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.

More from Money Now

Dec 4, 2012 5:55PM
They both cheat the customer You see the advertising TV & print. The real thing is laughable, thats why they want you to fill up on very expensive 'bread"
Dec 4, 2012 5:54PM
There prices are high,  and the last time I went to the bowling green store the service stunkkkk.,and the portions were smaller than usual.  Ain't going back to Olive Garden !!     Red Lobster prices are too high for the average working man to take his fanily too,   Its bad enough for that special night with the wife.
Dec 4, 2012 5:53PM
when you eat at olive garden it is not like family
Dec 4, 2012 5:53PM
We just do not eat at chain restaurants because their food is "cardboard cutouts". As someone else stated, they are just high-priced fast food with no real resemblance to the real dishes they are trying to imitate. We ate several times at the original Chili's in Dallas and it was extremely good. There were 4 items on the menu: hamburgers/cheeseburgers, chili, fresh-made fries, and soft tacos. They were good until they began to expand. Now their menu is exactly like all the other chains. Probably the original of all chains were pretty good, but with expansion the food is prepared somewhere else, frozen, shipped and microwaved. Very little made from scratch in the kitchen where you are eating. When we travel we find "mom-and-pop" or out-of-the-way diners and have never had a bad meal. Just look at the parking lot at eating places in small towns, you will probably find excellent food.
Dec 4, 2012 5:53PM
My family frequents Ruby Tuesday. While much of the food is just OK, the salad bar is awesome (at least when management isn't trying to "fix" it). Plus they email coupons all the time... 25% here, $10 off there... it's incentive to choose them over another place.
Dec 4, 2012 5:51PM
why don't all you whiners stay home and cook for yourselves?

answer: you can't boil water, you baby boomer wipeasses.

Dec 4, 2012 5:50PM

Most folks who have never had fresh seafood think Red Lobster is good.  I WAS one of those folks.  The last time I ate there it was huge disappointment.  Poor quality food and service and not worth the high prices.  Never again.  The last meal I had at Olive garden wasn't bad but the trick to not spending too much is avoid buying alcoholic beverages there.  I'd go back but I really need to be in the mood for it.

Dec 4, 2012 5:50PM
I've been disappointed in both Red Lobster and Olive Garden during my most recent visits. The service at the Red Lobster was atrocious and the selections at both restaurant have not been as good as before. The prices are high, so I only went for a special occasion in the past. I don't think I will return any time soon.

Dec 4, 2012 5:49PM

I may have the BA's, but I don't like to go to a place where I have to wait a half-hour, hour... etc.,...sorry, but it doesn't give me the signal "we have great food, so great you have to wait a long time to get it".....if you are book up that much, BUILD ON!....I go to eat....if I had to wait, I'd stay home, wait, then isn't THAT much better to my taste buds than the buffets I can just walk right up to.

Dec 4, 2012 5:47PM
Boy that Sandy is going to cover a whole lot of sins isn't it? Of course you have little andy our gover and head of I want to be President if barry will let me in 2016 of NY. Blaming everything but the VietNam war on poor little Sandy. Forget that NY State started in the hole when his daddy and head liberal spend every dime he could get his hands on Mario was gov. We rank 50th in the country on the job growth and business climate and it has nothing to do with the weather. It has to do with liberal progressive Dumbocrats and the dopes that vote for them.
Dec 4, 2012 5:47PM

Red Lobster restaurants are so dirty especially in the kitchens. Flies all over the place, etc. Plus the people they hire are a lot to be desired. So it doesn't surprise me that their business is going down.


Live Garden, at least the few that I frequent, seem to do well. we like their soup and salads and many of their pasta dishes are OK for the pricing. We do not go there thinking that we are dining on real italian foods, etc but it seems good to us.

Dec 4, 2012 5:43PM
Last meal at Red Lobster was overcooked, and was the last time I will go there.
Dec 4, 2012 5:43PM
it's simple....  they charge a premium price for meidocure food... and below average portions.  you can get more "exciting" food and atmosphere at many other places...  i tend to shy away from chain restaurants period... but dardens only restaurant i frequent is the yard house.... i enjoy the beer and the food.    
Dec 4, 2012 5:39PM
Their prices are high and food quality low.  We stopped going to Red Lobster after getting sick there twice.  There are too many other good restaurants in town.
Dec 4, 2012 5:37PM
they are way over priced for what you get.  Iwont be giving them any of my money
Dec 4, 2012 5:36PM

The last time I went to Red Lobster was when the advertized stuff portabella mushrooms years ago.  The order came for my wife and there were four little golf ball sized mushrooms.  I asked if that was a mistake and was told no.  I canceled my order right then and there and when she was done we never went back.  Also noticed their crab was snow crab, the hardest legs of all crabs to try to get meat out of, except at the Reno Hilton that used to serve them cut in half.  So it isn't a surprise that Red Lobster is hurting it just took a while for EVERYONE to notice the food was below par and small servings. 


Now Olive Garden is pretty consistant with good quality  and qauntity of food.  Although the last time I went I tried an early dinner at 3:30 in the afternoon.  Not a good idea as the bread sticks, a favorite, were hard and tasted leftover from the lunch service. 


Not much incentive to go back to either place.

Dec 4, 2012 5:32PM

Red Lobster is just an artery clogging plate of  food!  Way over priced.  Our Olive Garden is pretty good...


Bone Fish and Bahama Breeze are better..

Dec 4, 2012 5:30PM

My husband refuses to go to Oliver Garden because the last 4 times we went they failed to bring his meal at all.  I would get mine but they never came back with his.  Not a good way to keep customers.  By the way, it was three different Olive Gardens.

The only good thing at Red Lobster is the cheese biscuits.

There are too many good places to eat.  If they want to survive, they need to change.  Some of their so-called promotions are a joke if you actually try to take advantage of them.

Dec 4, 2012 5:29PM
Hey Darden... an awful lot of your troubles at Olive Garden is the management and choice of staff. You would do much better with more mature staff and a manager who doesn't look and act like he has a criminal record and a cell phone attached to his always-distracted hand. Last few times we ate there we felt cheated. Calm it down, mature it up and remember... your clientele is unemployed or under-employed, so get that high-end crap off the menu.
Dec 4, 2012 5:28PM
I have never eaten at a Red Lobster and haven't been to an Olive Garden in years, but I have gone there for the soup and all you can eat salad lunches in the past.  People always complain about these place but seems fairly simple, if you don't like the food or the prices, don't eat there.
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