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.


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1097Comments
Dec 5, 2012 11:04AM
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We still eat at our local Olive Garden (Tyson's Corner, VA), which is pretty good. A lot of times we do take-home, but still enjoy it either there or at home. Red Lobster is another story. After two times in a row -- months apart -- with practically NO lobster in their lobster dishes, and a huge bill on top of that, they went on our 'never again' list, and it has stayed that way! Service was usually mediocre on top of that. Forget it! As for O.G., the Staff at our local one is pretty good and quite friendly.
Dec 5, 2012 11:04AM
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Food isn't that bad but way overpriced. I they want to survive in this economy quite raising prices, like others have said too high a price and low quality of food.
Dec 5, 2012 11:01AM
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It isn't due to "Superstorm Sandy" nor bad "meal promotions"! People are BROKE these days! It's gonna' get worse before it gets better also!!!
Dec 5, 2012 11:01AM
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We used to go there about every other month but we stopped going to Olive Garden when they started charging for some extra sauce to dip your breadsticks in.  Really? You want me to pay $3.50 for a ladle of alfredo sauce to dip my breadsticks in?  And then when you bring the pasta dish out there's barely enough sauce on it to taste and I have to ask for more.  Forget it.  If all you care about is profit, you drive customers away.  This is what happens when you run a company soley by what the accountants tell you, instead of a full understanding of business as a whole.  You see it time and time again where a successful company get's soley focused on maximizing profit and they company is out of business in a couple years.  When will business leaders finally get this?

 

 

Dec 5, 2012 11:00AM
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We eat out at Olive Garden occasionally.  The one in my town has a very friendly wait staff and good service.  I'm not a fan of Darden's other chains (Longhorn is way too salty and our Red Lobster smells like a dirty mop!)  The dropping of all you can eat services isn't a concern to my family, as that's not something we would order anyway.  With the weight problems that many American's face, "All you can eat" should be made illegal!
Dec 5, 2012 10:59AM
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Perhaps if Olive Garden didn't make you wait an hour or more to be seated, they'd have more families deciding to eat there.  I understand the idea of forced waiting, which gets customers to sit in the lounge and order drinks - resulting in higher revenue for the restaurant - but when forced waiting becomes a deterrent for families who'd really like to just get seated and enjoy their meals, the customer base shrinks.  I'd rather get seated quickly at the delicious, inexpensive sushi restaurant right across the street from Olive Garden. 
Dec 5, 2012 10:59AM
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Eliminating the soup and salad option from the Red Lobster menu and replacing it with the bread bowl was a bad idea.  Also, the advertized dishes and the actual dishes served do not resmeble each other in terms of quantity.
Dec 5, 2012 10:57AM
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with lobsters running at 3 to 4 dollars a pound (fresh) why is it 32.99 in the restaurant, way over priced. four of us ate in winchester va. 175.00 no more
Dec 5, 2012 10:56AM
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Don't forget the salt content in the food at either place will give you a cardiac!! All the cholesterol, not a healthy place to eat excessively.
Dec 5, 2012 10:54AM
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Here is my take. Recently we attempted to take our family to a red lobster while on a weekend trip. Red lobster is considered a splurge for us and we make more than the medium average income. We have a large family and so when we go in, we get seated dead last. The smaller groups that come in after us all get seated first and then when there is no one left to seat BUT us we get seated. We got so mad that we walked out as they called our name to be seated. It should be first come, first serve. Anyone ever hear of pushing tables together? That whole system of 6 or more groups and seating us last is the stupidest thing I ever heard because guess what, they lost out on over $100 from my family alone. Other restaurants do this, so Red Lobster is not alone. I am also very picky where I choose to go eat, and I don't want to see an unprofessional staff. I would start with management of the chains and work my way down. If you change the prices on the menu, the quality has to go. DON'T change the quality. I go to these places for the good food and dining atmosphere. If I want a cheaper meal I will take my family to McD's for the dollar menu. Change the way it is being operated. If the food is good, people will pay, but if the service is bad people stay away. Tell yourself that over and over again.
Dec 5, 2012 10:53AM
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I too won't go back to Olive Garden. I paid 50 dollars for a 2 plates of Seafood Alfredo, which cost almost nothing to produce, and the amount of shrimp was insulting. 

Based on my dollar to value experience, Olive Garden Fails.


Dec 5, 2012 10:53AM
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I only go to Olive Garden for salad and breadsticks; nothing else appeals to me especially at the prices offered.  My step-son recently quit his managerial position at an OG in FL because of his disdain for upper management who he thinks make poor decisions regarding concept, menus and employee quality.

 

Forty years ago Red Lobster was the place to go for a family seafood dinner.  Things have really changed.  My last visit caused me to vow not to return - unnoteworthy seafood at Ritz prices.

 

Had lunch on Monday at Longhorn.  Was good but again overpriced.  I had a run- of -the -mill salad with a small chunk of salmon on top for $10.99 and an iced tea for $2.49 which seems a lot for a lite lunch.

Dec 5, 2012 10:52AM
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Perfect example of bad food, no business. Care about food quality and they will come.
Dec 5, 2012 10:50AM
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The name "Red Lobster" signifies a seafood restaurant. Not a 75% seafood restaurant, nor one that only has limited seafood items in that 75%. How about clams and other types of shellfish they never seem to offer? the only way to get clams in in some kind of feast thingee. Let me mix and match what I want on a plate, eh? Also give me a seniors option of a small plate versus the large plates all of these places seemed to think are what the dining public wants all of the time.  I really don't want a doggie bag to take home when I can't eat it all. Day old seafood is not that appealing!

   

Dec 5, 2012 10:50AM
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I stopped going to OG when they had mandatory minimum tips added to your bill I should have the option of HELL NO TIP for you bitch. When I have rotten service... There should be no guarantee of a tip or how much...

Red Lobster I have not eatten ther ein 40 years... No desire. Did not like it then.

Dec 5, 2012 10:48AM
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High prices and bland food that could do it I went to Red Lobster and for three people about 60.00 for lunch ! Not again OLive Garden Chef boride has better taste !
Dec 5, 2012 10:48AM
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We used to go to Long Horn's for their "Liver and Onions" for years. When Darden took over they quit serving them. They lost us as customers. We know that we are only two customers, but, when they wonder why they are failing they need to know change just for the sake of change is not always the best thing to do. Why screw with something that worked for years? We have also quit Red Lobster, and Olive Garden due to their same doings.
Dec 5, 2012 10:47AM
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Pretty much agree with all of the comments.  Would say good things about Long Horn with the exception that the prices there have crept up as well.  Alchholic drinks way over priced.  Good service though!
Dec 5, 2012 10:46AM
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The food is terrible in both restaurants. It seems like they are serving yesterday's food, stale, tastless, unappealing. But they want top dollar. The service is terrible. Full of young, distracted people that do not know what customer service is. All they can do is keep coming over and asking "if everything is alright" without remedying anything that you might say. Oh, and the Happy Birthday singing has got to stop! I will never eat mid-price, I will go low, Burger King, Wendy's or high, in my area. I am a much better cook that these places ever hope to be.
Dec 5, 2012 10:45AM
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The economy sucks.  My pay doesn't increase, but prices everywhere do.  And they can't figure out why we don't patronize restaurants. It is all we can do to afford to eat at home.  Hello?
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