Red Lobster and Olive Garden cook up a mess
Parent company Darden blames the payroll tax hike for biting into sales, but its restaurants' recent performance indicates bigger problems.
Ask what's wrong with The Olive Garden and Red Lobster, and parent company Darden International (DRI) will give you a full menu of options: The specials aren't cheap enough, people are eating less seafood, the healthier menu items haven't caught on yet, the new décor and menus require some acclimation, the weather has been bad.
Now it can add a new special to the list: Rising payroll taxes.
For the second consecutive quarter, Darden issued a warning about its profits for the most recent quarter and cut its outlook for the year. It now expects revenue to slide 4.5% for the quarter ending Feb. 24, and it placed the blame on a two-percentage-point increase in the Social Security tax after a temporary tax cut expired.
This plaintive cry may sound a bit familiar, as retail giant Wal-Mart (WMT) just used the same excuse for its soft performance in January even though competitors like Target (TGT), Macy's (M) and TJX (TJX) reported rising sales during the same month. Darden's situation is somewhat more dire, however, because its attempts to fix problems that cropped up at the end of 2012 have been largely fruitless.
After the company revised expectations last quarter, sales at Darden's U.S. restaurants fell 2.7% for its three biggest chains. That included a 3.2% drop at Olive Garden, a 2.7% decline at Red Lobster and a 0.8% slump at LongHorn Steakhouse. At the time, Darden said it was still waiting for tweaks to its restaurants and menus to take hold. But it admitted misjudging its specials by offering 2-for-$25 meal deals 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.
Meanwhile, Darden increased the number of chicken and beef items offered at Red Lobster from 8% of the menu to nearly a quarter, added low-calorie options to Olive Garden's menu and changed its slogan from "When You're Here, You're Family" to the more fast-paced "Go Olive Garden." That move didn't work, and in January, Darden replaced Olive Garden's president in an effort to boost results.
The problem is bigger than Darden or its restaurants, though. Americans spent 5.5% more at chains that offer low-calorie menu items, but 3% less at casual-dining establishments last quarter. Combined with drops in casual-dining spending reported by NPD Group every quarter since spring of 2010 and the gradual shunning of roadside chains by people ages 18 through 47, these are grim times for the segment.
When your industry's decline predates the tax cut you're complaining about, maybe it's time to stop blaming everything beyond your restaurant's walls and start taking a good, long look at the boil-in-bag dishes being served at the vinyl-lined booths within them.
THERE WAS NO PAYROLL TAX HIKE........
YOU MEAN THE 2% "TAKE BACK" on SOCIAL SECURITY....??
YOUR RESTAURANTS NEED NEW MANAGEMENT or SOMEONE with HALF a BRAIN..
If people's lives and spending habits depended on that 2%, they are in bigger trouble then I thought.?
That was meant to pay for higher fuel costs, for going to work...
They started by omitting some of the things that used to be included with most of the meals but left the price the same.
Then they started giving you less food and then moved on to lower quality food.
I used to love going there but the only thing that would get me in there now is a gift certificate.
What? You mean that 2% tax being paid by workers? How exactly does that trranslate into a hit on the company? They need to stop pointing fingers everywhere else and start looking at the company ethic.
The more they raise prices, whether its taxes or dinners, it is the 'working man' who gets hit. People cannot afford to eat out as often or go to more expensive eateries as often. If they do eat out, they head for the closest Quick Serve Restaurant/Fast Food joint. They feed a family of four on what it would cost for one meal ... maybe one and a half meals at Red Lobster or Olive Garden. Management/Ownership of these places needs to get in touch with reality.
So whenever I go, its always crowded and a long wait, so somebody likes it! Its not the food, but maybe the management of the co!
The payroll taxes are hitting people in their pockets severely! Along with the rising gas and grocery bills we've seen.......When you have a family of four or more and both spouses work, you are losing quite a lot of money every month out of your checks ...then gas prices keep going up....it's a wonder any middle class or lower income people have any money at all left.
Greed is killing America pure and simple...And if you think that's bad! Wait till Obamacare kicks in next year........Families will be bringing in a lot less money........
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