Olive Garden’s Parent Company Seeks a New CEO and Fresh Ideas

Olive Garden’s parent company, Darden Restaurants (DRI), is taking drastic measures to reverse years of disappointing results. As it completed its sale of Red Lobster to Golden Gate Capital on Monday, the company also announced that Chief Executive Officer Clarence Otis will be stepping down after nearly 10 years in charge.

A Darden spokesman declined to discuss the search for a new chief executive, although it’s clear that Otis’s successor will need fresh ideas as to how to make casual sit-down restaurants such as Olive Garden appeal to consumers again. The rise of fast-casual restaurants like Chipotle (CMG) and Panera Bread (PNRA) has made life difficult for Olive Garden and its ilk, as well as for McDonald’s (MCD) and Burger King (BKW) on the fast-food end of the spectrum. (Burger King, in its own leadership shakeup, installed a 32-year-old at the helm last year.)

Together, the departure of Darden’s longtime CEO and the sale of Red Lobster mark the start of a new phase at the company. Without its flagship seafood chain, Darden’s fortunes will rest largely on Olive Garden, which has already initiated a design overhaul and re-branding effort to revive interest in the Italian chain. Darden is focusing on opportunities to boost business with millennials and Gen X customers, including boosting its digital presence:


Increasingly, the company will seek to build up its second-largest chain, LongHorn Steakhouse, which has 464 locations and will add 15 during this fiscal year—the most among all of Darden’s brands. Compare that to the six additional Olive Gardens that Darden plans to open.

Otis joined Darden as a vice president and treasurer in 1995, the year the restaurant company was spun off from General Mills (GIS). Since he became CEO, Darden grew from 1,381 restaurants with $5.2 billion in annual sales to more than 2,200 restaurants exceeding $8.7 billion in annual sales. Here’s a recap of Darden’s performance under a decade of Otis’s leadership:

Still, the company’s struggled to increase its key chains’ same-store sales after the recession brought a general reduction in consumer spending spurred the sale of Red Lobster and the re-branding of Olive Garden.

Jeffrey C. Smith, CEO of shareholder Starboard Value—which opposed the Red Lobster sale and is now in settlement talks with Darden after it sued for records related to the spinoff—cheered the news of Otis’s departure. “It is surprising to us that it took this long,” he said in a statement.

The leadership changes might not stop with Otis’s departure. Starboard Value has pushed for a major board overhaul and will have at least three of its nominees elected to the board at Darden’s annual general meeting on Sept. 30.

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29 July 2014 | 4:15 pm – Source: businessweek.com

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