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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This food and out lifestyle is making America FAT, spend more time on making healthy lifestyle changes and exercising than you do on Facebook and playing with your phone...
Get off you butt America and do something for yourself, Obamacare sure as hell can't help you either..it only will make you look worse in the long run..
We're not going to either place as much as we used to because the economy is still in the toilet and I'm running out of hope and change.
Again..another rpoblem with this counrty and our obesity problem, you can't or should not eat bottomless salads, breadsticks, or all you can eat anything...
People must change their habits put as much energy in their lifestyle changes, excercise, eating etc. as they do with their "disposable time" on Facebook and other social media sources. if you don't take care of yourself no one will, obviously Obamacare is just going to make a bad situation worse.
Get off your butt America and do something..skip a meal it won't kill you..
Their seafood was overcooked, as though sitting at the ready, then reheated, and service was mediocre. Tried the shrimp all you can eat special once, and additional orders were very small, and took forever to get, as though it was an attempt to wear you down by making you wait, and wait, and wait. before the 6additional shrimp were brought out. If they don't want to provide additional orders, then don't offer it.
. Olive Garden was and is different. Don't know why it should not be doing well. Food was great, prices moderate, service excellent. Recommended by all means.
I live in New England so Red Lobster is the LAST place I would ever go for seafood. There are tons of small independently owned places here that are head and shoulders above Red Lobster.
As for Olive Garden. Meh. Anything my Italian grandmother ever made would leave OG in the dust.
Restaurants lose their customers because of their staff. The staff treats customers as if they are in an exclusive nightclub. If you are young, thin, and physically attractive--they put you up front and treat you well. If you are old, overweight, and plain--they stick you in the back and ignore you, treating you so badly that you don't come back. Yes, this happened to me at an Olive Garden--Texas Family Roadhouse, also. The same server was really nice to the young people and turned around and was nasty to me.
Now, if you think that thin, pretty, young people eat out more frequently--maybe you are right--but they also eat less. Bearing in mind that I am older and more financially stable, it might be a better idea to cater to the person buying the 18-ounce steak and potato than the teeny bowl of french onion soup as an entree.
It's the same thing with the clothing stores--one gets tired of the skinny people walking up and asking abrasively "can I help you?" when what they mean is "what are you doing in this store you fat, ugly pig." Well, what I was doing there was looking for a party dress for my daughter. She wound up buying it online for a fraction of what we might have paid in that store, and would have paid, had I been treated better.
You can whine all you want about the ugly, fat, old people who don't deserve to breathe your air, but the point is that I don't spend my money on gyms, expensive organic food, makeup and clothing . . . and so I have quite a good bit more money than your average 20-something. You want to go out of business, then get rid of your all-you-can eat shrimp and unlimited breadsticks to appeal to the young people (who are frequently out of work or digital-device poor). Go ahead--I can get my clothes online and I can get my food at Boston Market. Enjoy going out of business.
The results of bigotry are often more serious for the bigoted than they think.
Wow! I always read the comments after the article. I wonder if Darden Management reads the comments. I'm not as bad as the rest of you guys.
I've been going to Red Lobster for a long time. The first one I went to was in Roanoke VA, maybe it was 1984. Just recently Darden opened a Long Horn in the area so we have gone there a couple of times. I thought the Filet Mignon was smallish, but they are shrinking at OutBack too. Someone just gave us a couple of Gift cards for any Darden Restaurant and I think we are going to Long Horn again. Besides that we have coupon for a free appetizer at Long Horn so we gotta go there.
I too have seen some changes at Red Lobster that I didn't like and their prices have been going up. But Red Lobster does have those delicious biscuits. And actually they should call it Red Crawfish, but Crawfish taste good. The lobster bisque was a bit thin last time.
I've never gone to Olive Garden and doubt I ever will. Italian food just doesn't seem taste that great from a canned menu. I like little stand alone Italian joints. So. Phila is loaded with them. Nearby in Jersey we have a small restaurant nearby Named Tut Si Bella in Audubon, NJ and what great veal they have. And great appetizers too. Lots of activity with people coming and going since they sell pizza and hoagies for take out or delivery at a counter away from the dining area but in view. They have a menu but are very flexible so I pretty much order my own meal the way I want it. BYOB is the way to go there. Bring your own bottle of wine, get wired and it is a significant savings. All I have to do at Tut Si Bella is leave a great tip and they fall all over me next time and now I know all their names and meet the owners who work there.
The realty is the economy sucks and it's only gonna get worse. Obozo and Bernake are printing money hand over fist. Inflation is gonna eat us alive. Obozo and Congress may get a raise but I bet you don't. And they are gonna piss all over your Social Security. The big restaurants are gonna get hurt and the little corner eateries are gonna survive and maybe thrive. Quality food at a decent price brings them in. BYOB cuts the cost. Eat good and spend less!
If things get that tough I'm good with a Hoagie and a Coke.
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