Reporter's Notebook

The strongest Yard

 

Nearly a year ago, when Darden Restaurants acquired Yard House in an all-cash transaction of $585 million, it was a big deal. I know this because that story was one of my most-read stories of 2012, according to traffic metrics that I am certainly nowhere near vain enough to track every day.

Darden chief executive Clarence Otis agreed with me that it was a big deal, yet he couldn’t care less about my Web traffic and has never even met me. But this morning at the Robert W. Baird Growth Stock Conference in Chicago, he did lay out Yard House’s importance to Darden’s Specialty Restaurant Group, which in my opinion will drive much of the company’s sales and unit growth in the near term as Darden rights the ship with its three core chains of Red Lobster, Olive Garden and LongHorn Steakhouse.

The Specialty Restaurant Group includes The Capital Grille, Bahama Breeze, Seasons 52, Eddie V’s and, since last July, Yard House.

“We know there is a fairly significant percentage of consumers that we’re just not going to capture with any serious frequency with our three large casual-dining brands,” Otis said. “These for the most part are higher-end consumers, and to some degree younger consumers. The Specialty Restaurant Group is designed to capture these consumers, and we have to do it with a multiplicity of brands, because by definition those consumer categories are small enough that you’re never going to have a 500- or 600-unit restaurant chain.”

Darden can manage the overhead for all the brands in its specialty portfolio in one centralized department under Eugene Lee, he added, while the individual brands keep up their separate growth schedules. Otis likes the Specialty Restaurant Group’s balance because it includes a brand like Capital Grille, which is very mature and producing significant earnings, and a 39-unit vehicle like Yard House, with huge average unit volumes and lots of runway for restaurant openings.

“Yard House actually helps both ends of that equation inside the Specialty Restaurant Group,” Otis said. “It’s mature enough that it can fund its own growth, but it does have significant unit growth ahead of it. So we felt like it was a great fit for that business, and that scale makes the Specialty Restaurant Group even more significant for Darden.”

With Yard House, that portfolio of higher-end growth chains now produces more than $1 billion in annual sales and is growing at about 20 percent annually, Otis said. By comparison, LongHorn rings up more than $1.2 billion in annual sales, with a 10-percent growth rate.

I’ll be back at the Baird Growth Stock Conference Wednesday and Thursday, and you can follow along on Twitter by tracking my tweets from @Mark_from_NRN or the #RWBGrowthStock hash tag.

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Reporter's Notebook is NRN's newsroom blog, where our editors give their points of view on news happening in the restaurant business.

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