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.


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1094Comments
Dec 4, 2012 6:38PM
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Red Lobster is way over priced for a fast food chain  but so is Denny's ...such is life ...i eat at home, much cheaper and no tipping
Dec 4, 2012 6:35PM
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just went to olive garden.... $60 for 2 adults and a child. food was subpar at best.. why not just go to papa murphy's... get a pizza and a salad and get a movie for $25.... service has really taken a dive... their new motto should be "WHEN YOU'RE HERE. WE REALLY DON'T CARE"

Dec 4, 2012 6:34PM
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IF they would server decent food.. i.e. healthy...
then MAYBE they could catch up...

Bottom line is more and more Americans are becoming informed on what they eat, how it's prepared, etc.
Dec 4, 2012 6:34PM
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Olive garden is the worst place I've ever eaten...(worst place is in Spokane Wa.)...like eating out of vending machine.....Red Lobster.. not so good either.one step up.....My dad likes it but I cringe when he wants to go there. .It's like someone is pretending to be in the business. ..

 

Dec 4, 2012 6:34PM
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Well i guess im the only one who likes Red Lobster.........Think Il will eat there tonight.
Dec 4, 2012 6:34PM
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I too am disappointed in their overall cleanliness of the restaurant not to mention their high prices.  If they want business from all classes of income they need to rethink their menu and prices.
Dec 4, 2012 6:33PM
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Red Lobster should change their slogan to, "At least the cheese buscuits are good."

- I'd have a glass of water with that.

Dec 4, 2012 6:33PM
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The last time we ate at Olive Garden it was horrible
Dec 4, 2012 6:32PM
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My wife and I can prepare, at home, way better than any of those chain junk food stores at a fraction of the cost tasting way better, not having to settle or go with out a favorite side or spice, wait, tip or drive usually in the time it takes to drive there alone. The best part is............it is "way healthier", it's never cold, over salted, cooked in aluminum, or re-heated, actually it's getting nearly impossible to find anything that's worth the $$ or the wait without subpar dinning  ;)
Dec 4, 2012 6:32PM
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Olive garden was okay but stopped going there as prices got ridiculous. Red Lobster never was much good and also expensive. You want sea food? Go to the shore, particularly just before or after season and ask a few locals where they go. Works on the Cape.
Dec 4, 2012 6:31PM
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Perhaps a lot of people are boycotting because of their plan to cut staff hours to avoid healthcare plans for their employees. That's why I refuse to eat there now.
Dec 4, 2012 6:31PM
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I received such lousy service at both Red Lobster and Olive Garden and their food was worse than local companies who serve much fresher and less expensive meals. it is not all about the never ending breadsticks with me.
Dec 4, 2012 6:28PM
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My son and his wife took me to Red Lobster for dinner.  The shrimp was fried in old past redemption and the rest of the meal was barely passable.  Being with family was the best thing about the evening.
Dec 4, 2012 6:27PM
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I will pile on with some complaints about my recent visit to a Red Lobster in San Diego, located near a concert venue:

1. No local beers offered (San Diego is craft beer heaven!)

2. Slow and inefficient service.

3. Very few catch-of-the-day options.

4. Overcooked fish.

 

The good points (but not enough to be worth returning):

1. Tasty biscuits.

2. Tasty and generous shrimp skewer.

 

 

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Carrabbas is great. They cook real food, and you can see it.
Dec 4, 2012 6:24PM
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Their food is just nasty and unappetizing.
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they treat thier servers terrible why eat at a place the employees are so un happy  but cant get jobs anywhere else
Dec 4, 2012 6:23PM
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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
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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
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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.
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