Darden: A Step Ahead in Latin America - Analyst Blog

Multi-concept, full-service restaurant operator Darden Restaurants Inc. (DRI) recently announced that it has 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.

While Grupo Piramide will tap the first five regions and develop Darden's three key brands -- Red Lobster, Olive Garden and LongHorn Steakhouse -- in these countries, Dosil S.A. will concentrate only on Peru. The terms of the deal were not disclosed.

Both these development partners are sought-after multi-brand restaurant operators with a presence in South and Central America and the Caribbean. While Grupo manages the operations of other American brands like Wendy's Co. (WEN), Yum! Brands Inc.'s (YUM) KFC and Pizza Hut, Peru's leading operator Dosil SA has taken charge of restaurant behemoths like Burger King Worldwide (BKW) and Brinker International's Chilli's. Given their familiarity with local food habits and a strong presence in the same industry, we believe, both the parties remain strategic fits for Darden's expansion plan.

Darden has been eyeing the Latin American markets for a long time. The latest deal will expand Darden's presence in 12 markets throughout Latin America. In late February, this Orlando-based restaurateur signed a deal with International Meal Company (IMC) to enter four Latin American countries − Brazil, Colombia, the Dominican Republic and Panama.

Prior to this, in Jan 2013, Darden expanded its partnership agreement with Restaurant Operators to open its Red Lobster brand of restaurants in Puerto Rico. Notably, last year, this Zacks Rank #3 (Hold) company joined forces with a Mexican casual dining company, CMR, to enter the Mexican market. These above mentioned deals affirm management's intent to make Latin America one of the prime markets for Darden's international expansion. Darde! n sees tremendous growth potential in this market where it finds takers for American dining brands.

Further, the region's middle-income population is also increasing, which could materially benefit the country's food and beverage market. The company seeks to capitalize on this opportunity. We believe that the company is trying to expand beyond the U.S. in the midst of cut-throat competition in the rather saturated domestic casual dining market.