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OM in the News: Darden’s Lobster Supply Chain Heads to Asia

November 28, 2012

In a bold move towards vertical integration, restaurant giant Darden (Olive Garden, Red Lobster, Longhorn) has just opened up a $653 million lobster farm on the Malaysian island of Borneo, according to The Wall Street Journal Southeast Asia (Nov.16, 2012). The lobster farm serves two purposes: (1) for restaurants facing weak growth prospects in Western markets, the fast-growing economies of Asia are attractive as millions more people eat out and desire to try Western food; and (2) it guarantees an unlimited supply of the seafood for Darden’s 2,000 U.S. stores. A long-term investment, the 9,300-hectare aquaculture park will produce 40 million pounds of  lobsters and generate $1 billion in annual revenue when it reaches maximum capacity.

“We plan to establish our Asia-Pacific restaurant development hub in Kuala Lumpur,” says the CEO. “Asia is an attractive market and Malaysia represents a strategic and central location for us to begin to explore the possibilities in this part of the world.”

The Darden project dovetails with the Malaysian government’s program to lift that nation into developed nation status by 2020 by creating high-income jobs in agriculture and other areas. Two local firms will assist Darden in the project. These companies say they plan to hire more than 14,000 people to work on the project over the next decade, including scientists, engineers, aquaculture specialists and skilled technicians.

Production is set to begin by 2015 and reach full production in 2029. Globally, the market for lobsters is estimated to be worth over $4 billion a year, with the Asia Pacific region accounting for about 75% of the total market. Borneo was chosen because it has “suitable” geography and available sea space for an efficient operation; it is also free from catastrophic weather that could threaten the project’s long-term viability.

This is a story that dovetails nicely with our two video case studies on Darden supply chains in Chapter 11 and Supplement 11.

Discussion questions:

1. Why is Darden entering the seafood production business?

2. What are the plusses and minuses of this vertical integration?

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