Darden Restaurants, Inc. is the world’s largest company-owned and operated full service restaurant company1, and served over 404 million meals in fiscal 2009. As of May 31, 2009, we operated through subsidiaries 1,773 restaurants in the United States and Canada. In the United States, we operated 1,738 restaurants in 49 states (the exception being Alaska), including 661 Red Lobster®, 685 Olive Garden®, 321 LongHorn Steakhouse®, 37 The Capital Grille®, 24 Bahama Breeze®, eight Seasons 52®, and two specialty restaurants: Hemenway’s Seafood Grille & Oyster Bar® and The Old Grist Mill Tavern®. In Canada, we operated 35 restaurants, including 29 Red Lobster and six Olive Garden restaurants. Through subsidiaries, we own and operate all of our restaurants in the United States and Canada, except three. Those three restaurants are located in Central Florida and are owned by joint ventures managed by us. The joint ventures pay management fees to us, and we control the joint ventures’ use of our service marks. None of our restaurants in the U.S. or Canada are franchised. Of our 1,773 restaurants open on May 31, 2009, 926 were located on owned sites and 847 were located on leased sites. As of May 31, 2009, we franchised five LongHorn Steakhouse restaurants in Puerto Rico to an unaffiliated franchisee, and 25 Red Lobster restaurants in Japan to an unaffiliated Japanese corporation, under area development and franchise agreements.
Darden Restaurants, Inc. is a Florida corporation incorporated in March 1995, and is the parent company of GMRI, Inc., also a Florida corporation. GMRI, Inc. and certain other of our subsidiaries own and operate our restaurants. GMRI, Inc. was originally incorporated in March 1968 as Red Lobster Inns of America, Inc. We were acquired by General Mills, Inc. in 1970 and became a separate publicly held company in 1995 when General Mills distributed all of our outstanding stock to the stockholders of General Mills. Our principal executive offices and restaurant support center are located at 5900 Lake Ellenor Drive, Orlando, Florida 32809, telephone (407) 245-4000. We anticipate moving to a new restaurant support center, also in Orlando, Florida, during the second quarter of fiscal 2010. Our corporate website address is www.darden.com. We make our reports on Forms 10-K, 10-Q and 8-K, and Section 16 reports on Forms 3, 4 and 5, and all amendments to those reports available free of charge on our website the same day as the reports are filed with or furnished to the Securities and Exchange Commission. Information on our website is not deemed to be incorporated by reference into this Form 10-K. Unless the context indicates otherwise, all references to “Darden,” “we”, “our” or “us” include Darden Restaurants, Inc., GMRI, Inc. and our respective subsidiaries.
We have a 52/53 week fiscal year ending the last Sunday in May. Our 2009 fiscal year ended May 31, 2009, had 53 weeks, and our 2008 fiscal year ended May 25, 2008, and our 2007 fiscal year ended May 27, 2007, each had 52 weeks.
We opened our first restaurant, a Red Lobster seafood restaurant, in Lakeland, Florida in 1968. Red Lobster was founded by William B. Darden, for whom we are named. We were acquired by General Mills, Inc. in 1970. In May 1995, we became a separate publicly held company when General Mills distributed all outstanding Darden stock to General Mills’ stockholders.
Red Lobster has grown from six restaurants in operation at the end of fiscal 1970 to 690 restaurants in North America by the end of fiscal 2009. Olive Garden, an internally developed Italian restaurant concept, opened its first restaurant in Orlando, Florida in fiscal 1983, and by the end of fiscal 2009 had expanded to 691 restaurants in North America. The number of Red Lobster and Olive Garden restaurants open at the end of fiscal 2009 increased by ten and 38, respectively, as compared to the end of fiscal 2008.
Bahama Breeze is an internally developed concept that provides a Caribbean escape, offering the food, drinks and atmosphere you would find in the islands. In fiscal 1996, Bahama Breeze opened its first restaurant in Orlando, Florida. At the end of fiscal 2009, there were 24 Bahama Breeze restaurants.
Seasons 52 is an internally developed concept that provides a casually sophisticated fresh grill and wine bar with seasonally inspired menus offering fresh ingredients to create great tasting meals that are lower in calories than comparable restaurant meals. Seasons 52 opened its first restaurant in Orlando, Florida in fiscal 2003. At the end of fiscal 2009, there were eight Seasons 52 restaurants.
On August 16, 2007, we announced that we had entered into an agreement to purchase the common stock of RARE Hospitality International, Inc. (“RARE”) through a tender offer for $38.15 per share in cash, to be followed by a merger in which the remaining RARE shareholders would each receive $38.15 per share in cash, or approximately $1.27 billion in total purchase price. In addition, as a result of the acquisition, we repaid RARE’s 2.5 percent convertible notes for approximately $134.8 million, including $9.8 million related to a conversion premium. RARE owned and operated two principal restaurant concepts, LongHorn Steakhouse and The Capital Grille, of which 288 and 29 locations, respectively, were in operation as of the date of the acquisition, which was completed on October 1, 2007. LongHorn Steakhouse, with locations primarily in the Eastern half of the United States, is a leader in the full service dining steakhouse category, and The Capital Grille, with locations in major metropolitan cities in the United States, is a leader in the premium steakhouse category. RARE also had two specialty restaurants, Hemenway’s Seafood Grille & Oyster Bar and The Old Grist Mill Tavern that were acquired in the merger. The acquired operations are included in our financial statements from the date of the acquisition.
The restaurant industry is generally considered to be comprised of two segments: quick service and full service. The full service segment is highly fragmented and includes many independent operators and small chains. We believe that capable operators of strong multi-unit concepts have the opportunity to increase their share of the full service segment. We plan to grow by increasing the number of restaurants in each of our existing concepts and by developing or acquiring additional concepts that can be expanded profitably.
While we are a leader in the full service dining segment, we know we cannot be successful without a clear sense of who we are. Our core purpose is “To nourish and delight everyone we serve.” This core purpose is supported by our core values:
• Integrity and fairness;
• Respect and caring;
• Always learning/always teaching;
• Being “of service;”
• Teamwork; and
Our mission is to be “The best in full service dining, now and for generations.” We believe we can achieve this goal by continuing to build on our strategy to be a brand-building company which is focused on:
• Brand relevance;
• Brand support;
• A vibrant business model;
• Competitively superior leadership; and
• A unifying, motivating culture.
Red Lobster is the largest full service dining, seafood specialty restaurant operator in the United States. It offers an extensive menu featuring fresh fish, shrimp, crab, lobster, scallops and other seafood in a casual atmosphere. The menu includes a variety of specialty seafood and non-seafood entrées, appetizers and desserts.
Most dinner menu entrée prices range from $10.25 to $32.75, with certain lobster items available by the pound and seasonal/regional fresh fish selections available on a daily fresh fish menu. Most lunch menu entrée prices range from $6.99 to $ 12.99. The price of most entrées includes salad, side items and as many of our signature Cheddar Bay biscuits as a guest desires. During fiscal 2009, the average check per person was approximately $19.00 to $19.50, with alcoholic beverages accounting for 7.4 percent of Red Lobster’s sales. Red Lobster maintains different lunch and dinner menus across its trade areas to reflect geographic differences in consumer preferences, prices and selections, as well as a lower-priced children’s menu.
Olive Garden is the largest full service dining Italian restaurant operator in the United States. Olive Garden’s menu includes a variety of authentic Italian foods featuring fresh ingredients and a wine list that includes a broad selection of wines imported from Italy. The menu includes antipasti (appetizers); soups, salad and garlic breadsticks; baked pastas; sautéed specialties with chicken, seafood and fresh vegetables; grilled meats; and a variety of desserts. Olive Garden also uses coffee imported from Italy for its espresso and cappuccino.
Most dinner menu entrée prices range from $8.95 to $22.95, and most lunch menu entrée prices range from $6.95 to $15.95. The price of each entrée also includes as much fresh salad or soup and breadsticks as a guest desires. For fiscal 2009, the average check per person was approximately $15.50 to $16.00, with alcoholic beverages accounting for 7.7 percent of Olive Garden’s sales. Olive Garden maintains different menus for dinner and lunch and different menus across its trade areas to reflect geographic difference in consumer preferences, prices and selections, as well as a lower-priced children’s menu.
Acquired by Darden in October 2007 as part of the RARE acquisition, LongHorn Steakhouse restaurants are full service establishments serving both lunch and dinner in an attractive and inviting atmosphere reminiscent of the classic American West. With locations in 29 states, primarily in the Eastern half of the United States, LongHorn Steakhouse restaurants feature a variety of top quality menu items including signature fresh steaks, as well as salmon, shrimp, chicken, ribs, pork chops, burgers and prime rib.
Most dinner menu entrée prices range from $12.00 to $22.00, and most lunch menu entrée prices range from $7.00 to $12.00. The price of each entrée also includes as much freshly baked bread as a guest desires. During fiscal 2009, the average check per person was approximately $17.50 to $18.00, with alcoholic beverages accounting for 9.6 percent of LongHorn Steakhouse’s sales. LongHorn Steakhouse maintains different menus for dinner and lunch and different menus across its trade areas to reflect geographic differences in consumer preferences, prices and selections, as well as a lower-priced children’s menu.
The Capital Grille
Acquired by Darden in October 2007 as part of the RARE acquisition, The Capital Grille has locations in major metropolitan cities in the United States and features relaxed elegance and style. Nationally acclaimed for dry aging steaks on the premises, The Capital Grille is also known for fresh seafood flown in daily and culinary specials created by its chefs. The restaurants feature an award-winning wine list offering over 350 selections, personalized service, comfortable club-like atmosphere, and premiere private dining rooms.
Most dinner menu entrée prices range from $25.00 to $52.00 and most lunch menu entrée prices range from $13.00 to $35.00. During fiscal 2009, the average check per person was approximately $73.00 to $74.00, with alcoholic beverages accounting for 32.2 percent of The Capital Grille’s sales. The Capital Grille maintains different menus for dinner and lunch and different menus across its trade areas to reflect geographic differences in consumer preferences, prices and selections.
Bahama Breeze restaurants bring guests the feeling of a Caribbean escape, offering the food, drinks and atmosphere found in the islands. The menu features distinctive, Caribbean-inspired fresh seafood, chicken and steaks as well as signature specialty drinks. The first Bahama Breeze opened in 1996 and met with strong positive consumer response. We continued to test the concept by opening a limited number of additional restaurants in each of the following years, and began national expansion of the concept in 1998. The concept was well received by guests, but due to weaker-than-expected financial performance, in the fourth quarter of fiscal 2004 Bahama Breeze closed six restaurants and wrote down the carrying value of four others. This action reduced the total number of restaurants in operation to 32, and all new restaurant expansion was postponed.
Since fiscal 2004, Bahama Breeze has implemented changes to become a more relevant brand for its guests, evolve its menu to make it more approachable yet still distinctive and improve the guest experience while lowering its operating costs. In fiscal 2007, Bahama Breeze wrote down the carrying value of five restaurants and closed nine but improved the guest experience and unit economics sufficiently at the remaining restaurants that we have restarted modest unit growth, with one restaurant opened in fiscal 2009, in Wayne, New Jersey, and one projected new restaurant opening in Jacksonville, Florida, in fiscal 2010. The results of operations of the nine closed restaurants are reported as a component of discontinued operations in the accompanying consolidated financial statements.
Most dinner menu entrée prices at Bahama Breeze range from $9.00 to $23.00, and most lunch entrée prices range from $9.00 to $14.00. During fiscal 2009, the average check per person was approximately $23.00 to $23.50, with alcoholic beverages accounting for 23.1 percent of Bahama Breeze’s sales. Bahama Breeze maintains different menus for dinner and lunch and different menus across its trade areas to reflect geographic differences in consumer preferences, prices and selections, as well as a lower-priced children’s menu.
Seasons 52 is a casually sophisticated, fresh grill and wine bar with seasonally inspired menus offering fresh ingredients to create great tasting meals that are lower in calories than comparable restaurant meals. It offers an international wine list of more than 90 wines, with 64 available by the glass. Seasons 52 first opened in 2003, and currently operates eight existing restaurants with plans to open two to three new restaurants in fiscal 2010.
In fiscal 2007, we announced the closure of 54 Smokey Bones Barbeque & Grill restaurants and two Rocky River Grillhouse restaurants, and subsequently sold the remaining 73 operating Smokey Bones restaurants during fiscal 2008. Also in fiscal 2007, we closed nine Bahama Breeze restaurants. The results of operations for these restaurants are treated as a component of discontinued operations in the accompanying consolidated financial statements.