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 8:51PM
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kinda hard to feel sorry for billionaires who complain about health coverage for their employees who are living on wages that don't fully support one person, let alone a whole family....these are the working poor who need food stamps, and yes, they are working.  I never set foot in those places and I don't go to Walmart anymore either...crap places that run the Mom and Pop business away!  Don't support them, maybe they will go away, and their workers can find a living wage job!
Feb 22, 2013 8:48PM
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Quality of service has suffered !!  When your waitstaff agreees that the dinner coming out of the kitchen isn't very appetizing right when they put it on the table in front of you, and it's missing something, how will you ever keep any customers, specially the ones you just change all of your strategies to acquire?
Feb 22, 2013 8:46PM
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Sounds like senior management do not actually eat at OG or RL. Iused to eat at RL  for, you know, seafood. Poor quality of seafood and the prices--talk about nose bleeds! Why would anyone spend high amounts of money for bland, limited seafood? I switched to local restaurants who know how to prepare good food. Same, sadly, with OG! The quality if the food has drpped dramatically over the past 7-8 years! Used to go there 2-3x month with family. Costs for meals kept going up, and quality of the food dropped. Stopped going all together. Had pretty awful experience with the Never Ending pasta bowl--sampled different sauces--inedible--as in a single taste/dish. Sent them all back, and provided feedback to manager--he was nervous that I was sent in as secret diner--LOL. Sad--used to be fun place to go and break bread. Maybe senior leadership and the Board members should act as secret diners for there own stores and slap back to reality. They cannot fix what they choose to ignore.
Feb 22, 2013 8:46PM
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maybe the olive garden's unhealthy menu...high calories  has something to do with the problem.
one of the worst in america.  red lobster offers childrens meals at real adult prices.  bang for the buck.  a tough lesson for darden.
Feb 22, 2013 8:46PM
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Many sites, such as Eat this, Not that, have listed the fat, sodium, and calorie info for the food at these and many other places.  It's not such a good deal when the entree contains more than a day's worth of the above.  Adding lots of butter and salt can make you think it's good food, and it stimulates your appetite, so you'll want more and more. 
Feb 22, 2013 8:44PM
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Hmmm, I don't get why a 2% increase for social security for the EMPLOYEES should affect the company's profits since the company's match of 6.2% was never lowered and they continue to pay their 6.2% for social security.  If they are saying that their revenue went down because you and me stopped eating at Red Lobster and Olive Garden because we have 2% less on our paychecks, well then they are just throwing $h!t and seeing what sticks.  What I do know is that Olive Garden and Red Lobster keep you waiting 20 minutes minimum even when there are open tables.  If they don't have the staff to wait on those tables, then that is bad management.  It also shouldn't cost $80 for a family of 4 to eat at Olive Garden...but it does.
Feb 22, 2013 8:44PM
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My wife and I went to Red Lobster for dinner a few weeks ago.  Only took 10-15 minutes to get a table.  Then, we sat and waited for our drinks, then our salad, then our meal, and then the bill.  An hour and a half from being seated to walkiing out the door.  The place wasn t crowded, there were empty tables, in fact.  Problem was, you needed to keep a fire burning under the **** of the servers to get them to move.  Overpriced, poor selections and poor service.  Won t see us ever again.
Feb 22, 2013 8:43PM
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My problem with the  Social Security tax is that most people don't even realize that it is a 12.4%  tax.  The 6.2% is paid by the employee and the other 6.2% is paid by the employer.  I would rather keep my 12.4% and forget future earning.  I am guessing I will never see any of the money I put into Social Security with the way the government runs the US.
Feb 22, 2013 8:42PM
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Worked for RL for 20 years.  It started to decline when they began to think of themselves as high end and developed that attitude.  That was and is not their customer base.  They were built on good basic fresh seafood at a good price.

 

Upper mgmt. was biased and verbally abusive to middle mgmt. and many were devoid of morals. The last director I worked for was an abusive drunk, racist and homophobic

 and a womanizer.

 

If they got back to their roots and cleaned house, they would probably do better.

Feb 22, 2013 8:39PM
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Some of the best meals I have ever eaten at Olive Garden have been "specials" that last for 4 to 6 weeks and then are never available again.  Why fill the primary menu with lackluster offerings but only offer great dishes briefly?  Makes no sense and obviously isn't particularly profitable.

Feb 22, 2013 8:38PM
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somehow its Obamas fault.  Pure and simple.  This president inherited a bankrupt country, where the former President bailed out Wall Street, he apparently had lots of broker friends, and look where we are today.  I've been living under the bridge with my whole family, every place in america has shut down, and there is no food anywhere!

 

Oh wait, the dow is at 14000, even though gas prices are 5.00, everyone seems to be driving all over the place, even in terrible winter storms.  Man its rough!  Everyone used to say that Bush wasn't responsible for the country, what could possibly be accomplished in 10 years?????  But in less than three years the dow went from nothing to 14000.  I don't see thousands roaming the streets, and Gun sales are the best they have been in 10 years, so it seems like a lot of people have cash. 

 

So from Bankrupt to prosperous.  Yet Obama has ruined america.  WOW.  I guess 16 years of Bush senior and junior were not enough for everyone?  We have been spending virtual  money for over 30 years and now we want a balanced budget?  When were we even close????  Oh Clinton, yes indeed another Democrat. 

 

 

Feb 22, 2013 8:38PM
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Red Lobster and Olive Garden down. Market soars.

 

Anybody see a disconnect here.

Feb 22, 2013 8:36PM
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We just went to the Red Lobster in Pt. Charlotte, FL.  All of our salads had black slimy lettuce in it.  The fish was so thin and over cooked, terrible.  The baked potato was best.  Even the butter has changed, tasted like lard.  Very disappointed and I used to like eating there, but it will be a while before I return.  Can get better food at Appleby's & Fridays, plus there are buy one get one free coupons in the paper and mail.  Much better deal.
Feb 22, 2013 8:33PM
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The two percentage point increase in the Social Security tax did not affect Darden International at all.  It was only an increase in the portion of Social Security paid by the employees, and NOT the portion paid by the employer.  Employer’s paid into Social Security at the rate of 6.20% in 2012, and in 2013...employers also paid in at the same rate of 6.2%.  There was no change at all.  So the change did not cost Darden International a penny!    

Feb 22, 2013 8:32PM
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And it doesn't take a rocket scientist to figure this problem out, but I'm sure the CEO or top stockholders in these two restaurants will hire a team of experts to give them the answers to why these two restaurants are failing. I live in a community of about 50,000 and we have both restaurants in the city. Where I work, friends and family and pretty much anybody that you could walk up to on the street will tell you simply you don't get enough for your money! So red lobster and Olive Garden instead of hiring and paying out hundreds of thousands of dollars to tell you what you can see right here on this forum. And by the way we have a restaurant in the city that their food is excellent  and you receive huge portions and the highest price for a meal on their menu is around $10 and they are very busy seven days a week and on the weekends patrons standing outside their door waiting to get. Let's see large portions inexpensive meals and are always busy. Hello did your lightbulb come on yet.
Feb 22, 2013 8:30PM
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The mom and pop restaurants are booming today because of fresh dishes, larger portions and better prices. The chains are going down. Lets go back to regional foods, encourage travel to lower the cost of airfare, and encourage the smaller restaurants to open.. Foodies unite.
Feb 22, 2013 8:29PM
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Darden, give me one restaurant with total control on how it is run and you'll have a top earning establishment with happy customers and employees. Win, win.
Feb 22, 2013 8:24PM
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Sorry, my idea of dinner isn't loading up on a pile of cheap starch. Only fish used these days is when I can get it right off the boats when they come in. Eighty-five percent of the sea food is imported now. Even the Scandinavian fish is sent to China for processing before you get it. Good luck. 
Feb 22, 2013 8:23PM
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Everyone knows that bottom line it boils down to execs and management.  I could fix all these dummies problems.  You first have to decide before making money, which restaurant for the masses you want to be, for the lower class, middle to lower class or more towards the upper middle class.  Example, upper middle class cares nothing about specials, whereas lower to bottom middle class might.
Feb 22, 2013 8:22PM
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cost to much and portions are way to small at both places

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