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Rival in Outback's kitchen

LongHorn's owner is ramping up its expansion.

By SCOTT BARANCIK, Times Staff Writer
Published August 21, 2007


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OSI Restaurant Partners of Tampa has always had a healthy rivalry with its neighbor to the east, Orlando-based Darden Restaurants. OSI's Carrabba's Italian Grill competes with Darden's Olive Garden. Its Bonefish Grill vies in the seafood segment with Red Lobster.

But Darden's recently-disclosed plan to acquire RARE Hospitality International ratchets up that rivalry and could hit Tampa-based OSI where it's already hurting most: in the steakhouse. Outback Steakhouse, to be precise.

Under a deal expected to close in October, Darden will pay $38.15 per share, or $1.4-billion, for Atlanta-based RARE and its two steakhouse chains. They include LongHorn Steakhouse, a 287-store brand second only to Outback in terms of total locations, and The Capital Grille, an upscale 28-store chain that vies with another OSI brand, Fleming's Prime Steakhouse & Wine Bar.

LongHorn already matches up well with Outback. Since 2001, sales growth at LongHorn stores open at least 18 months outpaced Outback's in all but one quarter. But Darden's expansion plans for LongHorn could make things even tougher for Outback, which has lost some luster among female and younger consumers and had suffered nine straight quarters of store-level sales declines through March.

Darden's plan: to take LongHorn westward. Currently, all of its stores are located east of the Mississippi River.

"We believe it has national potential," said Bob McAdam, Darden's senior vice president for government and corporate affairs. McAdam said the company's supply chain, national marketing experience and borrowing capacity work in its favor. OSI officials did not respond to requests for comment.

Spun off from General Mills in 1995, Darden's $5.6-billion in annual revenues make it the largest U.S. restaurant company.

Prior attempts at diversification have fallen short. In May Darden closed nearly half of its Smokey Bones Barbeque & Grill stores and said it would sell the rest. In April, it closed a chunk of its Bahama Breeze locations.

The RARE acquistion, its first, continues a trend. Two of the other top-four steakhouse chains in the U.S. were acquired recently, including OSI in June and Wichita-based Lone Star Steakhouse & Saloon late last year. Louisville-based Texas Roadhouse is the only remaining independent.

Malcolm Knapp, a New York restaurant consultant, agreed that LongHorn's accelerated expansion poses an added threat. But he said Outback is "extremely strong operationally" and has recently improved its sales performance.

Scott Barancik can be reached at barancik@sptimes.com">href="mailto:barancik@sptimes.com" mce_href="mailto:barancik@sptimes.com">barancik@sptimes.com or 727 893-8751.

 

Outpacing Outback

With its expansion plans, Darden - the largest U.S. restaurant company with $5.6-billion in annual revenues - is likely to make things even more difficult for OSI and its struggling Outback chain. For a look at how the parent company's chains match up, see 2D.

 

Revenue*

Earnings* No. of stores
Darden Restaurants, Orlando $5.6-billion $201-million 1,397
OSI Restaurant Partners, Tampa $4-billion $96-million 1,440

* Twelve months ended May 31 (Darden) and March 31 (OSI). Darden's figures exclude its pending acquisition of RARE Hospitality chains LongHorn Steakhouse and The Capital Grille.

** Figures as of May 31 (Darden) and March 31 (OSI).

Steak (casual)

Chain

Parent* Stores**
Outback Steakhouse OSI 791
LongHorn Steakhouse Darden 287

Italian (casual)

Chain

Parent* Stores**
Carrabba's Italian Grill OSI 234
Olive Garden Darden 608

Steak (premium)

Chain

Parent* Stores**
Fleming's Premium Steakhouse OSI 50
The Capital Grille Darden 28

Seafood (casual)

Chain

Parent* Stores**
Bonefish Grill OSI 127
Red Lobster Darden 651

* Darden Restaurants is acquiring RARE Hospitality's LongHorn Steakhouse and The Capital Grille chains in a $1.4-billion deal. ** U.S. locations only.

[Last modified August 20, 2007, 23:41:45]


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