Olive Garden/Facebook
- The restaurant industry is on an acquisition spree, with 777 food-and-beverage industry mergers and acquisitions taking place in 2018.
- The CEO of Darden Restaurants, Gene Lee, told investors that when looking at acquisition targets, the company wants concepts that can grow faster than Olive Garden — and no fast-casual chains.
- "Nothing has changed in the last 40 years with dining," Lee said in a presentation on Monday. "With all the technological advancements, if you think about it, we're still basically doing the same thing."
ORLANDO, Florida — The restaurant industry is in the midst of an acquisition spree.
In 2018, there were 777 food-and-beverage industry mergers and acquisitions, according to Zenith Global data. That's an average of 15 per week — 48 more than in 2017 and up 63% from five years ago.
While companies such as Inspire Brands (which acquired Sonic and closed its acquisition of Buffalo Wild Wings) and JAB Holdings (the owner of Krispy Kreme, which acquired Insomnia Cookies) got in on the action in 2018, Darden Restaurants remained on the sidelines.
Darden Restaurants has built its portfolio of eight brands primarily though acquisitions, most recently buying Cheddar's Scratch Kitchen for $799.8 million in 2017.
In an on-background presentation for investors at the ICR Conference on Monday, which Business Insider did not attend, CEO Gene Lee explained exactly what Darden is looking for in acquisitions, in response to an analyst's question.
Jeff Farmer of Gordon Haskett and Peter Saleh of BTIG broke down what Lee said the company wants in a "potential acquisition target" in recaps to investors on Tuesday. Here are the highlights:
- A concept that can grow faster than Olive Garden. In 2018, Olive Garden system sales grew 3.7%, while same-restaurant sales grew 2.4%. 10 net new Olive Garden locations opened in the US and Canada in 2018, adding up to a total of 856 locations in North America.
- No fast-casual chains. While Dine Brands CEO Steve Joyce told Business Insider that he is eager to add a fast-casual brand alongside IHOP and Applebee's, Lee has a different approach, saying that Darden's "full-service" experience means he wants to avoid fast-casual concepts.
- $750 million to $1 billion in system sales. For comparison, Olive Garden reported $4.1 billion in system sales in 2018 and LongHorn Steakhouse reported $1.7 billion. Saleh also writes that Darden wants a chain with "respectable EBITDA generation," and Farmer writes Lee said the chain "needs to matter" in terms of scale.
- Probably a different type of cuisine. Darden likely does not want to open another Italian chain or steakhouse, according to Saleh's note.
Philosophically, Lee is all about old-school restaurant industry values. While other chains go all-in on delivery and emphasize tech investments, Lee argues most customers "don't want a technologically advanced experience."
"Really, nothing has changed in the last 40 years with dining," Lee said in a presentation on Monday.
"With all the technological advancements, if you think about it, we're still basically doing the same thing," Lee continued. "I don't see in the next 10 years any dramatic changes other than a continued transparency with what you're serving people. And, I think, you are going to have to be a little bit more convenient for them."
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