What Red Lobster and Olive Garden Need Even More Than Fresh Menus

A Red Lobster seafood casual dining chain restaurant.

Diners want more than Cheddar Bay biscuits these days, and no one knows this better than Red Lobster parent Darden Restaurants (DRI).

The casual dining juggernaut behind Red Lobster, Olive Garden, and several smaller chains has been posting uninspiring financial results lately. We’ll get another fresh snapshot when it reports quarterly results in two weeks.

The last time out was a disaster. Back in September, Darden served up lower-than-expected profitability numbers as business fizzled out at its two marquee concepts. Same-restaurant sales — an important metric for the industry as it measures how well the average eatery is holding up — fell 4 percent at Olive Garden and 5 percent at Red Lobster. Darden’s other restaurants are faring better for the most part, but it’s not as if LongHorn Steakhouse, Bahama Breeze, and Capital Grille can move the needle here. Olive Garden and Red Lobster combine to account for 71 percent of Darden’s business.

Olive Garden is trying to liven things up by introducing a burger into its menu this month. Red Lobster may want to see what it can do to appeal to a broader audience, too.

Have a Burger with Your Unlimited Breadsticks

Olive Garden’s Italiano Burger is rolling out across the chain this week. It’s a hamburger, dolled up with prosciutto, mozzarella cheese, arugula, and marinated tomatoes. The buns are dressed up with a garlic aioli spread. Parmesan garlic fries come on the side.

It’s clearly Olive Garden’s attempt to put an Italian spin on the traditional burger, but naturally there’s no reason why you can’t strip the sandwich of the Italian garnishes and just order your burger plain.

Olive Garden is also introducing a sausage and bell pepper sandwich, but it’s a safe bet that it’s the Italiano Burger that’s going to be turning heads because it helps defuse the “veto factor” that has likely held Olive Garden’s performance back in the past. That’s how the restaurant industry thinks of the problem of having just one person in a group who won’t be able to find anything on your menu he wants. If someone in your dining party just isn’t in the mood for Italian, it’s hard for Olive Garden to win your business that night.

“I’m just not feeling Italian right now,” your friend might say.

“Well, you can always have a burger,” you counter. “It even comes with fries.” Veto problem, sorted.

Cracking Red Lobster’s Shell

Red Lobster may carry an even bigger “veto factor” burden given the nature of seafood and finicky diners, but it won’t have to follow Olive Garden to Burger-ville. It’s already there.

Red Lobster already offers a traditional wood-grilled burger. In fact, it offers plenty of landlubber choices including steaks, chicken sandwiches, and chicken-topped pastas. It’s problem is getting people through its doors to try them.

Red Lobster overhauled its menu late last year, adding to its offerings items like pork chops, parmesan-crusted chicken served over corkscrew pasta, and even roasted veggie skewers. Unfortunately it’s not working. Red Lobster performed even worse than Olive Garden during the summer quarter. It apparently needs more than a broader menu. At the very least, Red Lobster could be doing a better job of letting potential diners know that it’s about more than just the signature lobster.

“Sea Food Differently,” is the chain’s current slogan. A few years ago it used to be “Red Lobster for the seafood lover in you.” One would think that with the word “lobster” in your name, you wouldn’t have to play up the seafood quite so hard in your marketing, but that hasn’t stopped the chain from pumping its maritime theme and aggressively promoting its endless shrimp campaigns.

This strategy could be a mistake, but it also isn’t helping that we’re in the worst of times for the table service dining industry. Industry tracker NPD Group has been reporting negative sales for the casual dining market dating all the way back to 2008. The streak ended with a merely flat showing this summer, but it’s still a bad moment to be a weak player in a weak eatery segment. It’s time to work on the marketing.

  • Percentage of stores closed: 60.1%
    Total stores (2011): 739
    Stores closed: 1,114
    2011 sales: $115.3 million
    Percentage decline in sales: 60.4%

    Blimpie first opened in Hoboken, N.J., in 1964 as the nation’s first sub sandwich chain. Although it remains the nation’s third largest such chain, Blimpie has been struggling. In 2011, Blimpie had just 739 stores and $115 million in sales, down from 1,853 stores and nearly $300 million in sales in 2001. Blimpie was purchased by Kahala, a franchising company that also bought Cold Stone Creamery in 2007.

    10. Blimpie Subs Salads

  • Percentage of stores closed: 63.5%
    Total stores (2011): 175
    Stores closed: 305
    2011 sales: $241 million
    Percentage decline in sales: 61.7%

    Ponderosa and Bonanza are steakhouses that offer “the spirit of the Old West … and honest-to-goodness value.” The recession took a heavy toll on steakhouses’ bottom line — even more than it did on other types of casual dining franchises.

    In 2008, parent company Metromedia Steakhouses filed for bankruptcy. Although the company, now called Homestyle Dining, exited bankruptcy in October 2009, the chain has been decimated. Between 2001 and 2011, the number of Ponderosa and Bonanza restaurants fell by nearly two-thirds.

    Photo: Flickr: wachovia_138

    9. Ponderosa/Bonanza

  • Percentage of stores closed: 65.4%
    Total stores (2011): 140
    Stores closed: 265
    2011 sales: $183.4 million
    Percentage decline in sales: 68.4%

    Big Boy, known for its double-decker hamburgers and overall-wearing mascot, was opened in Glendale, Calif., in 1936. The company has struggled since its former franchiser, Elias Brothers Corp., filed for bankruptcy in 2000. The year after the bankruptcy, there were 405 Big Boy restaurants nationwide. By 2011, there were just 140 left. In that time, annual sales at the chain have fallen by almost $400 million.

    Photo: Wikimedia Commons: Minnaert

    8. Big Boy

  • Percentage of stores closed: 71%
    Total stores (2011): 38
    Stores closed: 93
    2011 sales: $81.6 million
    Percentage decline in sales: 69.6%

    Don Pablo’s describes itself as “Big Tex Bold Mex.” Avado Brands, the company that owned Don Pablo’s, went bankrupt twice in the last decade, first in 2004 and again in 2007. In 2008, the chain was sold to a restaurant group started by Avado’s bankruptcy lender. According to Darren Tristano, executive vice president of food industry consulting and research firm Technomic, full-service Mexican restaurants like Don Pablo’s have struggled as fast-casual competitors such as Chipotle Mexican Grill (CMG), have become America’s preferred choice for Mexican cuisine.

    Photo: Flickr: _rockinfree

    7. Don Pablo’s

  • Percentage of stores closed: 71.6%
    Total stores (2011): 46
    Stores closed: 116
    2011 sales: $93 million
    Percentage decline in sales: 70.8%

    Tony Roma’s was founded in 1972 and claims to be “the largest casual theme restaurant chain specializing in ribs in the world.” But between 2001 and 2011, Tony Roma’s cratered domestically. According to Tristano, the chain is struggling partly because “barbecue is not an everyday food,” and partly because the cuisine tends to appeal only to guys. In 2005, the restaurant’s parent company, Romacorp, filed for bankruptcy. Although it is disappearing from the United States, Tony Roma’s is still active internationally with restaurants in over 30 countries.

    6. Tony Roma’s

  • Percentage of stores closed: 77.2%
    Total stores (2011): 405
    Stores closed: 1,372
    2011 sales: $98 million
    Percentage decline in sales: 60.4%

    TCBY started in 1981 in Arkansas as “the country’s first frozen yogurt shop.” The chain was purchased by Mrs. Fields Holdings in 2000. At the time, the Chicago Tribune noted that “both TCBY and Mrs. Fields have considerable [brand] equity among consumers,” and that “in the still-escalating fast-service wars, it makes sense for operators to offer more than one product in order to create more traffic.”

    That optimistic assessment proved unfounded, though, and the combined company filed for bankruptcy protection in 2008, and required another restructuring deal to avoid bankruptcy last year.

    5. TCBY

  • Percentage of stores closed: 78.1%
    Total stores (2011): 30
    Stores closed: 107
    2011 sales: $70 million
    Percentage decline in sales: 75.4%

    Damon’s was founded in 1979 and is currently based in Columbus, Ohio. It is “a leading full-service, casual dining restaurant concept” with locations in the Midwest and Southeast, as well as in the United Kingdom. The chain, which is part of the struggling full-service barbecue restaurant segment, filed for bankruptcy in 2009. According to Tristano, other restaurant chains have increasingly begun offering many of the items found on Damon’s menu, making it hard for the specialist to compete.

    Photo: Flickr: Old Shoe Woman

    4. Damon’s Grill Sports Bar

  • Percentage of stores closed: 79.1%
    Total stores (2011): 52
    Stores closed: 197
    2011 sales: $44 million
    Percentage decline in sales: 82.4%

    Country Kitchen was started in 1939 as a hamburger stand in Cincinnati, Ohio, and has been a national chain since 1958. Currently, however, it is concentrated in the Midwest and Plains states. In recent years, the chain has struggled to continue attracting customers. According to Technomic’s Tristano, the restaurant exists in the highly competitive mid-scale family-style market, which has been crowded out by the fast-casual dining segment.

    Photo: Flickr: gwarcita

    3. Country Kitchen

  • Percentage of stores closed: 80.9%
    Total stores (2011): 25
    Stores closed: 106
    2011 sales: $37.5 million
    Percentage decline in sales: 83.4%

    Ground Round is a family-style dining chain, founded in 1969 to provide a ” ‘neighborhood pub’ experience where everyone, including couples and families, felt comfortable.” Like a number of other chains on this list, Ground Round declared bankruptcy. However, unlike other disappearing restaurants, after its bankruptcy in 2004, the chain was bought by its former franchisees. Despite the change in ownership, the chain has struggled to survive, maintaining just 25 restaurants in 2011.

    Photo: Flickr: daysofthundr46

    2. Ground Round Grill Bar

  • Percentage of stores closed: 88.2%
    Total stores (2011): 33
    Stores closed: 247
    2011 sales: $62 million
    Percentage decline in sales: 89.0%

    In the past decade, no major restaurant has lost as much of its business as Bennigan’s. The Irish themed restaurant and bar’s parent company, Metromedia Restaurant Group, filed for bankruptcy in 2008, then abruptly shut almost all of its Bennigan’s franchises. As of last year, there were just 33 Bennigan’s restaurants and the chain’s sales for the year totaled just $62 million — more than half a billion dollars less than the chain’s 2001 sales. Despite these events, there is some hope for Bennigan’s — and perhaps some of the other chains on this list: A group of investors purchased the company and plans to open new locations. Technomic described one of the group’s new locations in Appleton, Wis., as taking “all the best features of the casual dining restaurant today.”

    Photo: Flickr: danxoneil

    1. Bennigan’s

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool owns shares of Darden Restaurants. Try any of our newsletter services free for 30 days.

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