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Tom Armistead
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I'm a well-informed retail investor and formerly posted on SA in order to expose my thought process to critical examination and comment from readers. It made me a better investor. I'm particularly proud of bullish macro articles posted in 2009 and later, in which I presented ideas that... More
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  • Darden: Investing In Affordability? 4 comments
    Sep 21, 2013 6:57 AM | about stocks: DRI

    Darden's (DRI) quarterly results were disappointing, to say the least.

    Reading the transcript, I was struck by the number of occurrences of the word "affordability." It seems almost obsessive. Current consumer reactions create a catch 22, you have to give them affordability or they won't come, then you cheapen the brand.

    But when CEO Clarence Otis talked about "investing" in affordability, he lost me. Investing the way he used it is about incurring expenses that create value, so from an entrepreneurial accounting point of view they are sort of capitalized, and don't count on the profit and loss.

    I'm not sure I see the value created when you train customers to look for the next promotional item before they go to your restaurant. Also, members of the obese nation are beginning to move away from the all you can eat outlook toward something a little healthier.

    When I was down South earlier this year I ate in a number of family restaurants where a "bar" meant a buffet, with all you could eat of various meat, gravy and taters type dishes. It also included a salad bar. Prices were around $10, the service was pretty basic. Very few of the clientele were underweight.

    To be fair, Otis is also trying to do something about "beyond affordability," whatever else the customer wants. It didn't seem as if he was able to articulate exactly what that is, or how they are going to address it. Maybe it's kind of nebulous.

    The other day my wife and I went out to eat at a Mexican place, it was where Applebee's used to be. The decor looked liked something from the great house wherein dwelt Don Carlos and La Donna Maria Helena Cantrell. Maybe Darden should develop a Mexican brand, something beyond a take-out or fast food establishment, a casual dining outlet, furnished somewhat on the opulent side, to offset the idea of cheapness. Mexican food from what I can see is both affordable and tasty.

    Just trying to be helpful.

    As far as my investment in Darden, I'm holding, but none too happy.

    Disclosure: I am long DRI.

    Stocks: DRI
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Comments (4)
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  • The Olive Gardens and Red Lobsters here in Iowa seem to have a pretty decent business. Whenever we drive by them the parking lots seem pretty full. Did DRI sight any specific problems like lower traffic, costs of food too high, or too many employees? Our family has not went out to eat at a sit down restaurant lately, but we have gotten a lot of take-out from local joints that we like. We live in a town of about 100K and most restaurants have full parking lots.
    21 Sep 2013, 10:51 AM Reply Like
  • Author’s reply » Augie,

     

    Traffic was down year over year, also same store sales were down. They aren't getting as many people come in the door.

     

    It could be that if you think about car payments, a lot of people held their cars longer than usual due to the economy. As a result, a lot of them didn't have car payments. So, when you arrive at that point, you can start reducing the credit card bills, and maybe give yourself a treat and go out to eat more than you would otherwise.

     

    Then when you buy a new car and you have payments again, going out to eat could fall by the wayside.

     

    You're talking about plus or minus 2% or 3%, averaging their businesses together.

     

    Another thought, the middle class is just plain hurting. Panera, etc., seem to cater more to a yuppie type consumer who would still have money to spend.

     

    Right now management is all over the under-performing units, trying to bring them up to par. If that doesn't work, they will have to start closing a few more than they have been.
    21 Sep 2013, 10:58 AM Reply Like
  • On Bloomberg they were talking about places doing all you can eat shrimp and getting burned. They quoted some obscene figures on how much of an expense shrimp was for Red Lobster. I see Outback steakhouse is now running an all you care to eat shrimp deal now.
    21 Sep 2013, 10:53 AM Reply Like
  • I think Red Lobster and Olive Garden are the "dogs" of the Darden portfolio. Capital Grill, Yard House, Long Horn, etc. are excellent, high end eateries. I am hoping they transition towards the higher end market where the clientele isn't having to decide between eating out or making a car payment. Personally, I eat out 3 or 4 times a week and it is never at a Red Lobster or Olive Garden. Capital Grill is one of the best restaurants I have ever frequented. Awesome Kona crusted steak. I have also heard great things about Yard House, but have never eaten at one.
    21 Sep 2013, 10:33 PM Reply Like
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