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 6:54PM
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I agree with the others on here. Prices at RL and OG are getting to high for the food quality and selection. RL still has some legs to stand on but OG might be worried, alot of other Italian chain restaurants out there that are better in quality, selection, and price. Simply put sign of the times, not enough people can afford to eat at these places or eat out at all for that matter and these restaurants have shifted away from what once made them great and special. Of Dardens other fairs LH is ok but still pricey, and I've never been to YH so I can't comment there. Hate to see RL go (been awhile since I was there last) cause my favorite is still the shrimp scampi but unless they figure it out we may just end up having to say good bye to them both.

I think its time

Dec 4, 2012 6:53PM
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has anyone found lobster at the red lobster?
Dec 4, 2012 6:53PM
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My wife found a rock in her salad and I thought they should know. We were not wanting any free dessert or anything and the manager called me a liar. Have not been in one since and won't as long as I live.

Dec 4, 2012 6:51PM
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Recently went to the recently opened Olive Garden, no way I can go back. EVERYTHING was excessively salty. Not just the bread sticks, salad, or pasta but EVERYTHING.  Probably figured the customer would buy more beer and wine by doing so but instead lost me as a customer.
Dec 4, 2012 6:51PM
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I prefer to spend my $20 at the all you can eat "Sushi Bar". Taste better and better for you!
Dec 4, 2012 6:50PM
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Parent companies have seem to have lost part of their business model...it's that the repeat customers keep them in business.  Maybe the country needs to go back to mom and  pop establishments on a large scale.
Dec 4, 2012 6:49PM
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Last time we went to the Olive Garden was a disaster and we said we'd not go again - high priced, advertisement didn't match menu, and the amounts were small in comparison to the price.  The last time we went to a Red Lobster my credit card was compromised and then sold.  After the couple went shopping in CA on us because of a waitress, we decided to stop allowing ANY restaurant to take our cards out of sight.  It's cash or pay at a register.

There are too many restaurants with better prices, 2 for $20 deals, great food and service.  We won't patronize either the Olive Garden or Red Lobster (especially if they take away the all you can eat shrimp-husband really likes that).

Dec 4, 2012 6:48PM
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First, Red Lobster need make better taste food. My last meal was bad, real bad! Second, it should reduce restaurant size if they want to focus on serving higher income customers and level up the food offering. If you still want average income Joe come for seafood, you better provide value. For Olive Garden, how much it cost you to feed us endless pasta with pasta sauce! Keep in mind, customers are seeking value for Olive Garden. 
Dec 4, 2012 6:48PM
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They can point their finger all they want, but the fact is their portions have shrunk, their food is "commercial chain food" which just doesn't hold up to privately owned places, and they've jacked their prices up to the point that I think they have gotten ridiculous.  I can eat at a top notch privately owned steak house or seafood place or Italian restaurant where I'm not just a number, my business seems to actually be appreciated, and the bill is the same or less!  And to tell an Italian (me) that Olive Garden is good is like telling a Mexican the best place to eat is Taco Bell....

Dec 4, 2012 6:47PM
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I do not work with this chain, but at the chain I work for the managers complain every tidbit of food and drink must be accounted for or they will not receive their bonuses. So they must cheat the customer to make the numbers the corporations requires.
Dec 4, 2012 6:46PM
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My wife LOVED the seafood portofino, and Olive Garden dropped it.  I doubt we will be going back unless they put it back on the menu.
Dec 4, 2012 6:45PM
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With regards to Olive Garden, I have noticed that their Plates are always too hot, but their food is not that hot, which tells me that they microwave their plates. I could microwave my own plate at home.

Dec 4, 2012 6:43PM
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Olive Garden is terrible have not been there in years.I cannot believe they are still in business
Dec 4, 2012 6:42PM
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This article is pathetic... like it's some kind of damned mystery why these two restaurant chains are in the toilet?? Really?? IT IS NO MYSTERY AT ALL!!! They are overpriced and the food is barely acceptable. PERIOD. Who cares about "all you can eat" when the food isn't something you'd wanna eat in the first place? The Snow Crab is very expensive and it's like stringy RUBBER! and that's no exaggeration. 25 years ago you could go to Red Lobster and get FRESH fish dinners for two people for about $35. I realize that you ain't gonna get more than two classes of water and a cracker for that kind of money today but holy cow! WHAT DOES IT MATTER WHAT THE FOOD COSTS WHEN IT IS CONSISTENTLY TERRIBLE?? You can abuse customers with your prices IF AND ONLY IF you got something special to offer but Red Lobster and Olive Garden do NOT deserve that privilege. Darden management needs to read these posts and then they need to do something about it.. Just listen to these people- their complaints are consistently repeated over and over... All I can say is I'm glad I don't own stock in their company. If they don't do something, they might as well pull the handle on the flusher...
Dec 4, 2012 6:42PM
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I have never been in Red Lobster, I've been in Olive Garden once.
Dec 4, 2012 6:41PM
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Just plan GREED by the company. They want us to pay more and get less. Less good food and less good service.
Dec 4, 2012 6:41PM
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Red Lobster's food portions are way too small for the price. Their Lobster tails are too small for that price. You cannot mix and match, and their salad dishes are stingy. Their Bread is very high in Total Fat, and high in cholesterol and sodium. Their Selections of Food lack any motivation, and they even took Oysters off the Menu, and that is why I see their food diferently. And to make matters worse, when I complain to the Manager or the Company about how frozen the salad, etc., I would get $5.00 Coupons in the Mail. That is an insult! I'll never go back there.
Dec 4, 2012 6:39PM
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I won't eat at either one of these chain restaurants, since learning that the parent company is laying people off, because they claim they can't afford to pay for health insurance. what a crock. these executives are living like kings, while their service staff and cooks get the shaft. I think if they continue to lose money, it'll be more because of this, than the food.
Dec 4, 2012 6:39PM
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I don't know. Everytime I try to go to Olive Garden for a nice Friday or Saturday evening meal, I can't get in the place because the line is so long. Best to have a reservation.
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