Olive Garden drops prices again -- big mistake

The chain's discount plan failed spectacularly last year, but parent company Darden is desperate to bring in more traffic.

By Jason Notte Jun 21, 2013 2:46PM
People walk into an Olive Garden restaurant in Huntington Beach, Calif. on June 19, 2012 (© Jae C. Hong/AP Photo)So Darden Restaurants' (DRI) Olive Garden is lowering prices yet again to win back customers and return to America's good graces. Where have we seen this before?


Oh, yes, back in December, when we first referenced the price war nobody's winning. For a chain so eager to shed its Tuscan, bottomless-pasta-and-breadsticks image, Olive Garden is quick to take the discount route that has failed it so mightily in the past.


In a call with analysts, Darden chief exec Clarence Otis said getting more customers through Olive Garden's stripped-down gates is a must, even if it means cutting into profits. "We need to do what we need to do," Otis said.


The chain clearly needs to do something.


After a couple of miserable quarters, sales at Olive Garden rose 2.2% in the past three months. Growth has been painfully slow, however, which forced Darden to add low-calorie options to Olive Garden's menu and change its slogan from "When You're Here, You're Family" to the more fast-paced "Go Olive Garden."


When those moves didn't work, Darden replaced Olive Garden's president in an effort to boost results.


Yet Olive Garden keeps focusing on 2012, when it misjudged consumer appetites by offering a 2-for-$25 three-course meal deal that was almost immediately undercut when competitors including DineEquity's (DIN) Applebee's, Brinker Restaurants' (EAT) Chili's and Bloomin' Brands' (BLMN) Outback Steakhouse offered 2-for-$20 meal deals or $10 entrees.


Analysts warned Darden against entering a price war as early as December. With the company blatantly ignoring those warnings, we'll once again trot out the math that makes its upcoming price cuts and those of its competitors unsustainable.


According to the Census Bureau, spending at food and drinking establishments is up 4.3% so far this year. At casual dining establishments, however, spending has dropped by between 1% and 4% each quarter since spring of 2010.


When such restaurants aren't offering $10 meal promotions, the paying public doesn't find them all that cheap. The cost of dining out rose by 2.3% over the past year, according to the consumer price index, which puts it ahead of the 1.4% overall rate of inflation.


Under those circumstances, a customer paying $10 for a promotional deal would be paying 20% to 40% more when the price rises to $12 or $14 a few months from now. But even if those lower prices remain in place, they don't guarantee customers will keep coming back.


"What happens is that after (value promotions) have been in place for a while, consumers no longer perceive them to be a deal," Bonnie Riggs, a restaurant industry analyst at NPD Group, told AdAge last year.


Olive Garden has been down this road before, but its selective amnesia is taking it on yet another rough ride.


More on moneyNOW

452Comments
Jun 21, 2013 3:21PM
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The problem is the food, not the price. It bears only a passing resemblance to anything Italian, much less Tuscan.
Jun 21, 2013 3:17PM
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Olive Garden's actual problem is that cheese and salt are not, in the long run, a substitute for good food.
Jun 21, 2013 3:12PM
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Unfortunately for the big chains, there are lots of small family restaurants that offer better food at more reasonable prices, and which offer a quiet atmosphere without all the hokey hoopla (especially like that found at Red Robin and Hooters).  The big chains have a major problem: How to move lots of people through in order to satisfy investors, who expect their stocks to rise forever).
Jun 21, 2013 3:21PM
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Last time we went to Olive Garden, it took a long time to see a server, one of the wine glasses was absolutely filthy.  It took quite a while before the server returned with a clean wine glass.  Our order was finally taken but we waited about a half hour before we saw our food.  The menu was a bit pricey considering the portions we were given.  By the time we finally received our bill we were there about one and a half hours.  We have decided that Olive Garden will not see us for a while.
Jun 21, 2013 3:46PM
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Olive Garden has to be the worst 'Italian' food I've ever eaten.  It's basically salt, sugar, and fat, and no fresh ingredients.  Just check the nutritional information on their site, one meal gives you a full-day's worth of salt.  Not only is it bad for you, it tastes awful too.  I think it is all frozen food that has been reheated.

They built a reputation for horrible food, that's a difficult problem to overcome.  They can chop prices all they want, that won't change their reputation.
Jun 21, 2013 3:13PM
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The prices are still to hi, salad and soup should be $6..00 ALWAYS just not lunch ..GOT IT

Jun 21, 2013 3:48PM
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I was was at the OG a few weeks ago with 2 other adults & 2 children.  The adult meals were a let down.  My calzone was so tiny & the dough tasted overly yeasty.  The best meals were the ones ordered off the children's menu for my niece & nephew.  People will pay for quality.  People won't pay any amount for crappy food. 

Note to the OG:  Use simple, fresh ingredients.  The microwave should never be the main cooking appliance.  You may want to try fewer menu items.   
Jun 21, 2013 3:38PM
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They can lower their prices to free, I'll never return. 
Jun 21, 2013 4:00PM
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The main problem as I see it is not the price of the food but the quality and taste of what they are trying to push upon us.  In Atlanta there are many really good Italian restaurants that are either family owned or a single location.  Their food is excellent and the cost is not that much more than that of Olive Garden.

I don't care what price they settle on, I won't be back.  No value for what they are pushing.

Just saying....
Jun 21, 2013 3:12PM
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It will have to be someone else's idea before I go in there to eat.  To me all they got going for them is the salad.
Jun 21, 2013 3:27PM
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The last trip to an Olive Garden was the "last" trip. The food delivered to our table was steaming hot, just on the outside. The inside of the chicken was cold to the touch (does anyone smell microwave here?).  The old formula worked. As most businesses suffered due to the 2009-12 ecomonic downturn , so did Olive Garden. I guess the CEO has taken the advise of those at JCP......
Jun 21, 2013 3:41PM
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At several Olive Garden in the Southwest, the restaurant and the dishes are dirty.  The pasta fagiole soup is good but too salty.  The breadsticks are too salty.  The salad's dressing is too salty.  I ordered other food, the outside was hot, the middle cold - microwave?  The mints at the end of the meal are doled out as if they were gold and the wait staff's attitudes range from perfunctory to downright surly.  There was a shooting in the parking lot of one of ours not too long ago.  All of this or even one of these on my list does not make it a pleasant dining experience.

Jun 21, 2013 4:34PM
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When they start doing price wars on food, it usually means the quality of the food goes WAY down in order to keep profits up.

 

Jun 21, 2013 3:52PM
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worst food I've ever eaten at a restaurant. Worst service. second  worst place was lobster house.   Oh they own that too?
Jun 21, 2013 4:03PM
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 I haven't eaten at Olive Garden in years . The last time I was there , I found everything to salty . There was no taste to anything , except salt .
Jun 21, 2013 3:40PM
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I have always liked the Tuscan look of Olive Garden so I think they shouldn't  waste money on architechal details but prepare better and fresher food at a good price If the food and dining experience is worth it(they need a kids sections in the back of the restaurant ) they most people do not mind spending a little more

Jun 21, 2013 3:56PM
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The problem at Olive Garden is not the food and not the looks of the dinning room.  Its all about the management that the restaurants hire.  This new management style is a turn off to most guests.  They just don't care any more.  Cold food is just one of many issues of a manager that would much rather not do there job.  Even the worst food can be made to look good and even taste great.  Hire staff with background.
Jun 21, 2013 3:54PM
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What kind of food do you think you'll be getting for $10?  Please.....everything at Olive Garden tastes the same, salad aside.  & their utensils are dirty.  It's like the "Italian" Denny's.    I've been forced to go there 2x & I'll never go back.  If you're going to spend money to eat out...go somewhere decent.  Like Weber Grill or Maggiano's.
Jun 21, 2013 3:42PM
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It's all about the experience.  Customers don't care about price. This sounds like the advice given to the CEO of Penney's.
Jun 21, 2013 3:30PM
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Why, that's just un-American lowering prices. Funny how there used to be competition. Now the only competition is to see who can charge the most. There's nothing wrong with making less than 3 or 4 hundred per cent profit. Biggest fear here is other companies may have to do likewise. Now that, would be just unheard of............
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