Darden to focus on menu revamp, pricing as major brands see sales softness

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Darden Restaurants Inc. said Friday it plans to offer customers new value options at its flagship Olive Garden and Red Lobster brands to reverse recent same-store sales softness, including a new “Two for $25” promotion to start at Olive Garden next week and menu overhauls at both concepts this winter.

Orlando, Fla.-based Darden, which operates 1,994 units and is the nation’s largest casual-dining operator, reported a 10-percent increase in fourth-quarter profit over the same quarter last year, but also said it continues to struggle with reduced guest traffic and customer spending at its two largest brands, Olive Garden and Red Lobster.

Same-store sales at the 792-unit Olive Garden fell 1.8 percent in the quarter, which ended May 27, and fell 3.9 percent at the 704-unit Red Lobster.

The negative results at the two restaurant chains were mostly “the result of disappointing promotional performance at those two brands,” Drew Madsen, Darden’s president and chief operating officer, said on Friday in a post-earnings call with analysts.

Madsen added that both Olive Garden and Red Lobster will be introducing new core menus later this year, with the latter brand making more significant changes.

Olive Garden shifts focus to affordability

Madsen said that the majority of Olive Garden's decline in the fourth quarter occurred during May, when same-store restaurant sales fell 4.6 percent.

"We believe this reflects two dynamics," Madsen noted. "First, we decided not to advertise around Mother’s Day, which resulted in two fewer weeks of television support during May this year compared to last year. In retrospect, this decision negatively impacted same-restaurant sales momentum given the significant level of competitive media across the industry at that time.

"Second," he continued, "the Taste of Tuscany promotion that started in May and has continued into June is not as effective as we anticipated.”

Olive Garden had started the quarter with a three-course Italian dinner for $12.95 with five new entrees, followed by Passion for Parmesan with new items, and then a mid-May launch of the Taste of Tuscany promotion that started at a $10.95 price point.

Madsen noted that the focus of the Taste of Tuscany promotion was off. “Our assessment was that this promotion was too much about the brand, especially the desirability and culinary inspiration of Tuscany, and not enough about the $10.95 price point and affordability of the new dishes,” he said.

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