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 7:48PM
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Olive Garden removed a number of my family's favorite dishes.  Red Lobster did the same pretty much the same thing.  And then to rub in some salt, the service quality has gone down considerably. Breadsticks aren't brought out until the meal in a lot of cases; the meal is delivered within 2 minutes of the salad/appetizers; used plates aren't cleared to make room for entrees; glasses aren't refilled unless you can flag down your server; etc.
Dec 4, 2012 7:47PM
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I've eaten at Red Lobster once, got food poisoning. I've never eaten at Olive Garden and don't intend to.













Olive Garden
Dec 4, 2012 7:47PM
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I don't mind the food at Olive Garden Except the Salt in there soups, this is why they have salt shakers, drop the salt.
Dec 4, 2012 7:46PM
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For years I've seen the Red Lobster commercials boasting close ups of a boat of sizzling-butter bubbling shrimp and/or lobster... but, to a New Englander, or anyone who knows how such seafood should be prepared, that's like bragging about turning seafood into inedible rubber!! The only thing that might be tasty [and what they are really selling in the commercials] is the butter/fat and seasonings. Those images, as they well know in their marketing departments, appeals - not to the quality of the food - but to the fat and salt addiction centers of our brains.  It's about the image and convincing people to visit; it's definitely not about the quality of the food, or the service [which is often rude and pushy].
Dec 4, 2012 7:45PM
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anytime I think of going there, I know I will have to wait atleast 45 minutes to sit, so why bother.

Dec 4, 2012 7:45PM
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LOL!! I hope red lobster bites the dust. That place stinks. literally. Throwing those LIVE lobsters in boiling water is disgusting. Let alone crabs,scallops and anything else they can scrounge out of the water. That place deserves everything it gets.Tacky joint!

Dec 4, 2012 7:42PM
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Gas prices up....eating out down....next taxes up....eating out down more....
Dec 4, 2012 7:41PM
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20 years ago I worked at OG for 3 years, we were to push appitizers, desserts, and bottles of wine to make the profit. and yes all the pasta and chicken and other stuff were pre-weighed put in plastic and cooled., then dropped in hot water and added to sauce that was in the skillets. How eles are you going to do sit down fast food?
  And yes prices have risen in the past year several times in all restaurants.
Dec 4, 2012 7:38PM
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Karma, 7 years ago Darden restaurants, made my family's restaurant go out of business, because they wanted to build an olive garden were our restaurant was. being the mom and pop that we were we could not fight a large company like that. i kinda hope they go out of business too.
Dec 4, 2012 7:38PM
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How did paying 25% for a every day tip even ever come around, Good tips for good service and vice versa...I tip for service and the experience, the better the experience the bigger the tip...deliver plates to the wrong guests... forget salads and side dishes... and it's easy to forget to tip well... as for Red Lobster I agree with others pricey bad food,,, Olive Garden has a limited and just OK menu... and there are just to many places that are better salad bread sticks or not...
Dec 4, 2012 7:37PM
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I’ve always equated Red Lobster with a fancy nice out for some ho and her future babies daddy, therefore have never been tempted to go there.

 

Olive garden is not Italian fare.   They are simply a poor version of Italian.  I’ve eaten there, but the last time the pasta was cold and as everyone knows when a white sauce gets cold it is awful. 

 

Don’t have a Longhorn so not sure how that food is, but I don’t give restaurants 2nd chances.  If they are bad, I never return and it seems I am not alone in this view looking at their numbers. 

 

Dec 4, 2012 7:36PM
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These places are in trouble for many reasons. 

First, the min. wage continues to slaughter chains such as these. The effects of min wage cause the business to reduce staff which results in service that will only continue to get worse. How many of you complain that service always stinks at your local restaurant. No offense to many restaurant workers, Some employees are not worth min wage.

Second, the price of food is exploding!! In 10 years, the price of ground beef has increase over 100%, same with chicken breast. up as much as 50% in ten years. all of these rates are a result in the rising prices in gas, labor and taxes.

So, I would wager that most smaller chains that are closing their doors (Lone Star) would have told you, for them to stay open, you will have to pay $12 for a specialty salad, the consumer would choose to not order that salad. 

The moral of this story is, most restaurant are in serious trouble. 

Maybe we will see the movie that starred Sylvester Stallone that Taco Bell was the only restaurant left.
Dec 4, 2012 7:36PM
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You need to go on "UNDER COVER BOSS", so you can witness firsthand what the problems are!!?? Only the will YOU be able to get a feel for what the public sees and already knows!  Food for thought!
Dec 4, 2012 7:35PM
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Do they really serve boiled bag food ?
Dec 4, 2012 7:33PM
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Restaurants always make the same mistake, when the price of food goes up, they cut the quality or quantity (or both). People will put up with a rise in prices, but they will not put up with the restaurant depriving them of the only reason they used to go there in the first place. Everyone knows that prices go up, they don't like it, but they understand it. No one wants a lousy meal no matter how cheap it is. Even at McDonalds hamburgers were a dime a few years back, now you have to get one on the special menu if you want to only spend a dollar, but the place is still crowded.  
Dec 4, 2012 7:33PM
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red lobster captains feast your making me hungry
Dec 4, 2012 7:33PM
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We quit going to Olive Garden used to be a couple of times a month at least Since they decided to experiment with employee benefits or take them away we stopped going CEO need to loose millions of there benefits and wages before someone looses health care or a full time job, thats part of whats wrong with this country IT NEEDS FIXED
Dec 4, 2012 7:32PM
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red lobster is without a doubt terrible!
Dec 4, 2012 7:31PM
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Last time we went to Red Lobster the service was terrible, never got biscuits even through we asked,

lemon I asked for came after they took my plate away, and the Lobsterita is smaller but still $10. Potato hard and cold. We won't go back. Olive Garden is always an hour or more wait, and it's not worth that.  

Dec 4, 2012 7:31PM
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I'll boycott Darden Restaurants until they pay their employees livable wages and provide insurance.  Shame on them!

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