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.
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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Hmmm.....I've actually hated Olive Garden since their Pillsbury style of restaurant management had the staff asking you for dessert orders before you were served your salads; table turnover was their guage......
But when we went recently (On Long Island, day after Pearl Harbor Day), for Sister's B-day, it was actually quite decent, although we were greeted with an estimate of 45-minute wait at 4pm.....people apparently bailed in droves, so the wait was only 33 minutes....Service was very courteous, prompt, and accomodating. Food wasn't bad either, though I have personal problems with red peppers in marinara and meat sauce. Cost was $63 for five, incl. well-deserved decent tip, but we used two coupons and the 2-full-meals-for-$25 for four of us....Two sodas (one was refilled at no charge, promptly).
Specifically chosen for the breadsticks and salad, and the coupons in hand.
I personally prefer the cheesy biscuits at Ded Lobster; but you have to look at what other tables are being served to know what's very fresh and well portioned in their Seafood Inventory.....
"Share price" is way irrelevant to the value that a customer receives; hey, Wall Streeters eat in a totally different world, dontcha think ??
Sorry to hear that "Darden" tells you they're discontinuing breadsticks and biscuits.....but the Management is primarily courting the Shareholders, not the dining customers. Some diners actually know this. The wait staff courts the diners. Those that know this will tip minimally on credit card, and leave additional cash tip as deserved.
I was at OG for the last time four or five years ago. I still remember - it was a Monday nights after a hellish day and my wife and I both got home late. Out of the blue I asked her if she wanted to go out for a nice dinner and she happily agreed.
When we got to the Garden we had to wait at least 15 minutes to be seated despite the fact the restaurant was not full. We were basically ignored. Finally, one of the college-age employees took notice of us and seated us at the very back of an almost empty dining room. I could see the main attraction: a table of their friends was in the next chamber, and all of the on-duty staff was spending time around them. It was extremely difficult to get anyone's attention, and by the time our meals arrived we had almost finished the bottle of wine that should have accompanied them.
And what meals they were - I got some horribly dry pork medallions in a generic, coolish sauce and my wife's fish was slightly undercooked. By that time I know she just wanted to leave and she stopped me from complaining about it.
The cost for this pleasant evening? $85, not including tip. The next time I set foot in an OG is the day I have a gun to my head.
They don't tell you in the article that Red Lobster and Olive Garden are both owned by the same parent company.... I could never see paying over 10.00 for a plate of pasta......and 2.50 for a glass of ice tea...... sea food well being out here
in Roswell N.M. that is the last thing you want to order.... they think it's gold here....way over priced and not very fresh.
Darden does not seem to know how to manage these days.
heres the problem i went to olive garden we got an appetizer before our meal they brought it out there was more plate than food and it was very disturbing when i got the entree like nothing on the plate what do you think people go out to eat to be overcharged for some poor quality pasta dish no i dont think so and as for red lobster another over priced food joint i could care less if they both closed there doors and went out of business i will never eat at either one of them over priced food chains again we go into a recession and the food chains have an answer for that lets up our prices and give less food well we will see who has last laugh
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