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.
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.
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.
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.
Red Lobster and Olive Garden down. Market soars.
Anybody see a disconnect here.
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!
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Reports say the generous benefactor behind the huge gratuities is a former PayPal executive.
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