Sunday, September 22, 2013

Olive Garden Remodel Hurts Image

Sales at Olive Garden were “surprisingly bad” in the new earnings report. To read the headlines, you would think customers were bailing out, but news reports and Internet commentary exaggerated the change, as they often do. Same-store sales were down 4 percent at Olive Garden from the summer before. It was a similar decline, 5 percent, at Red Lobster, owned by the same company. This is like seeing one more empty table if you go into the restaurant — a change too small to notice, even if you are in the restaurant on a weekly basis. It continues a long-term trend, so Wall Street analysts perhaps shouldn’t have been quite so surprised as they were.

I tried to find the real trends from the Internet chatter on Olive Garden, and it isn’t encouraging for the restaurant chain. To begin with, people hate the redesign — it wasn’t supposed to be a big shift at Olive Garden, but the restaurant chain changed its look from faux Tuscan (they called it “Old World”) to something resembling Saturday morning cartoon (supposedly a “modern,” streamlined look). Regular customers feel the new look is less classy, if that’s possible, but also less serious. Among occasional customers, it is clear that the change has weakened Olive Garden’s brand promise. To put it another way, the meaning of the Olive Garden name seems to have changed from “not really Italian” to “whatever.”

Supposedly a similar redesign took place at Red Lobster, but if it did, it seems customers did not mind. There was no buzz about it. All I could find was a tweet from the restaurant itself two years ago seeming to complain that no one was noticing its new logo.

The redesign at Olive Garden may have hurt customers’ impression of the food. Olive Garden food already had a sagging reputation, but now I am seeing comments that seem to equate it to McDonald’s. I am assured that Olive Garden is buying basically the same food as last year, so perhaps it has lowered its standards for the freshness of the food it serves (i.e., is it serving unsold food from lunch at dinnertime?), or maybe it is the cartoonish new look that makes people think of Ronald McDonald.

The good news for Olive Garden and Red Lobster is that they are still places that people think of when they are hungry. It is regular customers (more so at Olive Garden) who are complaining the loudest, and that tells me that even if people think they deserve better, they will keep coming back, at least for now.

I wondered whether some of the political talk surrounding Olive Garden would affect its image. Most notably, a year ago an executive had publicly suggested firing all full-time restaurant workers to save money on benefits, and there was the predictable reaction explaining why that move would not be good for workers or customers. That layoff was never going to happen, but it is still a sore point at the company, which took pains to emphasize that its new layoffs would not affect any workers at the actual restaurants. If any of this political talk has stuck, it is in the general sense that Olive Garden is not a place you would suggest for a large or mixed group because of the risk that someone will be silently offended. That, of course, has more to do with people having eaten there before than with anything they may have read in the news.

The real reason I was looking up Olive Garden again was to see if the move toward smaller portions had met with any success. Unfortunately, that initiative flopped. Customers seem not to have noticed the slight price reductions, and the company in its earnings call all but disowned the smaller entrees it introduced with so much fanfare six months ago, pivoting to suggest that the “small plates” were mainly appetizers for the under-30 customers it is trying to attract. The downbeat earnings call also brought the news that the president is being forced out. Other restaurant executives who might have been thinking about tinkering with portion sizes will surely take note of that outcome.