Darden's Sales Slump: What's Going Wrong?

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June 20 (Bloomberg) -- Miller Tabak's Stephen Anderson and Sanford Bernstein's Sara Senatore discuss the problems at Darden with Pimm Fox on "Taking Stock." (Source: Bloomberg)

The stock fell another three percent today.

Olive garden is undergoing a revamp.

Is darden in the process of selling red lobster?

What is the future?

I am joined by steven.

What exactly is going wrong with starting?

They have been losing customers, as you just mentioned, too fast casual restaurants, and the declines have been primarily in red lobster and olive garden.

Red lobster is no longer part of the darden universe.

Right now the focus is turning around olive garden, which accounts for 56% of sales.

I think if you can fix olive garden, you can fix the problems with darden because it is till a big cash flow generator.

What exactly do you think is wrong with the way olive garden is being run, sarah?

I think to the point about where consumers are going, speed of service matters.

Quality matters, and the environment matters.

Olive garden itself has identified all three as areas they can fix.

They need to reinvest in some of the quality.

They are rolling out tablets, tabletop tablets to improve speed of service, and they are remodeling.

All three of those components are contributing to the share loss.

Stephen, what kind of scale are we talking about with olive garden?

It's one thing to try to fix a chain of a dozen restaurants.

This is a much bigger task.

There is no silver bullet.

A lot of it will have to do with revamping the restaurant.

Remodeling the actual units themselves.


Too often in olive garden uc chairs on rollers.

It has a dowdy image.

That needs to change in the next three or four years.

They are going to remodel and try to make the restaurants more contemporary and inviting.

What about the management?

Do they have the right people in place?

There are certainly investors who do not think so.

Activists have emerged.

One of them indicated that he will nominate a slate for the board of directors.

Usually that is indicative of expecting a change in the c suite.

If you change the people ultimately responsible for hiring and firing the ceo, the implication is usually that you think that new management team should come in.

We have certainly seen some turnover.

The old coo retired.

We have seen turnover and terms of brand management.

I think generally speaking, when a brand has been in trouble for as long as olive garden has, you do have to think hard about whether the current team, whether there needs to be a shakeup, a new point of view.

Sarah mentioned the shakeup.

You highlighted the sale of red lobster to private equity investors for around two point $1 billion.

That is not necessarily a done deal, is it?

At this point -- are their shareholders who do not like this deal?

The focus, really, has shifted from the red lobster sale to the replacing the entire 12 member others.

The shareholder meeting is going to take place september 30. i think that is probably the more important date coming up.

As far as the other divisions of darden, longform and capital grille, do they have a chance to make up for the shortcomings of olive garden?

It is hard to make up for the shortfall at olive garden because it is so much bigger than the other chains.

Not only in-store account where there are 800 olive gardens.

There are nearly as many, but let's call it 600 of all of the other chains.

Sales -- unit count is difficult to make up, and certainly from a sales volume it is even more pronounced.

I think it is going to be hard for them, really, from a cash standpoint, to offset.

Who is taking the business away from olive garden, from red lobster?

I don't think there is one particular player doing it.

Over the years there have been a few different categories.

You mentioned fast casual.

A number of newer fast casual restaurants have been taking shares.

Casual dining in general, particularly at lunch, traditional casual chains like applebee's and chilies have their own iteration of the soup -salad-breadsticks deal, so they are really taking a bite out of it, if you will pardon the pun.

I think the lunch guarantees, the tabletop kiosks, i think they will address some of the issues in regard to timing.

Sarah, a point to you, is this a situation where they are putting things on the menu that people don't want to eat?

It's quite possible.

We talk a lot about fast casual.

We talk about millenial's. maybe they want something lighter or fresher.

Is it a question of whether traditional italian is where people want to be right now?

This text has been automatically generated. It may not be 100% accurate.


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