How Darden Is Tackling Supply Chain Overhaul

As Darden Restaurants Inc. works to staunch slipping sales at its big Olive Garden and Red Lobster brands, the nation's largest casual-dining company continues to employ newer technologies to beef up the bottom line.

Darden, through automation of its supply chain, expects in the long term to save $40 million to $45 million annually, said Darden spokesman Rich Jeffers, who emphasized that the initiative is ongoing. Darden, which has revenues of about $8 billion annually, spends more than $3 billion on capital and food products each year.

"It's a complex, multi-year initiative that began in 2010 and will take several years to complete," Jeffers said in an email interview with NRN. "We continue to make good progress, but we're not ready to offer a definitive completion date."

The initiative is wide-ranging, from changing the way the company handles inventory in its distribution centers to adopting the most recent standards in supply-chain management.

For example, Jeffers said, Orlando, Fla.-based Darden is using General Specification 1 standards. "We're adopting GS1 bar-coding for all products that are delivered to the restaurants," he said. "And we're deploying additional inventory management tools (software) for our restaurant operators to use."

In May, Darden promoted Jim Lawrence to chief supply chain officer. He succeeded Barry Moullet, who stepped down after 16 years with the company. At the time, Drew Madsen, Darden president and chief operating officer, said, "Jim will ensure the team is continually enhancing our supply chain capabilities so that it remains a competitive advantage for Darden."

Lawrence, who joined Darden in 1995, was expected to continue the company's initiatives, having been a supply-chain executive there since 2000. He was unavailable for an interview.

"Historically, Darden has been superior, compared to many of the other restaurant companies, in terms of supply chain," said Lynne Collier, an analyst with Sterne Agee, who cited Darden's work in developing fish farms internationally "that have been on the forefront."

The company earlier this year announced a project to invest in creating a lobster farm in Malaysia.

"They are kind of the McDonald's of casual-dining," Collier said about Darden, "because they have been ahead of most of their competitors on the supply-chain front."

Collier noted that although the top line has been disappointing at times for Darden's restaurants, especially Olive Garden, "they always come out of it." She added, "When the top line is more uncertain, as it is now, it makes sense to focus on more on the bottom line and try to get that cost structure in control."

Darden's supply-chain technology will eventually work with the company's broader, more consumer-oriented technology initiatives foreshadowed during its investors meeting in February. "The customer-facing technology will be integrated with our restaurant operating systems," Jeffers said.

In addition, the company plans to continue its distribution strategy, where Darden owns the inventory and distributors are contracted to manage and transport it. "Darden Direct Supply (DDS) is a major component of this initiative," Jeffers said. "Nine of our 11 distribution centers are DDS centers, and the impact has been seamless."

Darden Restaurants Inc. owns and operates more than 1,990 casual-dining restaurants, which include Red Lobster, Olive Garden, LongHorn Steakhouse, The Capital Grille, Bahama Breeze, Seasons 52 and Eddie V's chains.

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