Orlando-based Darden Restaurants is using technology to harness millions of dollars in savings each year at Olive Gardens, Red Lobsters and other chains.
A "supply-chain transformation" project that's under way is expected to save the company up to $45 million annually through lower prices and less wasted food. Darden, with annual sales of $8 billion, spends more than $3 billion each year on food and other supplies.
And while the company likely won't cut menu prices, consumers will reap some of the benefit, an analyst said.
"They can use some of that cost savings to pass onto the consumer, not taking prices up as much as they might need to to cover some of the inflationary pressures we're seeing," said Steve West, a restaurant-industry analyst for Investment Technology Group. Darden generally raises prices 2 to 3 percent annually -- even when food costs rise more sharply, as they have over the past couple of years.
The company's supply-chain project includes automating orders while electronically linking its restaurants with suppliers and distributors to share data about what's getting used.
Darden also is upgrading computer systems to predict more accurately how much food its more than 1,900 restaurants will need. And it is analyzing the costs of making and distributing the items it uses.
The changes will bring quicker, better decisions about how much to order, said Jim Lawrence, Darden's new chief supply chain officer. It will also result in more efficient transportation.
The rising cost of food is just one supply-chain challenge restaurants face. Food safety has become a bigger concern. Customer behavior is changing as restaurants compete for scarce consumer dollars. More often, they try to entice people with limited-time offers that require a revolving door of ingredients.
So restaurant companies are trying to get more control over how they get the raw materials they need for their menus. Darden has been on the cutting edge of such efforts, said Rupert Spies, who teaches supply-chain management at Cornell University.
The technology Darden is using includes software called iKitchen that lets suppliers receive orders by computer rather than the phone. The company is moving to a system where workers will scan products electronically as they come in the back door, helping keep real-time track of their use.
Darden says it is wasting less food as it moves toward more sophisticated electronic forecasting tools. Still, Red Lobsters and Olive Gardens around the country will always have excess food, which they donate to charity.
"The forecasts are always going to be wrong. It's just the nature of a forecast," Lawrence said. But "we have the ability to become more precise, minimize that error rate by developing proper algorithms and tools."
Something that's unusual for full-service restaurants, meanwhile, is Darden's network of distribution centers, which started in 2005 outside Chicago. Darden Direct ramped up its distribution centers over the past couple of years, opening the ninth center this spring in Haines City. Darden owns the inventory in the centers but contracts with distributors, which operate the warehouses and transport the goods to its restaurants.
The centers help "provide a higher level of service to the restaurants," Lawrence said.
The company realized the importance of having more control back in 2000, when a major distributor went bankrupt. Restaurant managers were forced to scramble to distribution centers to pick up food themselves before Darden made new arrangements.
The world's largest full-service restaurant company, Darden has a particularly sophisticated supply chain. In more than 35 countries, it has a network of suppliers that has fluctuated over the past decade between 1,500 and 2,000. It demands much of those vendors.
"We expect the best pricing in the marketplace, we expect the best quality, and we expect our suppliers to come to us first, first with new product and cost savings ideas," Lawrence's predecessor Barry Moullet told analysts last year.
The company's efforts will help it get those better prices as cost savings are passed along, analysts said.
At the same time, food will "get where it needs to be faster, so it's the right stuff at the right place at the right time," said Chris Muller, dean of Boston University's hospitality school.
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