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 5, 2012 12:17AM
After reading some of the comments below, I actually agree with many of the responses. The last two times I ate at Olive Garden in different locations is that the resaurant just smelled and was not very clean. Also, the food was so so, service wasn't great and it was just not a good experience. Like so many large chains these days, I find it very hard to spend that much money on something that is not good to eat and add poor service. I think the whole industry needs a over haul. Yes, I now prefer the very few ma and pops places to eat. Corporate America at it best?? Let's get the people back in the kitchen that know how to cook and leave the business people out of it!
Dec 5, 2012 12:11AM
Red Lobster was good in the early 80's but has been on a downhill slide since the late 90's. Olive Garden is PURE CRAP, and they have a staff off complete idiots. Start supporting the local restaurants in you area. You will get better food, a better value, and better service.
Dec 5, 2012 12:11AM

Ate at Red Lobster on Gilbert in Chandler Az on vacation special salad with crab nearly poisoned

my wife! 

Dec 5, 2012 12:10AM
Also, all of you  people that eat at a corporate chain restaurant make me sick.
Dec 5, 2012 12:08AM

Biggest problem for me in all restaurants is the drink prices. If any of these places decided to run a $5 any alcoholic beverage special... I bet tons of people would go.  Or a $1 non-alcoholic beverage with an entree.  Nowadays, I order a water and put in a propel packet.  The propel ones are colorless so they don't even know I used one...

Dec 5, 2012 12:08AM
I wouldnt take a **** in an olive garden

Dec 5, 2012 12:05AM
Did anyone notice the snarky, sarcastic remark by the writer of this article? Read the last sentence of Mr. Notte(heads) blab.
Dec 5, 2012 12:01AM

Went to Macaroni grill and the food was so much better than Olive Garden,just my opinion.........


Red Lobster is the Wal-Mart of seafood!!!!
Dec 4, 2012 11:56PM

"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"


And they wonder why they lost sales?  Couldn't be the change in menu, eh?  Nah!  Never that.  Let's change the menu for the hell of it.  Doesn't work, but it's not their fault.  Another dumb Netflix like move, but not their fault...Can you spell Red Lobster and Olive Garden? B.A.N.K.R.U.P.T.  Never, ever change a winner just for the hell of it.

Dec 4, 2012 11:55PM
Fridays also sucks. The last time I went there, I got the bill and on the bottom was a precalculated 25% tip!!  People, time to tip as service warrants. My poor nephew worked at OG and had to quit as he wasn't getting tips from the 'all you can eat' cheap charlies.
Dec 4, 2012 11:53PM
They pay their wait-staff $2.28 per hour but charge a Small FORTUNE for a SMALL Serving.......  WAIT-STAFF pay is a sin in this entire industry due to Minimum Wage Law Exceptions compliments, as usual, of our corruption-prone BOUGHT & PAID-FOR CONGRESS.
Dec 4, 2012 11:49PM
Overprice, lower the prices and more people will go there.
Dec 4, 2012 11:48PM
I used to love Olive Garden's spaghetti and meatballs. They changed(lower quality ingredients) their sauce and increased their price. We go to Carraba's now.  My favorite dish at Chilis used to be the Tomato Basil Chicken Pasta. I guess that got too expensive to make. They took it off the menu. You can always tell when a chain starts to go downhill. They start to introduce A LOT of fried items and you smell like a vat of Canola oil when you leave. Here's the bill. Now go home and wash your clothes. Awesome!  I still believe Long Horn has a better steak than Outback but Outback's salmon is actually really good. At least the one near us is.
Dec 4, 2012 11:45PM
Olive Garden needs to call Chef Ramsey for help....Red Lobseter is OK but was much better years ago....Longhorn 's Outlaw Ribeye is fantastic!  Prices are too high overall and a rewards program would help.
Dec 4, 2012 11:44PM
Maybe someone besides me noticed the portion sizes on their meals getting smaller. (Red Mobster). Meanwhile, RL buys their 'shrimp' (which are inland farmed prawns) cheaply from Asia. Suckers.
Went to Olive Garden, was served Costco type pre-grilled chicken breasts, obviously prepared "country style" fried potatoes (deep fried, burnt).. salty (canned) Marsala sauce $17.00 never again 
Dec 4, 2012 11:39PM
The PRICE has it.  Too costly, not anything to write home about.
Dec 4, 2012 11:37PM
What is upsetting to me is that some of my let's stay more popular restaurants got rid of my favorite meals plus jacked up the prices at the same time.  It happened at the Olive Garden which is why I don't go there anymore and Claim Jumpers which got rid of the three items I would order the most.  Couple other restaurants that used to be famous for pot pies which no longer have many vegetables inside.  It's pretty much a crust pie.  Then there are some restaurants that play the music so loud you have to yell to talk to whoever you're eating with.  I'm not there to go dancing or singing.  I love it when management says we have to play it this loud.  Yeah, and I have to leave and find another place to eat.
Dec 4, 2012 11:37PM
I have been to Red Lobster a few times in the last year and got a full dinner with salad, rolls, soup, and dessert for $15! if people think that is alot of money then there is a problem! O. Garden had a $9.95 deal that includes pasta, salad, and breadsticks! That is a good price as well!
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