4/22/2013 5:30 PM ET|
Can Red Lobster's 'value' meals rescue Darden?
The restaurant chain's three top brands, including Olive Garden, are trying to get diners to bite on bargain deals.
Olive Garden is offering a "buy one, take one" deal, giving diners an option of five entrees with soup or salad. The restaurant then sends a second entree home with the diner. Red Lobster is selling two seafood dinners for $25, while LongHorn Steakhouse is offering similar deals, according to Nation's Restaurant News.
The question is whether it's too late for Darden, given that diners fled earlier this year amid higher payroll taxes, rising prices at the gas pump and aggressive pricing from other restaurant chains. Bloomin' Brands (BLMN) Outback Steakhouse, for one, offered $10 entrees or 2-for-$20 meal deals.
With the move, Darden is taking a page from McDonald's (MCD), which is also struggling with getting diners in the door and has expanded its Dollar Menu to appeal to cost-conscious consumers.
McDonald's on Friday reported that same-store sales in the U.S. dropped for the first time in a decade, and it warned that sales would drop in April.
Like Mickey D's, Darden may also have to wait some time to see results.
Margins on items such as Olive Garden's new spaghetti with four-cheese meat sauce likely won't be high, Will Slabaugh, restaurants research analyst at Stephens, told NRN. But it's a step toward fixing Darden's problems, which included not having "a compelling value proposition," he said.
"It’s just a more approachable entry-level price point," he said. "What you do in very difficult times is that you get [customers] in the door with value. Earn their loyalty. Then when the economy gets better you can trade them up to higher-priced items."
In March, Darden said U.S. same-store sales at Olive Garden, Red Lobster and LongHorn Steakhouse declined for the fiscal quarter ended Feb. 24. The worst hit was Red Lobster, where sales slipped 6.6%.
Still, with Darden playing catch-up to rivals such as Applebee's and Chili's, which have offered "2 for $20" deals for years, customers may take their time to find their way back to Red Lobster and its corporate cousins.
Follow Aimee Picchi on Twitter at @aimeepicchi.
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