When evaluating a firm, several factors must be determined to make an educated decision to invest in the company or not. Darden Restaurants is the world’s largest full service restaurant chain and offers many competitive advantages. During the current economy, many firms are closing their doors and turning to other forms of work. Darden’s economic trends and strategies are discussed and also the tactics to achieve these strategies. Darden has an excellent human resources department and the managers within this department are some of the best in the industry. They play an integral role in helping Darden continue to be successful. Examining Darden’s financial statements is a superior way to see if they are creating value. Darden is a solid company all of the way around, and they are creating a great culture to work in.
It is no surprise to anyone that the economy has declined over the last three years, but this is no reason to give up and shut down. Consumer spending has decreased because jobs are paying less and there is “too much month at the end of the money.” In turn, more people are filing bankruptcy and collection agencies are booming. This is proof that not every industry has tanked completely. There will always be work in the world, it just depends on where the economy is and which markets are booming, not busting.
Darden Restaurants has been around for 17 years (Darden, 2012) and has seen its fair share of recessions and booms. There are strategic advantages to both, but just like in every business, Darden must deal with them both. According to CNN Money (2012), Darden Restaurants (stock symbol DRI) has shown an increase in net profits for the last five years. This includes revenue decreasing slightly in 2010, but net profit still increased over the previous year (CNN Money, 2012). The decrease of labor cost is where they made up for lost ground. This proves that just because revenues are down, there are ways to increase profits and minimize costs.
Like any profitable company, Darden monitors their expenses very closely. Each restaurant is responsible for tracking their controllable expenses and making judgment calls when necessary. Some of these expenses, like labor must fluctuate with guest count. For example, more labor hours are made available on a Saturday night because guest count is high and more money can be paid out for labor costs. Monday afternoons are at the other extreme for this example.
In 2010, Darden adopted and implemented a labor grid that helped labor costs tremendously. This grid was made available to all managers to guide them through their working day to help ensure labor was kept to a minimum. It is a simple block grid that dictates how many labor hours should be used per hour based on guest count for that hour. Although this is somewhat obvious about how it works, it holds managers accountable to follow this grid. As an example, a restaurant opens for lunch at 11:00 a.m. From 11:00 a.m. to 12:00 p.m. the guest count forecast predicts that 40 people will enter the building to eat lunch. So to ensure quality service to 40 people, the labor grid guides managers to have 16 labor hours available and ready. The labor grid has proven to reduce unnecessary labor hours and minimize controllable costs for each restaurant. Financial statements really show how a company controls their costs and make a complex organization very transparent all the way around.
During the most recent recession, Darden did a great job of retaining their employees. Many companies were forced to lay off workers because revenues were down and labor was too high. According to Conlon (2011), the labor force decreased by nine percent during the 2007-2009 recession. This unemployment rate doubled that of the last recession in 2001 (Conlon, 2011). Darden followed their labor grid and kept unnecessary labor costs to a minimum.
The economy has affected revenues for...
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