Darden Forays into Malaysia

Zacks

In a bid to expand its presence in the Southeast Asian market, multi-concept, full-service restaurant operator Darden Restaurants Inc. (DRI), is set to launch its restaurants in Malaysia. In this regard, the company has entered into a franchise development contract with a leading Asian cafe chain operator, Secret Recipe. The terms of the deal were not disclosed.

Per the deal, Secret Recipe will set up 13 restaurants under three of Darden's brands – Red Lobster, Olive Garden and LongHorn Steakhouse – in Malaysia. Additionally, the restaurateur intends to introduce its units in several other potential Southeast Asian markets in the coming years.

Malaysia-based Secret Recipe is one of the most sought-after multi-brand restaurant operators with a strong presence in the markets of Malaysia, China, Thailand, Indonesia, Singapore, the Philippines, Brunei, Cambodia, India and Australia. It has been around for almost 16 years and is reputed for the high quality of food and services. Given its familiarity with local food habits and a strong presence in the restaurant industry, we believe, Secret Recipe is a strategic fit for Darden’s expansion plan.

Consumer confidence is on the rise in Malaysia due to its emerging economy backed mainly by the growing middle class that heavily contributes to the country’s rising GDP. Increasing disposable income has enabled the residents to spend on branded food items. Hence, we believe that Darden will fully capitalize on this trend with the new outlets.

Darden, boasting more than 2,100 restaurants worldwide, has been keen on international expansion for quite some time. In July, the company inked area development deals with two renowned Latin American restaurant operators – Grupo Piramide and Dosil S.A. – to establish its presence in six Latin American countries − Guatemala, El Salvador, Honduras, Nicaragua and Costa Rica and Peru. Notably, this Zacks Rank #3 (Hold) company is also developing restaurants in the Middle East market.

Currently, the restaurateur franchises 44 restaurants in seven international locations. Additionally, the company has inked deals with franchised partners to foray into Mexico and the Middle East.

Restaurant companies that appear to be better positioned at current levels include Red Robin Gourmet Burgers Inc. (RRGB), AFC Enterprises Inc. (AFCE) and The Cheesecake Factory Incorporated (CAKE). All these restaurateurs carry a Zacks Rank #2 (Buy).

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