Speculation has grown among business publications of where Darden Restaurants Inc. should be looking for an acquisition to beef up its menu. The most recent suggestions comes from TheStreet.com and its sister Web site Stockpickr.com:
- Mexican specialty fast food Chipotle Mexican Grill, which has 581 restaurants nationwide.
- Brinker International, a holding company that owns the following restaurants: Chili's Bar and Grill, Romano's Macaroni Grill, Maggiano's Little Italy and On the Border Mexican Grill & Cantina.
- Ruby Tuesday, a casual dining restaurant chain with locations in the U.S., the Asia Pacific region, India, Kuwait, Puerto Rico, Canada, Mexico, Iceland, Eastern Europe, and Central and South America.
As Dealscape pointed out last week in a post suggesting upscale seafood chain Bonefish Grill as a possible target, Darden is eager to make a deal but one that will provide it with growth and not cannibalize its existing holdings, which include casual Italian dining chain Olive Garden and seafood dining franchise Red Lobster. Only two months ago, the company closed 54 of its Smokey Bones restaurants and put the remaining 73 barbecue joints on the block contributing to a fourth-quarter loss of $55.1 million.
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As for TheStreet's acquisition possibilities for Darden, Chipotle and Ruby Tuesday seem like the best takeover candidates for the Orlando, Fla.-based company. Chipotle offers a unique Mexican cuisine on a low to midlevel price tier that seems to have caught on with the American public. Generating $872 million in revenue last year, Chipotle's prospects only seem brighter because it has plenty of untouched markets in the U.S.
Ruby Tuesday, in the same respect, offers a niche casual dining experience that Darden doesn't already own. Ruby Tuesday offers a recognized brand with a variety of traditional American cuisine, whose ingredients such as chicken could be purchased in bulk and used in its Olive Garden locations. In addition, Ruby Tuesday is attempting to set itself apart from rivals by offering prime beef and touting quality and freshness. Overall, Ruby Tuesday generated $1.3 billion in revenue in 2006.
As for Brinker, it may be the weak link among the group. Its offerings seem to overlap one another. For example, Macaroni Grill and Maggiano's Little Italy seem largely indistinguishable, both offering Italian cuisine in a casual dining setting. Unfortunately, they would also overlap with Darden's own Olive Garden. Plus, Brinker's size could prompt a prolonged antitrust review not to mention giving Darden a case of indigestion should it have trouble integrating Brinker's brands.
With Darden admitting last month that an acquisition is a definite possibility, there will certainly be more talk of who the chain should swallow. —Gerald Magpily
See TheStreet.com article
See July 6 Dealscape post
See June 20 Dealscape post
