over the things that you've mentioned. So we think that to get the full value out of that business, we needed to do a few things. So first of all, we needed our guest experience to be more consistent. So over the last 5 years, the first thing we did was something called the "Simply Great" operating philosophy to eliminate complexity and cost that didn't benefit the guests. Second thing we did was to add -- try and update the brand. So we added Today's Fresh Fish sheets that lists 5 to 7 fresh fish species that are printed twice a day in each restaurant to try and combat that perception that Red Lobster only serves frozen seafood. We added a new signature cooking platform, wood-fire grills, to help comtemporize the brand, make it more on trend and strengthen the perception. We're about a little more than halfway through a remodel program, the Bar Harbor remodel program, and we're going to introduce a new ad campaign, Sea Food Differently.

And all of those things, we think, have been a positive to the current guest base, but have begun to update the image and increase frequency for lapsed users. And when we look at the performance of the business, we see, in terms of an absolute basis, we see high average unit volumes, 3.7 million, very strong restaurant level returns in the 14% to 17% range, which are above our cost of capital, are value creating. And on same-restaurant sales, it's been volatile for reasons like the Gulf oil spill in 2011 and some changes in holiday timing like Easter. But if we look at it over a 3-year time for the last 3 years, most recent 3 years, same-restaurant sales cumulatively for Red Lobster are right around 3%. In the industry, it's probably right around 2.5% or so. So equal to, slightly above the industry.

So we think all of those things are having a positive impact but we're not done. This journey isn't done. So what we need to do going forward in particular, in the near term, is continue to be aggressive on affordability in promotions because Red Lobster is the brand in our portfolio that has a biggest base of customers in the under $60,000 household segment, bigger than Olive Garden. And they're feeling the most pressure of any of the other brands in our portfolio. So we need to continue to emphasize affordability. So we're doing that in our promotions. About 5 months ago, we introduced a pretty big new core menu that had more choices under $15 to try and strengthen that.

So affordability is #1. Second is we need to make the brand more relevant for non-seafood occasions. So we're still going to be fundamentally a seafood restaurant, but in a party of 3 or a party of 4, there's always somebody that doesn't want seafood. And right now, the veto vote for Red Lobster is higher than it should be. So we haven't given people a reason -- groups, a reason to come to Red Lobster when there's someone in a group that doesn't necessarily want seafood. So as an example, when we look at the Red Lobster business -- and these are round numbers, the percent of guests that are ordering a seafood item versus a non-seafood item at Red Lobster is something like 90%-10%, roughly. When we look at Longhorn, as an example, the percent of guests ordering a beef dish versus a non-beef dish is more like 65-35. So we think we've got an opportunity to continue to be viewed as a great casual dining seafood restaurant, but broad relevance for folks who want something other than seafood.

Beyond that -- and we need to complete the remodel program. So like I said, we are 2/3 roughly through. Beyond that, probably the 2 biggest opportunities for Red Lobster is to build the lunch business, which is meaningfully underdeveloped relative to an Olive Garden, so we need items that are more daypart appropriate, and we need a service delivery that's more daypart appropriate, quicker, more convenient. And then Red Lobster isn't keeping pace with growth in the Hispanic population. So Olive Garden is overdeveloped there. Longhorn is underdeveloped, but that's largely because of their restaurant footprint. And so Red Lobster, with the footprint it's got, has an opportunity to develop that business.

John S. Glass - Morgan Stanley, Research Division

And specifically to that, you've been testing, I think in this market, some sort of lunch offer, some [ph] express lunch, maybe even a pickup window? Can you just describe what you've been doing?

Andrew H. Madsen

Yes, I mean, we're literally 3 weeks -- not even 3 weeks, into a test in 2 restaurants that is a casual fast experience, if you will. So it's a -- in these restaurants, on one side, we offer the traditional full service casual dining lunch experience that Red Lobster has always offering. On the other side of the restaurant, we're offering, we're testing a new experience where you order at the counter, pay at a counter, sit down at the table and your food is brought to you at the table. And what you're ordering from is really a set of 3 different choices that are priced $6.99 to $9.99. So more affordable and faster. And so we're going to -- obviously, we're going to evaluate how many people order the new casual fast experience, what their satisfaction is, what sort of lift it gives us in traffic margin and all that. But also, we're going to look at what's the implications for the existing lunch business as well.

John S. Glass - Morgan Stanley, Research Division

I want to go back to capital allocation and the discussion around what you're spending and for what. And there has been some tension in the -- in your own budget just between how much you pay for a dividend now since that's increased substantially, what's your -- and you've also got a bunch of capital needs in the business, from renovation and continued growth. So can you just walk through, very quickly, where you've been in the last kind of year or so? You've pulled back a little bit on development, I think there's a question as whether you couldn't pull back even further in 2014. For example, LongHorn, which -- well, it's a strong brand, maybe have to make tough decisions around protecting, giving investors greater confidence in the dividend, less -- maybe putting more money back into your existing brands, we hear that maybe you need more capital. So can you talk us through those choices that you've made so far and where your flexibility is.

C. Bradford Richmond

Yes, I mean -- and there has been some concern about the dividend going forward, but I think we're pretty clear at the investor conference about the strength and the durability of our cash flows. Our operating cash flows are, this year, going to be roughly in the $950 million range and they continue to grow. There were some unusual items in the prior year around our supply chain transformation and taking inventory earlier in the process that use cash that's now starting to reverse out. And some interest rate hedges that were cash outflow, that reduce future cash outflows. And so the cash flow is strong, continues to grow, but we do very much value a strong financial position, investment-grade credit profile. And so we have moderated our cash flow -- our CapEx around new unit growth. So roughly moving from 5% to 4%, which provides reduced outflow with us. That's pretty significant. That enables us to balance growth in our business from new units, still providing a tremendous amount of CapEx to protect the strong cash flows and the base business we have around maintenance CapEx, continuing the remodeling at Red Lobster, and beginning to start one at Olive Garden as well.

So this year I believe the number is roughly $250 million, that's available on a free cash flow basis for dividends and debt reduction. And so that leaves us sufficient amount for the dividend. In fact, we know the importance of the dividend to many of our investors, and we believe the dividend should grow from where it is. Roughly over the longer term, about a 50% payout ratio on a forward-looking basis is what we target. We will be a little bit above that with this temporary setback that we have. We don't see this as a structural change, so that's why we see -- and with the strong cash flows that we have, why we see the ability and responsiveness to raise dividends. It won't be at the rate that it has been the past few years because we were working towards that 50% payout ratio. So that was a little bit outsized. But we had reduced our amount of share buyback over time. We kind of rebalanced between dividends and share repurchase. So the tremendous amount of capital has been returned, approaching $4 billion over the past 10 years through share buybacks and dividends. So I'd say it's strong, will continue to grow, but it will grow at a more moderate pace than it has.

Andrew H. Madsen

As Brad mentioned on our quarterly call, financial flexibility through an investment-grade credit rating and maintaining the meaningful dividend that grows over time are both very important to us. And capital allocation discipline is how we think we can help balance that. So $950 million roughly in cash flow this year, $700 million in CapEx, leaves $250 million for a dividend, roughly. And if you wanted to -- just in terms of giving you a sense for numbers, we've reduced new unit growth from maybe 105 this year to 80, mid-80, high-80s next year. And to fund a 10% dividend increase from $250 million, all it will take us to reduce unit growth by 5. So 5 units that's $4.5 million a unit, if needed, from where we are.

C. Bradford Richmond

That's a good way to think about it. Just one other comment is, I think sometimes we forget just how big has the strongest base restaurant is. Because 1% change in same-restaurant sales changes the operating cash flow about $30 million, $35 million. So out of $950 million, that's not a big movement. Now same-restaurant sales are obviously very important to us. We want them to grow, but they really don't have as -- a great short-term impact as folks would think. And more specifically to Drew's comment, CapEx from this year to next year is going to be down about $100 million with the adjustments that we have made. That's what we shared at the investor conference. We'll refine that a little bit as we begin the fiscal year when we get back together in June, but it's going to be somewhere in that ballpark. I think we said $600 million to $650 million, a little -- it would be somewhere in that range.

John S. Glass - Morgan Stanley, Research Division

You talked a lot about the $60,000 threshold. I'm more curious about demographics because I've got 2 daughters entering the workforce -- oh, sorry. We've got 2 daughters entering the workforce, and no offense, but it wouldn't cross their minds to go to an Olive Garden or a Red Lobster, and that's just a demographic thing. How do you -- how are you addressing that?

Andrew H. Madsen

Yes, that's a great point, and that's part of the demographic changes and consumer dynamics. And so as we look at that, we've got opportunities with the millennial generation and with Hispanics as we look at age cohorts and as we look at ethnicity. And so an example of what some of the things we're looking at for a millennial generation is trying to broaden brand relevance by offering more on-trend food. So an example would be small plates or rice bowls at Bahama Breeze, not those specific examples, but things like that, we could offer at Olive Garden and Red Lobster that fit more the flavor profile and the dining experience that a millennial generation wants. So a little more flexible, viewed as fresher, not quite as expensive. That's one example. The lunch experiment that we're doing at Red Lobster is another. So not as many people want to spend 45 minutes to 1 hour to sit down lunch. They want to spend 30 minutes and they want to spend $8 or $9 or $10. So we've got to do all that. But we want to do it in a way that preserves the core of the business and looks for incremental growth in a way that's consistent with that core. So we are looking at a number of things. But it isn't -- and I mention this, because it isn't a fundamental shift or move of the brand. It's more incrementally trying to make it more relevant.

John S. Glass - Morgan Stanley, Research Division

Perfectly timed. Brad and Drew, thank you so much for coming out. So we'll see you later today, and again, thanks for your participation.

Andrew H. Madsen

Great. Sure. All right.

C. Bradford Richmond

Thank you, John. Appreciate it.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Darden Restaurants' Management Presents at Morgan Stanley Retail & Restaurant Conference (Transcript)
This Transcript
All Transcripts