Red Lobster and Olive Garden are starving

Darden Restaurants kills its chains' all-you-can-eat identities and crushes sales just as Americans abandon casual dining.

By Jason Notte Dec 4, 2012 4:00PM

Customers walk into a Red Lobster restaurant in Hialeah, Fla. on Sept. 6, 2012 (Alan Diaz/AP Photo)Updated Wednesday 3:30 p.m. ET

If you still think about all-you-can-eat shrimp when you think of Red Lobster or never-ending breadsticks or pasta bowls when someone mentions Olive Garden, then you're part of the problem for Darden Restaurants (DRI).

The parent company of those two restaurant chains -- as well as the meaty LongHorn Steakhouse and beer-focused YardHouse -- issued a warning about its second-quarter profits as sales over the last three months tanked. The company blamed Superstorm Sandy and a spate of bad meal promotions for a 0.8% sales slump at LongHorn, a 2.7% dip at Red Lobster and a 3.2% downturn at Olive Garden.

The eating public's indifference to Olive Garden and Red Lobster fare is particularly disconcerting for Darden, which just overhauled menus and restaurants at both chains. Red Lobster, known for bottomless piles of bottom-feeding seafood, increased chicken and beef items from 8% of the menu to nearly a quarter of its offerings. Olive Garden, meanwhile, shifted the focus away from unlimited carbohydrates like breadsticks and pasta to "lighter" fare with fewer than 600 calories. It's laid-back "When You're Here, You're Family" slogan was replaced with the more hectic "Go Olive Garden."

Wednesday, Darden said it won't bump any workers from full-time to part-time to deal with rising costs as Obamacare is implemented. Starting in 2014, large companies must offer health insurance to full-time workers, and as a result Darden was testing the use of more part-time employees. The company was criticized for the move, and said that employee and customer satisfaction declined at restaurants where the tests took place, the Associated Press reports.

While Darden made passing mention of the national health care law and its potential effects on the company's bottom line, it made clear that sales were its biggest issue. Total sales are expected to grow 7.5% to 8.5% overall, down from previous projections of 9% to 10%. Same-store sales for Red Lobster, Olive Garden and LongHorn -- originally predicted to grow 1% to 2% this year -- will likely be negative or flat, Darden said.

How is this happening? Didn't the Conference Board's Consumer Confidence Index rise to 73.7 in November, up from 73.1 in October and at its highest level since February 2008? Didn't the University of Michigan/Thompson Reuters consumer sentiment index rise from 82.6 in October to 82.7 in November and reach a five-year high? Aren't consumers looking to spend?

Maybe on houses and small store items, but not on dinners out at a mid-range chain restaurant with tchotchkes on the wall. According to the Census Bureau, spending at food service and drinking establishments is up 7.2% during the first 10 months of the year over the same period in 2011 and up 4.2% in October from October 2012. Restaurant spending decreased 0.4% between September and October and, according to market research firm NPD Group, dropped off 2% at casual-dining establishments within the last quarter. Casual dining on the whole has dropped between 1% and 4% each quarter since spring of 2010.

Meanwhile, the cost of dining out isn't getting cheaper. It's up 2.7% over the last year, according to the Consumer Price Index, which puts it ahead of the 2.2% overall rate of inflation. Darden's prices at both the Olive Garden and LongHorn rose between 2% and 2.2% last quarter, while Red Lobster managed to keep price hikes down to a manageable 1.4%.

If it's any consolation to Darden, its competitors haven't quite figured out the restaurant market this year either and have watched sales either flatten or make modest gains. Share prices at Chili's parent company Brinker Restaurants (EAT) are up 22.6% in the last year and sales are up 2.7%. DineEquity (DIN), the firm that runs Applebee's and IHOP and is viewed as a huge Darden competitor thanks to its "2 for $20" meal deal at Applebee's, saw stock values rise nearly 35% in the same span thanks to 2.3% same-restaurant sales increase at Applebee's, but in spite of a 2.4% decline at IHOP.

Ruby Tuesday (RT), meanwhile, watched shares jump climb more than 7% and sales increase nearly 2% after overhauling its menu and locations. Bloomin Brands (BLMN) -- named after the fried onion appetizer at its flagship Outback Steakhouse chain -- increased sales at Outback, Carraba's Italian, Bonefish Grill and Flemings Steakhouse 3.6% last quarter. Share prices have increased nearly 30% since the stock debuted in August.

The somewhat less family oriented Buffalo Wild Wings (BWLD) has been an exception, with its focus on football, beer, big TVs, near bottomless supplies of poultry parts increasing sales by an average of 6% last quarter. Its share price is up more than 15.5% over the last year.

Absent chicken and concussions, there doesn't seem to be any magic formula for getting folks in the door. After watching sales inch up a scant 1.1% during the first nine months of the year as foot traffic decreased 1.8% despite Denny's (DENN) adding three restaurants to its total count over that span, the diner-style chain will be pushing a hearty menu tied into "The Hobbit" film trilogy, whose first installment debuts this month.

That kind of goes the other way on Darden's health-and-image-conscious reinvention, but at least places like Denny's and Buffalo Wild Wings know their audience. Olive Garden and Red Lobster are running away from their all-you-can-eat, sit-down identities just as Americans flee faceless casual dining chains.

There may have been something slightly repulsive about orgies of shrimp and spaghetti, but at least they helped separate Red Lobster and The Olive Garden from every other fatty pre-fab chain lining the nation's traffic arteries.

More from Money Now

Dec 4, 2012 6:23PM
it just cost so much to go out to eat at "sit-down" resturants,thats why your business is hurting. it doesnt matter what kind of food you offer or how tasty it is, If it cost over $10 for a plate forget it.
Dec 4, 2012 6:22PM
Red Slobster and Olive Pit is nothing more than over priced, smaller portion, slop for hogs. Both chains have nose dived since the early 90's. Coast to coast same consistent taste of meals throughout the chain I prefer Applebees.
Dec 4, 2012 6:22PM
It isn't just that Red Lobster is way over priced because I would have spent the $75 with a smile if the place hadn't smelled  like a barn and put off the food. We thought the decor was so low class and smelly that the plates served felt like they were put in a manger. Never eat there again and as for the Olive Garden we spent $65.00 for two and after having bread sticks and salad shoved at us for 45 minutes with the soup in a cup the size of a thimble we finally asked for our entrees which were so absurdly small on this giant plate that looked like frozen food served on re-cooked pasta side. Well never walk back in one of these two again. Many others do better for the same cost.
Dec 4, 2012 6:21PM

I will not eat at any of these resturants.


We used to eat out all the time but with the steady increase of prices on everything over the last few years combined with the steady decrease in business and income over the same, add increases in utility bills, taxes and licensing agencies etc, insurance costs going up, we now have absolutely no money to eat out EVER and the future continues to look more glum. More people are going to lose jobs because there is less money for consumers to spend and gets worse daily.
Dec 4, 2012 6:19PM
I haven't eaten in any chain resturant in years.  My last experience in Olive Garden was pretty bland, food tasted like cardboard with eveyrthing artifically prepared.  We're have since taking our dining witch local -owned, mom& pop  eateries that have real cooks and chef.  Never had a bad meal since; great folks that you can relate to regularly.  Folks give your business to your locals; corporate chains be dam!!
Dec 4, 2012 6:19PM
If they stopped using MSG in their food, we'll eat there again.  Tired of getting migraines from eating there!

Dec 4, 2012 6:18PM

Last time I went to Olive Garden, I ordered my meal to go, paid $25.00 for it.  Went home and it looked like half of it was still at the restaurant.  I called them and complained, they provided me with a $20 gift certificate for my problems; good customer service but poor quality of food.

Dec 4, 2012 6:14PM
Could it just be that the food isn't that great?  Been to a Red Lobster lately?  gross.  And Olive Garden is bland Italian food.
Dec 4, 2012 6:14PM
Went to Red Lobster for the crab trio - had crab legs - was supposed to have crab topped shrimp -no crab on the shrimp and a cassoroll with crab - guess what no crab in tha either - We will never go there again.
Dec 4, 2012 6:13PM
Most of the good menu items have dissapeared from both O G and R L.......even when they have specials there is hardly enough food on the plate for the price....I used to like both restaurants...but that has changed.................
Dec 4, 2012 6:11PM
I have noticed a change in Olive Garden and Red Lobster. The food quality has gone down a little and prices have gone up. It's expensive for what you get there now. Too many other smaller seafood places with better food and about the same or lower prices.  I actually quit Red Lobster a few months ago. small portions and very pricey for what i got.  Olive Garden has removed some of my favorites that we hard to find in local places. No real reason to go to either anymore.  I guess that's how restaurants come and go. Guess on there current they will probably lose some market share. I spend at least 40 bucks for people at either one. to expensive for what you get.
Dec 4, 2012 6:10PM
Poor Darden Restaurants Inc., they lost a whole 0.8% in sales.... time to give even less to the customers for their $$$$.
Dec 4, 2012 6:09PM
Red Lobster and Olive garden are both fine restaurants in terms of their food choices. I personally feel they have a service problem. In other words, Olive garden has  too long of waiting times and Red Lobster needs to clean up the way they seat customers. They will make you wait with seating available just to satisfy the waiters to equalize tips. Lots of folks just get up and leave.
Dec 4, 2012 6:08PM
The Olive Garden does not have a clue what Real Italian  food is.  I am a pretty good judge of Italian food having been to Italy and dining in good restaurants.  I have never seen on their menus where 90% is artery clogging cream sauces like the Olive Garden.  The Olive Garden does not know how to make a decent marinara sauce.  The most important menu item in an Italian restaurant is a good red sauce.  I wish The Olive Garden would not associate the restaurant as being Italian.
Dec 4, 2012 6:07PM
Their prices are way too high and the food is not that good. If you think of Olive Garden and Red Lobster, it's expensive, they should do like a 2 for $30, that'll get people in the door. The last time I went to either restaurant the bill for 2 was over 50 bucks! They need to change their prices, just like everyone else did.
Dec 4, 2012 6:03PM

I laughed at Red Lobster and Olive Garden forever. I'm still not going to the Lobster, but I have started going to OG over the past couple of years. They do a great all you want salad and soup combo for 6.95, with breadsticks. 3/4 diff soups; all pretty tasty. So I am a born again OGer. My kid likes their pasta, and it isn't too bad or pricey.

But I would be very hesitant in going any more fancy than that. I believe it is the max of their expertise, but what I described previously is a good bang for the buck

Dec 4, 2012 6:03PM

"... as sales over the last three months tanked. The company blamed Superstorm Sandy and a spate of bad meal promotions for a 0.8% sales slump..." , how about blaming the "Superbad Management" for the decline in sales?!

Dec 4, 2012 6:02PM

Oh yea, blame hurricane Sandy for the drop in customers. It wouldn't have anything to do with the small portions and high prices Red Lobster is pushing would it?? ! The last time I was there and ordered the "Seafood Feast" I thought it was a samplers platter. There was more plate visible than food. Sorry RL but you screwed the wrong guy here.  

Dec 4, 2012 6:00PM
I avoid chain restaurants.  Would rather go to a fish house instead of Red Lobster & a real Italian restaurant instead of Olive Garden.  I'm surpised that these places have that much business as the food is not that tasty nor healthy (don't know about the pricing). 
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