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 4, 2012 8:46PM
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Many do not realize that Sales tax on any restaurant is as high as 12.5%. Do the math on a $20, 30 ,50 Dollar Bill, plus tip? Is it really worth eating out? When food at a grocery store has no tax you might as well stand out side your restaurant with a bat and chase a large % of the customers away, there needs to be a happy medium. The philosophy is people have to eat, but not with a 12.5% tax added. Lower this tax and it would stimulate this sector of business with move revenue, more jobs, greater profit, which means more taxes. Government is taking their share up front whether the restaurant is profitable or not, and at the cost of who? Less tax means Better Savings and better Value, that is what today's customer is looking for and always have.
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your getting the "All you can eat" and what that really means it doesn't mean to go into the restaraunt and eat all of their food it means to eat until you are full or can't eat anymore not until you get fatter or sick from food. I think its the word "All" that makes people say "Oh I guess that means I can eat all the food you have in your restaraunt" Thats not true and I am mentioning this in my book when it comes out about eating all you can until you are full not until you get sick Ok. I can only eat one plate of food. maybe a big guy can eat three plates of food but not ten or fifteen plates that's being a hog and not letting other people eat what they can. Now do you understand what "All you can eat" Means.
Dec 4, 2012 8:45PM
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Went to my Olive Garden a few months ago with a friend and ordered one of my old favorites: the Chicken Parmesan with spaghetti. I wasn't crazy about the chicken. I remember it having more flavor in the past. I almost exclusively support local restaurants now. However, I've always been a fan of the cream sodas from Olive Garden and the salad. Besides that, I'm not keen on going back. And again, the menu is getting pricier. Not much motivation to go back!
Dec 4, 2012 8:44PM
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Only liked the never-ending shrimp and pasta bowls.  Never went there when they didn't offer those because of the high prices for the regular menu items.
Dec 4, 2012 8:43PM
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I would rather patronize restaurants that are not franchised.  Better service and food !  Like to keep the little guy in business and  keep people in our area employed. 
Dec 4, 2012 8:41PM
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The Recession Continues,

 

Personally speaking, these restaurant chains have an awful long wait if they want my business. Unless I am mistaken, we are still crawling out of a deep recession and most people simply do not have the discretionary funds to blow on a couple of overpriced meals at some themed 'cookie cutter' chain eatery. I have not dined out anywhere in at least six months and I'm doing just fine preparing what I want and when I want right at home for a fraction of the price of a dinner out. Lots of people are simply wising up to the real costs of going out and paying rediculous prices for generally indifferent service and mediocre food...It's not worth it.

 

Peace to all ~

 

Dec 4, 2012 8:41PM
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What's happening to these over priced corporate chains is the Chinese all you can eat buffet with in house hibachi chef's. The food is good with unlimited all you can eat snowcrab,shrimp and a variety of items cooked right in front of you for less than 15.00 in most cases! These Chinese restaurants make Darden group look like a pack of thieves!
Dec 4, 2012 8:39PM
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Red Lobster is like the McDonals of seafood joints. The shrimp is all the same mushy and tasteless farm raised crap. Olive Garden always screws up your order.
Dec 4, 2012 8:38PM
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These chains basically suck, charging too much for average quality food.  I eat out at local businesses whenever possible.
Dec 4, 2012 8:34PM
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I like Red Lobster and Olive Garden and the others mentioned, but I think the problem is they just serve up too much food.  Last time I was at Red Lobster I wanted to order the items advertised on TV but had to settle for a plain entree meal because there was just too much food otherwise.  They will help their bottom line and my bottom if they dramatically slice their menus.  Now maybe, one a week or once a month, limitless, but otherwise, just cool it.
Dec 4, 2012 8:28PM
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The one and only time my wife and I went to Olive Garden was for our 25th anniversary. The service was poor, the food was so bad in flavor and the portions so small that when we left their establishment we went to a fast food resturant across the street to get something satisfy our hunger.  Oh the one thing that was large was the check!
Dec 4, 2012 8:28PM
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Why are all of you fools complaining about portions and prices and not cooking at home??????????

Have any of you cheap mother scrubbers ever been to a REAL seafood restaurant? Come on, we're talking about the Red Lobster here. Quit your complaining and read a damn cook book.

Dec 4, 2012 8:26PM
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Not that many fresh seafood restaurants in Kentucky.

Red Lobster makes my wife sick every time.

I'll near return to Olive Garden in Clarksville, TN. It's too long of a story to explain here.

I can grill a steak that will make you want to smack the chief at LongHorn.

We've learn it's better, healthier, cheaper and can be fun to cook at home.

 

Dec 4, 2012 8:25PM
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Maybe people didn't like the comments that the honchos at Olive Garden and Red Lobster made about how they would never be able to give their employees Obamamcare without going broke. If they understood how it will work, they would have realised that, yes they COULD provide it without going broke. I myself have not been to either restaurant since they made those foolish statements. Most of their patrons are probably working people who think the new healthcare plan will be good for the country, especially food service workers. I really hate to go into a restaurant and have my server and busboy sniffling all over the place because they have no sick days, and no health care anyway. Both Red Lobster and Olive Garden are pretty pricey compared to the many great mom and pop places near where I live. I also prefer to spend money at locally owned places with no corporate structure.
Dec 4, 2012 8:25PM
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Nobody wants to eat bad food.  Both Red Lobster and Olive Garden were excellent for the type of foods they served, and also offered a good price-point.  The Olive Garden has become bland and the menu has shrunken in the Sugar Land, TX area.  Red Lobster in this area has become AWFUL!!!  I swear RL bought some fish sticks from a convenience store and served them to us!  LITERALLY!  We refused to eat that SWILL, told the manager why,and we know he knew, then we left.  I will tell everyone I know not to patronize a dump that would serve that crap for free let alone charge for it.
Dec 4, 2012 8:21PM
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went to red lobster ordered the prime rib,the prime rib was cut so thin you could hold it up and see the light through it,way over priced will not be back.
Dec 4, 2012 8:20PM
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My wife and I used to go to both Olive Garden & Red Lobster. Now, we go to neither for the same reasons many have said. Food quality has dropped off and prices have climbed. Menus have been gutted and service is lousy most of the time. Why would anyone wait 30 minutes to an hour at both places now is beyond me. The food is tasteless and overpriced. I am fortunate that we live close enough to a Spaghetti Warehouse to feed my pasta craving. Not only that, the food is better and the prices are reasonable.

 

Dec 4, 2012 8:18PM
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I never eat at Denny's, nor Olive Garden. Due to customer service, management and most in portent the food is not that good.
Dec 4, 2012 8:17PM
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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..

Dec 4, 2012 8:16PM
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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.

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