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
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They are a bunch of cry Babbies ,Every time you go and eat at Red Lobster or Olive Garden ,or especially Long Horn ,you need too take out a Morgagge ,cause they all are over priced ,the Royal Rip off 
Feb 22, 2013 5:44PM
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pay-roll tax?? This guy listened to,too many obama raps,
Feb 22, 2013 5:43PM
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Haven't been to a Red Lobster in three or four years, to many GOOD seafood restaurants in Texas coastal cities. As far as Olive Garden, there are several family owned Italian restaurants in my home town with authentic Italian recipes and there are even other chains' with much better Italian food (Romano's. Carinos, etc.) Prices at Red Lobster and Olive Garden have gotten way out of line for the quality served (huge servings of bad food are not a bargain).
Feb 22, 2013 5:42PM
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The Olive Garden loads the plate up with pasta and a half cup of sauce. Tomato sause is cheap. Come on. I've ran resturants all my life and I know a few things. Don';t order soft drinks or tea. They are 95% profit. Drink water. It's free and good for you. Have your soft drinks and tea at home. Don't fall into their trap.
Feb 22, 2013 5:42PM
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You'll get poor service, cold food I wouldn't give to my dog, and stressed waitstaff, as in our area, SW of Detroit. Won't waist my time. Mc' D food is better.  And they treat the help better.
 
Feb 22, 2013 5:41PM
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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.

Feb 22, 2013 5:40PM
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Went to Red Lobster and was expecting to order something off the fresh fish menu only to be told that there was no fresh fish that day. I said to the waitress, "what no fresh fish at a seafood restaurant?" Ended up with a langostino pizza that tasted like cardboard heated in the micro just out of the freezer.
Feb 22, 2013 5:39PM
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It kills me when the dining habits of the public change and the idiot company still fires the CEO......... Like he could do anything about that????
Feb 22, 2013 5:39PM
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Jason, You write this as if additional taxes a compnay must pay shouldn't impact thier bottom line, but unless you have discovered a new math formula, any time you subtract a sum from an existing sum, the final number is always smaller. Unless you are using the politicians math, spend more cancels out debt. You say these companies are using this as an excuse, the reality is they have to deal with the additional expenditures of course it affects the bottom line. Just like your paycheck, when the tax cuts expired your paycheck take home shrunk, well at least mine did.
Feb 22, 2013 5:39PM
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The last time I went out to eat at a corporation owned restaurant, I became i'll and had to go to hospital for 3 days. These places are full of problems other than tax, maybe they should look into the food and safety and learn how to clean properly. YOUR ON YOUR OWN WHEN YOU EAT SOMETHING BAD!!!!!!!!!!!!!!

Feb 22, 2013 5:37PM
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I don't care what anyone says.  I enjoy eating at Red Lobster and Olive Garden.

 

Red Lobster:  1.  love the cheddar biscuits.  2.  love the shrimp scampi, snow crab, and other dishes.

 

Olive Garden:  1. love the salad, soup, and breadsticks.  2. love the lasagna, alfredo, steak gorgonzola, shrimp dishes, and other dishes.

 

If you don't like it, then DON'T EAT THERE!  Otherwise, leave them the hell alone.

Feb 22, 2013 5:35PM
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The food's terrible the atmosphere is noisy. At one time these places had good food and good service at a reasonable price but like so many of those who tried to become too big too fast, the food is now awful and the prices are seriously ridiculous. Hurray for the small local restaurants and pubs who do it locally, with pride and at a reasonable cost. SEE YA DARDEN/WALL MART!
Feb 22, 2013 5:35PM
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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!

Feb 22, 2013 5:25PM
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Not a problem, I stop going when you could not smoke, let all of them fall. Thern maybe they well get back to leting you smoke at these places. Most smoker go to other resteant to eat.  Because of the no smoking in these type of places. I remenber when you had smoking and no smoking that was not good for the people that want to take over your life..Maybe when all there lovey places close, you all well get the idea.
Feb 22, 2013 5:25PM
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For one I cannot believe thses small portions..Also food looks nothing like the pictures they show...There price of a real lobster should be reduced by one half...Lobster tails should be standard size...
Feb 22, 2013 5:14PM
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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........

Feb 22, 2013 5:09PM
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Took the family to Red Lobster In Killeen, Texas last weekend, the food and portions were horrible.  Won't be back either.
Feb 22, 2013 5:02PM
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Darden's competition gives much more bang for your buck, and I think it is really catching up to Darden- their quality, pricing, and service is inferior to most of the competiton. If Darden didn't have a tremendous gift card revenue I am sure they will be struggling even more- thats the only time I ever end up going there myself- if I get a gift card.
Feb 22, 2013 4:48PM
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The problem is that the customer's aren't splurging on the high margin items.  Olive Garden doesn't make much selling pasta and bread, they make money on drinks and desserts.  People are still flocking to these restaurants, they just aren't spending as much.
Feb 22, 2013 4:23PM
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the big loser is msn reporting, as usual.
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