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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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
HMMmmmmm, ... uno thaa MOST americanos aren'ttttt very smart don'chu!!!???
LOOK at WHO & WHAA they ELECTTTTT to offisse time after time after BADDDDD-TIMES!!!! WHADDA JOKE AMERICANOESSSS are,.
I am gluten intolerant and the Olive Garden doesn't have anything on its menu I can eat. Even the salad comes with crutons. Yes, they came up with one gluten free pasta, but it's a microwaved meal. Disgusting and overpriced. I dislike seafood so Red Lobster was never on the top of my list.
Both chains are dirty, the service is slow, and they are crowded.
A change in Darden's strategic plan may be in order. How about focusing on quality and service rather than backsides in seats???
The initial serving was almost decent battered shrimp. The second choice was Teriyaki shrimp with a hint of Teriyaki sauce. After that the fried shrimp were the breaded frozen shrimp barely half the size of the first batch. The second serving of Teriyaki shrimp had no sauce at all. As far as Olive Garden, you can get better frozen dinners from the grocery store. Both are way over priced. They should really just close them both down.
The problem with Olive Garden is too high prices. I took my wife in for lunch which included one shared appetizer and one cocktail each and the tab was over $70. I can afford that but I can do just as well at El Torito for $50. See ya later Olive Garden!
My experiences at Red Lobster have turned me off to the place,
Over cooked (and over priced) shrimp and greasy seafood is no way to keep customers coming back.
Olive Garden is a step better but the last time I went (in September), the waitress accidently spilled ice tea on me at my waistline and soaked my $400 cellphone. You know what the Corporate did? Sent me a gift card for $25. Like that will pay for a new Galaxy3 phone.
C'mon Man... so what if the food is OK, the service at Red Lobster is terrible. lack of parking, long waiting lines while empty tables sit waiting to be cleaned, slow service and food. who wants to suffer all that just to get an ordinary meal. Olive Garden serves too much carbs in their food. don't tell me that's healthy
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