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.


More on moneyNOW

363Comments
Feb 22, 2013 4:13PM
avatar
My wife likes Olive Garden but my complaint is that there never seems to be enough meat in their dinners. I usually order the shrimp fettuccine. My complaint is that there is usually only 6-8 small sized shrimp in there and its  like $15! Cmon, that's ridiculous you load the plate up with pasta and 8 shrimp? Even the Chicken plates only have small amounts of it in there. People want good food AND value when they go out. Lastly we went about 4 months ago and it seems to me they usually have extra people greeting and just standing there, Less waste more value to the customer and lastly who wants to fill up on soup and salad? I go to a restaurant to eat GOOD FOOD, if I want a crappy salad I can make that at home.   
Feb 22, 2013 3:52PM
avatar
The answer is simple: larger portions and MUCH better special prices. We don't go there anymore because there are lots of very good competitors who have better quality, quantity and lower prices.
Feb 22, 2013 3:40PM
avatar

THERE WAS NO PAYROLL TAX HIKE........

 

              YOU MEAN THE 2% "TAKE BACK" on SOCIAL SECURITY....??

 

      YOUR RESTAURANTS NEED NEW MANAGEMENT or SOMEONE with HALF a BRAIN..

If people's lives and spending habits depended on that 2%, they are in bigger trouble then I thought.?

That was meant to pay for higher fuel costs, for going to work...

Feb 22, 2013 5:42PM
avatar
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 5:09PM
avatar
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 5:51PM
avatar
Fish is not meant to be a chain restaurant thing...and the best Italian food has ALWAYS come from small little local joints run by families cooking their grandma's recipes!
Feb 22, 2013 4:15PM
avatar
What a surprise that factory food is going out of style.  I don't see how this has a thing to do with the Payroll tax cut.  Obama had no business cutting the payroll deferral to Social Security in the first place.  It is not a tax break,a tax cut, or anything else to do with taxes, no matter what the white house calls it.  Social Security is not a tax; it is a retirement program.  If people took that money and went to Olive Garden, it goes to show you that they didn't need the money in the first place.  The problem with the Olive Garden and The Red Lobster is that there is always a crowd and always a long wait, it is noisy, and the food is nothing special.  It certainly has little in common with authentic Italian or New England cuisine.
Feb 22, 2013 5:51PM
avatar
Red Lobster is sinking because they have started getting to greedy.

They started by omitting some of the things that used to be included with most of the meals but left the price the same.

Then they started giving you less food and then moved on to lower quality food.

I used to love going there but the only thing that would get me in there now is a gift certificate.

Feb 22, 2013 5:25PM
avatar
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 5:35PM
avatar
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 5:02PM
avatar
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 5:43PM
avatar
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 6:05PM
avatar
I don't feel that it is the portion size, quality of food or restaurant atmosphere. My family has been plagued with Higher property taxes, 33% hike in homeowners insurance, no raises in the last 3 years, higher gas prices, higher food prices, more money coming out of our checks for FICA taxes, Higher energy bills, ETC. We are being squeezed to death and have no money left to go out and enjoy a nice meal at a good restaurant.
Feb 22, 2013 4:48PM
avatar
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 5:45PM
avatar
the food at these 2 places is just bad.  it tastes like frozen food and their prices are way too high.... we used to love to go to red lobster but i wouldn't go there for a free meal now...
Feb 22, 2013 5:41PM
avatar

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.

avatar
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 5:35PM
avatar

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 5:40PM
avatar
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 5:14PM
avatar

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........

Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

Trending NOW

What’s this?

MARKET UPDATE

[BRIEFING.COM] Coming off the three-day weekend, it was a groggy start for the equity market with neither buyers nor sellers showing much conviction.

The energy sector (-0.6%) has been a key drag in the early-going as it is following crude prices (-$1.28 to $94.68/bbl) lower.  Meanwhile, the consumer discretionary sector (+0.3%) has helped act as an offset.

Moments ago, it was reported that the ISM Index for August jumped to 59.0 (Briefing.com consensus 57.0) from 57.1 in ... More

MSN MONEY'S