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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1097Comments
Dec 4, 2012 9:12PM
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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

 

Dec 4, 2012 9:10PM
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you can get better quality seafood at a lower price at Ruby Tuesdays. Red Lobster is a shadow of its former self as well as Olive Garden. They have both priced themselves out of reach for most families.
Dec 4, 2012 9:10PM
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Three busy eateries in my southern Calif. hometown of over 310,000 are a green McDs, an Applebees after 5pm and an Islands for happy hour after 5pm pushing exotic drinks, beer and burgers.  Denny's does well too.  
Dec 4, 2012 9:10PM
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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,.

Dec 4, 2012 9:07PM
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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???

Dec 4, 2012 9:05PM
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We've taken to eating at home more often or eating local. It's a great way to save money or support your community. I'd rather do that than finance huge corporations that care more about their bottom line and profits than their customers.
Dec 4, 2012 9:04PM
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The food at all 3 of those restaurants is terrible. It has been going downhill for at least the last 10 years while the prices go up. Customers know when they're getting shafted. 
Dec 4, 2012 9:04PM
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We eat out a lot. Darden restaurants are over priced, noisy, and the tables are too close together. The portions are tiny. I like Applebee's balanced meal approach. THEY SERVE VEGETABLELES!!!!!  Not friedvegetables, 
Dec 4, 2012 9:03PM
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My son talked me into going to Red Lobster for the all-you-can-eat shrimp.  The only reason I went was because he paid for it. 
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. 
Dec 4, 2012 9:03PM
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Forget the chains - look around your town and eat local - fresh food, freshly prepared, no frozen, micro-waved entrees.  You will be dining with your friends and neighbors, not folks who just came in from the freeway, and the profits from your dinner stay in your community. 
Dec 4, 2012 9:03PM
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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!

 

Dec 4, 2012 9:01PM
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I love dining at Olive Garden but their prices have really increased.  It costs about $60.00 for dinner for two and that doesn't include any costly drinks. We are re-thinking going there in the future.  My husband likes the salmon but it is such a small portion, he orders garlic mashed potatoes to go with it.  At  $18.99 it should be a full meal and not just the salmon and a few broccoli spears. 

Dec 4, 2012 9:00PM
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My wife and I used to eat at Red Lobster all the time back in the 70's and early 80,s when back in Lincoln, NE. The food was excellent and the prices were very reasonable. After moving to AZ in the early 80,s we failed to eat there for probably 15 years as friends told us that management changed and the food was not very good. In the late 90's we attended a family gathering at a Red Lobster and what a horrible experience! Food took forever to reach our table and much of it was cold. When looking at the menu, we were in sticker shock at the prices. This was the last time, never again!!! Can not imagine the prices now under Darden.
Dec 4, 2012 9:00PM
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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.

Dec 4, 2012 8:58PM
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I am not going to do business with them when they continue to take it out on the employees while increasing the top dogs salary.
Dec 4, 2012 8:57PM
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Red lobster? 
Nobody goes there anymore, too busy
Dec 4, 2012 8:53PM
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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

Dec 4, 2012 8:53PM
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Both just plain suck. When you go under please knock down the hideous buildings you were housed in! Merry Christmas.
Dec 4, 2012 8:52PM
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Haven't eaten at a Red Lobster in about 15 years.  Every time I ordered a fish dinner, got sick.  Had crab legs one day for lunch, and my face swelled up at work.  Left work and went to the ER...got a prescription.  Didn't eat any kind of fish for about 6 months.  I eat fish, lobster, crab all the time now, but not at Red Lobster.

 

Dec 4, 2012 8:50PM
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It's impossible to compete with a couch, TV, and endless bags of Cheetos.
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