Olive Garden owner shifts course to focus on deals
NEW YORK (AP) — After new ad campaigns touting the quality of its food failed to spark sales, the parent company of Olive Garden and Red Lobster is retooling its strategy to attract diners with more promotional deals.
The shift comes after Darden Restaurants Inc. earlier this fall moved to update the image of its flagship chains and appeal to younger diners in their 20s and 30s, who increasingly prize fresh, high-quality ingredients. The problem is that many of those same diners also want cheaper prices and convenience, reflecting the rise of chains such as Chipotle Mexican Grill Inc. and Panera Bread Co., which offer food that's a step up from traditional fast-food for slightly higher prices.
In addition to those shifting tastes, Darden and other casual dining chains such as Applebee's are dealing with customers who are being more careful about where and how often they eat out in the weak economy.
In a conference call with analysts Thursday, the company also stressed that none of its full-time employees would be put on part-time status as a way to limit costs tied to new health care regulations. Darden noted a publicity backlash over its tests to use more part-timers hurt sales in the latest quarter.
To address the "affordability many guests need right now," Darden plans to dial back on its efforts to build revamp the image of its chains for now and increase the frequency of promotions that underscore value, said Drew Madsen, the company's chief operating officer. He declined to specify the exact nature of the revamped strategy, however, noting that the element of surprise is critical in a "highly competitive" industry that is once again expected to see only modest growth in the year ahead.
He also noted that Darden had been "pre-empted" by competitors in the past by revealing its hand too early.
The remarks came in a conference call with analysts to discuss Darden's fiscal second-quarter results, which showed a 37 percent drop in net income. For the three months ended Nov. 25, the company said it earned $33.6 million, or 26 cents per share. That's compared with $53.7 million, or 40 cents per share, a year ago.
Analysts predicted slightly higher earnings of 27 cents per share, according to FactSet.
Earlier this month, the company had warned that revenue would fall 2.7 percent at U.S. restaurants open at least a year for its three biggest chains; it fell 3.2 percent at Olive Garden, 2.7 percent at Red Lobster and 0.8 percent at LongHorn Steakhouse during the quarter. The figure is a key metric because it strips out the impact of newly opened and closed locations. For the year, Darden expects that figure to be flat or down 1 percent.