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.

By Jason Notte Feb 22, 2013 3:29PM
Customers walk into a Red Lobster restaurant in Hialeah, Fla. on Sept. 6, 2012 (© Alan Diaz/AP Photo)

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.


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363Comments
Feb 22, 2013 6:31PM
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 I do not eat in Red Lobster and Olive Garden because the food all seems to be microwaved from frozen, do they have a real chef in their kitchens or just food handlers??? It just isn't worth the money for a menu I can do better at home,or go to a real Italian or seafood restraunt..
Feb 22, 2013 6:29PM
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And don't forget the stupid executives dissing their employees at Darden and Applebee's.  Who would want to eat at a restaurant chain that doesn't offer it's employees health insurance or sick days........in December, January and February?  Uhh, yeah, the flu and all other diseases their servers and busers carry......I prefer to stay home and not support these restaurateurs that are going to make me sick with their crummy food and sick employees!  I can open a bag and microwave the same thing.....at home!
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I took my family to Olive Garden in Laredo, and the food was horrible and the prices super high.... bad services from the servers also....  you should taje this comments to their restaurant manager's.   what a waste of money !
Feb 22, 2013 6:28PM
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Rising payroll taxes, a two-percentage-point increase in the Social Security tax, people out of work, gas prices out of the roof! Michelle fire up Air Force One sweetie, I can't stand listening to all this complaining and bitching about people being poor these days, after all I gave them more food stamps, GEE! Tell the girls I'll have them close DisneyWorld next week so we can have the place to ourselves and ask them if they like Bora Bora this time of year pumpkin, I hear it's so cool and accommodating, NOW WHAT Chief of Staff McDummy? Gas has risen again today? How much did we make on that bump?  Next they'll want me to close Gitmo again, Why don't they take a chill pill and go down to Tahiti, relax a change is a coming soon.
Feb 22, 2013 6:28PM
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The food is too lcking in taste. The tomatoe sauce is watered down and has not taste. The salad isn't as fresh as it use to be, the bread sticks are raw. Shoudl offer 2 size portions at dinner.
Feb 22, 2013 6:28PM
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We went to a local family owned Italian restaurant last night that had much better food, cheaper prices and the service was so much better!  We went to a Red Lobster in Marion, Ohio a couple of weeks ago for lunch and the "fresh fish" was rubbery and smelled bad and my shrimp was overcooked and dried out.  Won't be going back to Red Lobster and haven't been to Olive Garden in 2 years!  We support the small time Mom & Pop restaurants anymore!  You get more, better quality, better service and your supporting the community!  Take note Darden Company!
Feb 22, 2013 6:27PM
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I don't think that either place's food is worth what they charge for it.  Mediocre quality, at best.
Feb 22, 2013 6:26PM
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Carrabba's Italian Grill is the best chain for Italian!!
Feb 22, 2013 6:25PM
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The waiter at Red Lobster told me Not to order the 'Jumbo' shrimp there once, as what they had was pretty small.  Cpu[le of months later, we went back, and I though maybe they had corrected that.  NOT!  the so-called 'Jumbo' shrimp was about the size of my pinky!
Long John Silver's has bigger shrimp!!!
Feb 22, 2013 6:25PM
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Perhaps it's the realization by restaurant-goers that they prefer to have healthier servers and cooks preparing and bringing them their food.  Publicity last year about the fact that Darden was trying out cutting workers' hours so they wouldn't qualify for healthcare and that large numbers of restaurant workers feel they must come to work sick (http://www.cnn.com/2013/01/30/opinion/jarayaman-flu-food-workers) has been at least partially responsible for the drop in sales. This is in fact acknowledged by Darden as the following quote from the CEO demonstrates: "Our outlook for the year also reflects the potential impact, though difficult to measure, of recent negative media coverage that focused on Darden within the full-service segment and how we might accommodate health care reform," Darden's chairman and CEO, Clarence Otis, said in a . (http://www.usatoday.com/story/news/nation/2012/12/04/darden-restaurants-obamacare-criticism-earnings-backlash/1746979/)

Again, I'm not saying this is the only reason, but it could certainly be just as likely a reason for the downturn in sales (The headline is actually wrong-Darden isn't blaming a drop on SALES on the payroll tax, just a drop in PROFITS.) as some of the other possible reasons mentioned in the article: misjudging its specials, etc.


Feb 22, 2013 6:24PM
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The reason is simple.  The food sucks!
Feb 22, 2013 6:23PM
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Factory food, excellent way of describing this garbage.  Why people go here is beyond me, I guess suburban peeps like to know what they are getting, like to be amongst people that look like them, like to frequent crappy chains selling overpriced "food".  Go to a real restaurant i.e. a non-chain restaurant. 
Feb 22, 2013 6:22PM
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I like Olive Garden but lately the wait times have been worse than usual. Then you get seated and look around and see lots of empty tables - you need more staff.

Feb 22, 2013 6:21PM
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I like the two lonely black olives in the salad!

Feb 22, 2013 6:21PM
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 The mention of the 2% tax hike was aimed solely at republicans. Americans know the reality of the economy and what media outlets like this want to do to republicans. Never the dictators fault always the other guys.

These restaurants do morph over the years to accommodate clientele, cost etc... The  Red Lobster in my town had great sides, especially the mashed potatoes. Now they are nothing more than hot water and potato starch. Horrible and cost more. There are other things I noticed as well with entree size, flavor in the scampi butter and just overall quality. I've eated twice at the Olive Garden and haven't been back. First time unimpressed, second time the same. Never cared for it.

Feb 22, 2013 6:20PM
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We have eaten at both the Olive Garden and Red Lobster in Amarillo, TX recently. Olive Garden has done away with the Chicken strips meal for the kids. I had to order the strips off the appetizer section. WOW! 10 bucks plus for child to eat. Not friendly, service slow, no drink refills, I had to refill my own tea. 2 kids and myself and it was over $50. RIPOFF! Tip left should have been "Plant your crops early". At Red Lobster, My husband ordered the Surf and Turf. When the order came it had no Surf at all and the Steak was hard (Semi frozen ) and when he managed to cut it bled all over the plan. Yuk. I promptly lost my appetite, The was a birthday dinner and the only person out of 3 at our table that got eat was my son who scarfed down his micro portion of fish. Bill even with husband Yuk removed was over $50. Happy Birthday to me. I don't ever complain about the cost if I get a good meal, but both of these visits were a waste of money and time. I did email each restaurant and amazing have never heard a word from either.  And the waitress after delivering the food at RL basically threw the ticket on the table and we never saw her again.
Feb 22, 2013 6:18PM
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i have to say almost every time i go to Olive Garden the wait staff is horrible ! they take forever to get your order out and good luck trying to get a drink refill ! but this may just be my local one i cant say for the others   
Feb 22, 2013 6:18PM
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my friend who is in the stock market and has done the research on these places tells me they are known in the industry as "heat & eat". meaning, food is trucked in and warmed, not prepared on premise. some stuff yes but not the majority. haven't been back since...
Feb 22, 2013 6:17PM
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Each time my husband and I go to Olive Garden we spend almost $50 (before the tip) on just two entree's. Two entree's...THAT'S IT!?! And after my meal I feel full, yet unsatisfied. It seems as though every time I go there, the only thing that appeals to me on the menu (steak gorgonzola alfredo) has increased another $2-3 dollars. I recall ordering this entree years ago for $11 and last week when I went the price listed was $15!  That is completely and utterly absurd! The plate is FULL of pasta, with not enough alfredo sauce, but extra butter to give the appearance that the noodles are saucy. The last time my husband and I dined there was my last time eating there. Not only was the pasta bland, with too much butter and not enough actual sauce, but the steak medallions were smaller and there were just 4 of them in a huge bed of pasta. And did I mention my steak medallions were ordered MEDIUM WELL and upon cutting into the center they were RARE...blood oozed onto my noodles and made the entire meal inedible for me. Pasta and sauce are cheap, so to charge $15 for a cheap pasta and sauce entree is robbery. And because they use so little sauce on the noodles, I'm sure their inventory goes a long way which saves them money as well. Typically the problem with companies who continue raising their prices and don't see a profit is because their executive staff is pocketing the "profits". If Darden Foods is in a crisis mode their executive board should take a pay cut. But that would mean less money for them and corporate tycoons are greedy and selfish. So before blaming everything but diminished service - maybe examine the real issues for why your restaraunts are failing Mr Darden.
Feb 22, 2013 6:16PM
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i went for lunch and only had time for salad and soup, and that means one bowl as i thought i was goanna grow old before he came back and the place was not that busy a i came in at 1:15 that day and i will not be back either.
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