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

1094Comments
Dec 5, 2012 2:44PM
avatar
Why would anybody go to a chain restaurant in the first place? Most towns still have a local restaurant (or two)  where the owner is proud of what he serves and appreciates your business. Even if it was a couple dollars more (which it usually is not) you are supporting your neighbor and helping your town survive in these tough times.  It is really nice to go to a restaurant where they not only know your name but how you like your food prepared.
Dec 5, 2012 2:44PM
avatar

My problem is Red Lobster changing their menus to try and make "new wonderful creations"  inspired by culinary chefs...don't try to sound good..make it good. I understand generations are changing and new hip items should touch down on the menu occasionally but don't take away original favorites from the menu. Some are staple items to my family and I; which keep us coming back to dine;keep us excited to visit. Irritating when the one thing you really enjoy is taken away. Bummer.

Dec 5, 2012 2:38PM
avatar

The "Italian Dennys"....crummy food and worse service.

 

 

Dec 5, 2012 2:37PM
avatar
To much money for what you get ! Never had any desire to go to Olive Garden ! 
Dec 5, 2012 2:37PM
avatar
The real problem is their menu change toward healthy and smaller portions. At a time when everyone is having to tighten their belts to get used to the "new normal" eating out has become a luxury for most. If I am treating myself it is not going to be to whole wheat, grilled, or low calorie anything for $14.95. I make that at home for 1/3 the cost nearly every other night. If I go out I want to feel like I got my money's worth. I don't want to feel like going home and making a sandwich afterward.
Dec 5, 2012 2:34PM
avatar

I've dined at Red Lobster many times since I was a child ....I'm 44 now. The food is a little pricey and the quality is not really up to par, not with our family members anyway. In my opinion there are better places to eat seafood for the money and the quality. The other I would like to mention is service. Last time we ate at Red Lobster we were in Surprise Az.....We were rather put out that no one was hardly there and it took what seemed forever to just get us seated plus the hostess could have used a little more training in customer interaction instead of being so rude. It wasn't an inviting experience to say the least.

The Olive Garden is in my best opinion a mediocre place to eat Italian food and it too is a little pricey. I think the elderly crowd tend to like it because the food to me is rather bland.  I usually eat there because my 75 yr. old father likes it.....Everything there pretty much taste the same to me. We cook a much better Lasagna and spaghetti then they do at the house......

Dec 5, 2012 2:29PM
avatar
They're having difficulties because their food sucks.
Dec 5, 2012 2:29PM
avatar
At Olive Garden, they never bring a decent amount of sauce unless you make a special request. That's where the flavor is. Dry pasta is not why I go out to eat. The Dead Lobster needs to improve its food quality to justify its prices.
Dec 5, 2012 2:27PM
avatar
It would be far easier just to point out the obvious and state that they suffer from awful food.
Dec 5, 2012 2:27PM
avatar

My fiance and I attempted to eat at Red Lobster a few weeks ago. They were having the "crapfest" promotion, and seafood sounded good, so we decided to give it a shot.

 

After being told the wait would be 20 minutes, we waited for over an hour. The group directly ahead of us was called, but then decided to eat at the bar. Instead of calling us, the next on the list, that had been waiting for nearly an hour at that point, they called up a different group (that got there long after us) and gave them the table we should have gotten.

 

We were seated (finally, after a complaint to the manager), and given menus, but no "crapfest" promo menu. We asked our server about it, and he said that he'd get one. 15 minutes later (now have been in the resturant for over 1.5hrs), he comes back and informs us that they are completely OUT of all crab. ARE YOU FREAKING KIDDING ME?

 

The worst part of all of this, is that they made NO effort whatsoever to inform customers walking in the door that there is NO CRAB on CRABFEST. They're basically luring customers in with the promo, and then trying to bait-and-switch them once they get them in a chair.

 

I felt really bad for our server, he was really embarrassed. We ended up leaving. As we walked out, the same manager that just seated us was standing near the hostess, looked right at us as we walked out, and didn't even attempt to ask us what was wrong, or why we were leaving so abruptly (she knew darn well why we were leaving, though).

 

To top it all off, we were so upset by this abhorrent service and behavior by this location, that we contaced corporate and complained, which we rarely, if ever, do. My fiance was given some lip service by corporate, and told that they'd get back to us with some way to win back our business, and we never heard another peep from them. I called back a few days later just for principle, and was basically told "tough cookies".

 

 

Quite frankly, I hope this piece of trash chain just spirals down the drain and ceases to exist, maybe then we can get a decent seafood place up here. Absolutely ridiculous.

Dec 5, 2012 2:26PM
avatar

I ate at Red Lobster for many years,  I enjoyed the food for quite a few of those years however the past 5 to 10 years the food quality has declined terriablly  and the price has sky rocketed .  I DO NOT ENJOY RED LOBSTER ANYMORE.  I seldom go in RL anymore.

 

Olive Garden, I have ate there for perhaps 15 years,  the food quality has seemed to hold for the most part,  and the prices are up reasonably.   I still eat at OG perhaps once a month.

 

What is funny.  I was in the motel business for some 35 years,  owned 14 motels, most top franchise which were full setvice motels with restaurants.  I always made money in the room and lounge portions,  however lost millions in the food end.   By owning them absentee ownership, the kitchens read door was larger the front door, I think I fed half the town.   My food cost was about 85% of the gross and the labor cost was about 40%,  so you can see the loss.

 

Nowdays, most restaurants ask for about 20% mininum tips for the waitresses, likely would be more than 25% as most people do not split hairs.   Yes,  25% of the GROSS RECEIPTS,  WOW,  a different world today. 

 

I sduggest restaurants PAY a decent wage,  and add it to the ticket,  and DO AWAY with the tips.   At least that way a customer is seeing what the meal is costing him,  and,   at the same time the waitress receives a decent pay check.

 

NUFF SAID !!!!

Dec 5, 2012 2:25PM
avatar
Olive Garden advertises lunch for $6.95 soup and salad,  You go and it is $7.95. They will not adjust the price even though the commercial was just on in their bar.  The rest of the menu is way overpriced.  Pasta is cheap!
Dec 5, 2012 2:20PM
avatar
I used to work @ Olive Garden years ago when we actually made fresh pasta right in the front of the store for all customers to see. They baked their own bread sticks and made their own salad dressing in store as well. The place was packed and it was not unusual to be on an hour + wait. Then Darden decided to cut costs. Went to dry pasta and stopped making their own bread and salad dressing. Cheap, Cheap, Cheap!!  I remember they even tried to stop giving out the Andes mints for awhile, but after huge backlash they brought those back. The food is now Blahh and usually the service is mediocre at best. People going out want quality, not cut corners to save their bottom line. Darden just recently took ownership of Yard House which is such a shame because it was actually a good restaurant! How long until Darden runs that one into the ground as well?
Dec 5, 2012 2:17PM
avatar
anyone who thinks that Olive Garden food is "Italian" or that Red Lobster is "fresh seafood" are the same folks that think McDonald's "all beef patties" are truly all beef... for "Italian" food, go to a legit "Italian Restaurant" and for seafood, don't go to any restaurant more than 50 miles from the shore line of an ocean- otherwise it's most likely previously frozen or just old... 
avatar
Another thought (sorry, I should have included this in my last post). I live in Maine. There are no Red Lobster resturants anywhere in this state. Why? It's simple, people here know what REAL seafood is supposed to be, and aren't going to pay for overpriced, pre-packaged crap. Olive Garden? Please, I've eaten there a few times. I can go to any supermarket anywhere and get a frozen dinner that's as good if not better than what they sell, and for less money.
Dec 5, 2012 2:14PM
avatar
Sorry it is not the all you can eat. It is the high prices and crappy food. 
Ate at olive garden for the first time in years, bill was outlandish for a family of four, the bread was way to seasoned and not soft, the pasta was microwaved s
o bad the the pasta was stuck to the plates on the sides. They are the McDonalds of Italian restaurants. The rest of the companies are following their lead down to crap. Why is food salted so bad anymore you can barely eat it or seasoned so much to hide their non-taste. Chef Ramsey and other chefs need to speak out on these companies after making crap loads of money and give people a crappy product. Food you buy in even supermarkets is now subpar for the price you pay, everything is made with junk and then seasoned heavily to hide the bad taste. Is this what America has come to?


Dec 5, 2012 2:13PM
avatar
All the comments about food quality and poor service are well taken, but the fact is that these places rely on the middle class having some disposable income to go out to eat. You don't need a Ph.D. in economics or complicated indicators to figure out how the economy is doing - just look at the TGI Friday's parking lot.

Dec 5, 2012 2:12PM
avatar
We used to visit Red Lobster whenever we went out of town. Now they dont have the King Crab Legs so we dont go there anymore.
Dec 5, 2012 2:07PM
avatar

Red Lobster and Olive Garden are crap restaurants for anywhere USA. Find a parking lot with a Walmart, McDonalds, KFC, and you are sure to find a RL and/or a OG.

 

Zero originality, mediocre taste, and yawn inducing atmosphere. BORING!

avatar

When will these companies, and other like JCP learn? Give people what THEY want, not what YOU want to sell.

Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

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.

Trending NOW

What’s this?

MARKET UPDATE

[BRIEFING.COM] The stock market ended the midweek session on a mixed note. Blue chip listings bolstered the Dow Jones Industrial Average (+0.4%) and S&P 500 (+0.3%), while the Russell 2000 (-0.4%) and Nasdaq Composite (-0.02%) underperformed.

Equity indices began the day in the red, but wasted no time regaining their flat lines. Small-cap stocks were not as fortunate as the Russell 2000 spent the day in the red.

Upon returning into positive territory, the key indices were ... More

MSN MONEY'S