Sunday, January 14, 2007

Who's smarter, Ronald or the lobster?

Two of the industry’s largest and most successful companies divulged radically different strategies last week for maintaining those distinctions. McDonald’s acknowledged (with enough qualifications to please any lawyer) that it may indeed part with its Boston Market business in the near future to focus singularly on its resurging hamburger chain. Almost simultaneously, Darden Restaurants confided to investors that it may pursue the acquisition of a mid-sized chain—possibly even one that’s franchised—as a shot of Viagra for the greybeard of casual dining.

Two stellar successes, both hailed for their management acumen, each having changed the trade with their substance and styles, now reading the near-term future of the business in decidedly different ways. The question is, which one is right?

History clearly gives McD’s the better odds. Time and again, single-chain over-achievers have attempted to parlay their success into a foodservice version of the super-group. And with memorably few exceptions, the effort fails more miserably than NBC’s typical fall line-up. Burger King gave it a try with Godfather’s, Quick Wok and Haagen-Dazs, at a time when the burger chain was itself a part of a Pillsbury Corp. portfolio that included Steak and Ale and Bennigan’s. A bridge game on the Titanic would have been a more-reminisced gathering.

McDonald’s itself has tried its hand at empire building several times, starting in the days when Ray Kroc added a pie concept called Lisa Dobbins Pie Tree and a namesake gourmet burger venture called Ramond’s. More recently, its basket of brands has included Chipotle Mexican Grill, Donatos Pizza, Fazoli’s, McDonald’s with a Diner Inside, Golden Arch Café and McCafe, among others. If it indeed spins off Boston Markets, its lone remaining diversification would be a one-third stake in the Pret A Manger sandwich chain, a London powerhouse that has yet to wow Americans in its sole U.S. market of New York.

Fast-food giants aren’t the only ones who’ve stumbled in trying to add side projects. Applebee’s thought it found a new growth vehicle in Rio Bravo, a Mexican concept that had been started by its founder, Bill Palmer, who now runs the successful Up the Creek casual chain. It was more of a disaster than a teen bringing his tattooist home to meet the folks.

But there’s a profound argument in favor of growing through the addition of new brands: Darden itself. Its Olive Garden holding is arguably now overshadowing the company’s firstborn, Red Lobster. And Seasons 52, just now moving up from farm-league status for a shot at the big leagues, has been lauded as a Derek Jeter-caliber prospect. Diversification has clearly worked for the multi-billion-dollar heavyweight.

It took the company a long time to crack the code, however. At one time, its holdings extended to ventures like The Good Earth, a healthfood restaurant chain, and a higher-end T.G.I. Friday’s challenger named Darryl’s. And any observer of the sector knows that recent side projects have not gone well, from China Coast to Bahama Breeze and Smokey Bones.

Its experience underscores that it’s not a matter of acquisitions per se being helpful or detrimental. It’s more a matter of how astutely a buyer shops. Addressing investors and analysts last Thursday and Friday, Darden was specific about what kind of restaurant operation it might buy: One with about 100 units and a national reputation. And, presumably, a strong performer already in whatever nook of casual dining it plans to make its own.

Yeah, but every acquirer sets out to make a smart purchase. The issue is that few succeed.

So which is the better strategy, McDonald’s laser focus on one brand, or Darden’s scenario of buying a growth ticket if conditions are just right?

Bookmark, and we’ll be sure to let you know.


Anonymous Orrick Nepomuceno said...

You have to think that the Golden Arches is doint the best for itself here. But jetisoning itself from Boston Market, it can really focus on its core offering - burgers. Getting back to basics is what helped to turnaround the company.

Boston Market internally is not in the greatest of shape and it is probably time for the company to cut its loses and move to where they can be profitable not only in the short run, but for long term growth.

January 15, 2007 at 5:16 PM  

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