2013 Annual Report - Investor Relations - Darden Restaurants

more quickly with the reorganization ofthe Marketing and Operations teams atour three large brands and ramping upinvestment in enhancing our digital andtargeted marketing capabilities.Our same-restaurant traffic results in thethird and fourth quarters of fiscal 2013are evidence that these steps provided uswith some traction. In the third quarter,our results matched the results for theindustry, although it was not a strongquarter, given the magnitude of the trafficdecline for us and for the industry. In thefourth quarter, however, we achievedsolid same-restaurant traffic growth, andour results were well ahead of those forthe industry, which had a decline.There is no question that there wasconsiderable cost associated with thechanges we made. Many of our promotionaland core menu affordability effortsinvolved margin pressure and, in somecases, there was more pressure than weinitially anticipated. In addition, as wereorganized Marketing and Operations,which involved putting tenured leaders innew places and adding new leaders, therewas some adverse effect on execution thatlikely resulted in meaningful but difficultto-measurecost. And, of course, therewere the direct costs of the technologyand other investments in additionalcapabilities that we made. However,we firmly believe that, given the criticalityof arresting the same-restaurant trafficerosion we have been experiencing,these were costs worth incurring.Looking ForwardAs we look forward to fiscal 2014 andbeyond, our top priority is to reestablishconsistent same-restaurant traffic growth.And to achieve this goal we must respondmore quickly and more effectively to theconsumer and competitive dynamics thatdefine our industry today.…we are investing in aselect few initiatives to reshapethe guest experiences we providein ways that further respondto the dynamics that arethe New Era.As a result, we are tempering checkaverage growth in fiscal 2014 becausewe think that is necessary to supporttraffic growth in the near term. As we doso, we are refining our affordability tacticsbased on what we learned during fiscal2013 to moderate the margin pressurethat often comes with lower check growth.In addition, we are significantly reducingnew restaurant expansion at Olive Garden,going from the 35 to 40 net new openingswe have had each year for the past fewyears to approximately 15. With thischange, we believe the brand can betterfocus on regaining same-restauranttraffic momentum and on making theguest experience changes required forsustained success.Finally, we are continuing to make otherinvestments in future success. Morespecifically, we are investing in a selectfew initiatives to reshape the guestexperiences we provide in ways that furtherrespond to the dynamics that are the NewEra. These include offering small plates atOlive Garden that can be enjoyed individuallyas a more affordable appetizer choiceor combined to create a customized meal,introducing more up-to-date seafoodoptions at Red Lobster like shrimp tacosand lobster tacos, and adding a newChef’s Showcase section at LongHornthat highlights innovative and distinctivenew items. In addition, we are investing totransition to the new healthcare landscapein a way that maintains strong employeeengagement. And, we are continuingto invest in commercializing lobsteraquaculture because such a breakthroughcan help preserve Red Lobster’s abilityto provide guests with price-accessibleofferings for years to come.ConclusionAs we make the changes required tooperate successfully in a New Era, wehave the needed resources. We havestrong brands, considerable collectiveexpertise and experience and a costeffectiveoperating support platform.Most important, we have a winning culture,with people who remain highly engageddespite a difficult fiscal 2013. A measureof the strength of our culture is ourrecognition by FORTUNE magazine in2013 for the third consecutive year as oneof the “100 Best Companies to Work For .”We are particularly proud because selectionrelies on an independently administeredsurvey of employees – which, in our case,are largely hourly restaurant employees –and Darden is the only restaurant companyto receive such recognition.Looking forward, the strong culture andwonderful people we have at Darden arethe single biggest reasons why we areconfident we will successfully make thechanges required to better compete todayand remain the industry leader tomorrow.Thank you for being a stakeholder.Clarence Otis, Jr.Chairman and Chief Executive OfficerAndrew MadsenPresident and Chief Operating Officer8 Darden Restaurants, Inc. 2013 Annual Report