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.
The Last time I had a meal at both greasy spoons I made my mind up that they are over priced for very poor food.
Last time at Red Lobster, my husband orders the fish and chips. Waiter comes back, "No fish for the fish and chips". We are like really?? You didn't know that before we ordered? "why do we keep coming back to a place that over promises and under delivers?" The waiter is a nice young man, feel sorry for him. My husband say's just bring the salad. I get my crab legs. Not great. The manager comes over and apologizes, comps the salad and gives us a $25 dollar gift certificate. It’s still unused from 2 months ago. What's the point?
Don't feel sorry for Olive Garden losing money. Feel sorry for the waitresses. No matter if they
get a tip or not money is taken out to pay the people who clean the tables. It is not fair that the
waitress works hard to give good service to the customers and then have a portion of her or his
tips taken out for someone who didn't work for it. I know for a fact, that even if no tip is given,
a portion is taken out of their pay just the same. I don't eat there and will not eat there as long
as they continue to treat their waitresses this way.
Merely an example of the dregs sinking to the bottom. The general public has wised up to what overpriced, marginal quality frauds both of these chains are, saturation advertising notwithstanding. Hey Darden, it's time for some big heads to roll...
Maybe all the restaurant chains can gang up and call the big oil companies and tell them to share the love.
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[BRIEFING.COM] Commodities slid lower this afternoon post-FOMC minutes. Crude oil futures slid down near $94 barrel, precious metals and copper sold off and natural gas ended near the unchanged line.
Crude oil was as high as $96.19/barrel, but sold off over $2/barrel and fell as low as $94.02/barrel. June crude oil ended the day $1.85 lower at $94.25/barrel. June natural gas lost $0.01 at $4.18/MMBtu.
Sellers came out in the afternoon, causing gold and silver to extend losses. June ... More
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