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.
More from Money Now
I wish there was Red Lobster closer to south Orange County, California. There are only two in that county and too far from where I live. I always loved the all-you-can-eat shrimp especially the shrimp scampi and cocunut battered ones along with the cheddar biscuits. I wonder if the service is worse in certain areas as the one in Garden Grove, CA was great the last time I visited (although that was a little while ago).
At Olive Garden, I love the unlimited soup (Pasta e Fagioli), salad, and breadsticks. For me, that is a really great lunch deal! I have tried some pasta dishes and they are ok but nothing special. I have had better chicken parmigiana dishes elsewhere.
Last couple of times out at Red Lobster, it seemed as if they had adopted a war of attrition attitude to the endless shrimp menu, because I had to wait forever to get the first batch, after which we had to go chasing after the server to get additional orders in.
Then in September we went along to Olive Garden for my daughter's ninth birthday (even though she had a choice of any of our regular restaurants) because a) she loves the Alfredo sauce and b) she had seen so many people in the past receive the tried and true 'happy birthday' routine from the servers that she was really looking forward to getting the same treatment herself. As far as the latter was concerned, we were frostily told by the female server that Darden no longer provided the service, which left our daughter disappointed and tearful (geez, would it have killed them to round up a few servers and rehash the routine just once for a little girl who had specifically chosen their restaurant over all others?) while the sauce came late, cold, and about half the quantity we were used to. Our main meals took even longer, the server proved to be humorless, tardy, and disinterested, and the whole performance was so abysmal that for the first time in my adult life, we left a restaurant without leaving a tip. To top it all off, when we complained to the manager on the way out about the food and particularly the server's poor attitude (not about the singing or lack thereof) he stated 'well, that's not my experience of her. She's good at her job' - meaning we were plain lying in his opinion and he didn't really give a crap anyway. I know plain ol' burger joints that treat their customers with a greater sense of respect, and it's not like we go from place to place complaining either. We've had some pretty crappy experiences over the years at restaurants, just as everyone does at some time or another, but this would be the first time I can recall that we've ever said anything to management about an issue.
So don't ask me to feel any sympathy for the company. They are obviously so intent to cutting corners to keep their heads above water financially that they have obviously chosen the route of stiffing the customer by offering less and less for more money. Little wonder that their customer base is choosing to look elsewhere.
We have gone out to dinner every Sunday for the past 35 years. Olive Garden and Longhorn were part of our "dinner circuit". However, we stopped going to them as soon as Darden Restaurants Inc. announced that it was cutting employee hours to 28 in order to avoid having to provide their employees with affordable health insurance.
Shame on them! They should be boycotted.
Part II Olive Garden. I have never received adequate service there. Not even close. The food is not spectacular or exciting. The layout of the seating is such that, no matter where you are sitting, there is a constant, annoying flow of wait staff rushing by your table. WHY?
I agree that the all-you-can- stuff-down your throat places are yesterday's news. I guess they got the clue when the NYC mayor outlawed giant sugary drinks from town. But this means someone in the organization has to get innovative. Don't just rearrange the menu like moving checkers around a board. And for crying out loud, is there another food besides CHICKEN to put some alternatives on the CARTE?
If you are an Italian theme restaurant, can you hire some waitstaff that at least look like they're qualified to serve an italian meal? And dress them accordingly? In other words, Olive Garden,
you need to change it up and try harder to be what you say you are. Meals that look and taste like six editions of a Lean Cuisine pasta feast thrown onto one plate just don't cut it.
Red Lobster was great when Pillsbury was the proprietor.
We looked forward to going there every weekend.
After they sold it to Darden, the dinners began to diminish to a point where they became an event to avoid.
Apparently the mucky mucks and the stockholder $$$ grubbers bled the quality dry to where it is now.
Another one bites the dust, too much greed.
The only thing that I like about Olive Garden is their Endless Salad and their Pasta e Fagioli but after their comments about the Healthcare law, I won't be going back.
Red Lobster? I'm allergic to shrimp and prawns so I've never been there. But why should I go to a national chain when I can go to a local joint, who serves fresher fish?
Had a late lunch at RL this afternoon. I rate the service as excellent. We had a mature wait person. Food was served in a timeley manner and was hot. I probably consumed more butter at lunch than I have since Jan 1, in total! The dining room was very sparsely populated, which is not odd for 3:00PM on a Tuesday.
I felt the price of my meal was reasonable and good value for that amount of seafood. ( The new Crab Bake special, which included a generous portion of crab legs, bay scallops. large shrimp, corn on cob, roasted red potatoes; all swimming in about a inch of garlic butter.)
In defense of their menu pricing, I'll just say the price of everything in food is up. Seafood has always demanded premium pricing. Fishing vessels operate on diesel engines, the North Atlantic is not a hospitable place and crew need to be paid for their effort....yada, yada, yada.
I like the ambience at RL, the service has always been good and although the seafood is not New England or Northern California fresh, it is about as good as you can get in the Northern Arizona rodeo town of Prescott.
Their food sucks! Its all frozen pre-prepared food items reheated poorly at the local levels. That's why they are "starving"...It's all about the food! Send out the recipes and have the restaurants prepare fresh food all the time not frozen food prepared in a commisary and shipped in from who knows where and how long it has sat in the freezer...SUCKS
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.
[BRIEFING.COM] The major averages ended the midweek session with slim gains after showing some intraday volatility in reaction to the release of the latest policy directive from the Federal Open Market Committee. The S&P 500 added 0.1%, while the relative strength among small caps sent the Russell 2000 higher by 0.3%.
Equities spent the first half of the session near their flat lines as participants stuck to the sidelines ahead of the FOMC statement, which conveyed no changes to the ... More
More Market News
Fed keeps important 'considerable time' language in reference to short-term interest rates, but dissents and dots leave doubts.
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'