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
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.
Chain restaurants are mostly failing in food and especially service!
Go to "most" local restaurants for a great meal, like-home/feel-good hospitality and often, better service!
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......
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.
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 !!!!
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
Copyright © 2013 Microsoft. All rights reserved.
Analysts estimate the impending royal birth will bring a $400 million boost to the UK's struggling economy.
- Farewell, telegrams: The last one is coming soon
- Morning coffee just killed your creativity
- Western wildfires raise the question of who pays
- 'The Wolf of Wall Street' is set to prowl again
- What vintage aircraft fly on: Donations, enthusiasm
- Obamacare surprise: Young people want coverage
- Urban Outfitters pulls drug-themed gear
- Donald Trump rakes in millions selling name to world
- EA's Simpsons game triggers gun fans' ire
More Market News
Plus, after much ado, Softbank is oh-so-close to acquiring Sprint.