5 Things You Didn't Know About Olive Garden

"When you're here, you're family," reads a recent marketing tag line for Darden Restaurants' (NYSE: DRI  ) Olive Garden, so let's go ahead and spill the beans on some family secrets. Given the casual-dining chain's recent struggles, some of these meatball-sized nuggets may either delight or concern you.

1. Sometimes a bargain isn't enough
Like so many restaurant operators these days, Olive Garden finds itself having to offer up deals from time to time to get patrons through the door. The promotional activity is based on the market's climate and what the competition is doing, but simply offering better values isn't always enough.

Outgoing COO Drew Madsen -- outgoing not in the sense of his cheery personality but in that he's retiring this year -- told analysts last week that the chain's recent deal offering two Italian dinners for $25 didn't meet Olive Garden's guest-count estimates.

One can argue that it was the price point. Brinker's (NYSE: EAT  ) Chili's and DineEquity's (NYSE: DIN  ) Applebee's have often been tethered to a somewhat similar "2 for $20" promotion, in which two guests can order two entrees and share an appetizer. Olive Garden could position the deal as a three-course meal because it also includes its unlimited salad and breadsticks, but maybe $25 is too high for couples and other duos who have been spoiled by $20 deals elsewhere.

However, Madsen also revealed that its "three-course Italian dinner for $12.95" promotion in June went well, even if the math adds up to a higher price per person.

2. Olive Garden's weakness is being blamed on your shiny Chevy and brand-new refrigerator
Olive Garden's same-store sales slipped 4% during the quarter, and sister chain Red Lobster fell even harder. Olive Garden's parent company has a theory.

"There's been a lot of speculation that consumers have deferred some big-ticket expenditures on autos, on appliances, some other things," CEO Clarence Otis argues, saying that folks who have held back on replacing their cars or major appliances over the past six or seven years are doing so now.

"With relatively flat budgets, they've got to do some more disciplined budgeting, and dining out is one of the things that may be paying a price for that," he said. "We suspect there's some truth to that."

That would be a great theory if folks were, in fact, spending less money across all chains, but that's not the case. Fast-casual concepts that offer quicker service and better value than casual dining are growing just fine these days. There are fine-dining institutions -- including some of Darden's own smaller concepts -- that are growing nicely.

Let's not turn your washing machine into a scapegoat. 

3. The stock's juicy 4.8% yield isn't a sure thing
Perhaps the only silver lining behind having a stock close in on another 52-week low earlier this week is that new investors will be buying into a healthy yield of 4.8%.

This is an unusually high dividend for a restaurant operator, essentially double Brinker's 2.4% yield. DineEquity sports a nice 4.4% rate, but Darden is still magnetic to income investors as the top rate among the three leading casual-dining operators. 

Darden thinks the distributions are secure, but it didn't generate enough free cash flow in its latest quarter to cover the period's payout. Darden is also cutting costs, announcing the elimination of 85 jobs at the organizational level and other promotional and supply-chain initiatives that will eliminate annual overhead by at least $50 million. These may be the actions of a company that wants to preserve its high dividend, but we can't assume that a leaner and less active promoter will somehow perform any better in the future.

Olive Garden fans who are thinking that they can use dividend checks to cover their tabs may want to reassess that strategy.

4. The Culinary Institute of Tuscany wasn't entirely real
Olive Garden has gone through several marketing campaigns over the years, but one that stood out a few years ago was the showcasing of a lively cooking school in Italy. 

The ads showed the chain's chefs and managers training at the Culinary Institute of Tuscany in the throwback hamlet of Riserva di Fizzano in Chianti, Tuscany.

Well, it wasn't entirely real. Olive Garden's marketing came undone when a manager was tapped to make the weeklong trek to Tuscany reported that there wasn't a lot of training going on. It was mostly a sightseeing trip. The only time a chef was spotted was for a brief demonstration before taking media snapshots with those in attendance to distribute to local media. 

Time explored the story, and the claim held up. The Culinary Institute of Tuscany wasn't really a cooking school. It was a hotel that would allow Olive Garden to host the chain's managers and chefs during the offseason.

5. Yes, a 2-year-old was once served sangria
Two years ago, an Olive Garden patron in Lakeland, Fla., took her 2-year-old son to the hospital after he was served sangria instead of orange juice. 

The kid was fine. The mother moved to hire an attorney and sue the chain. 

Accidents happen, but the fact that Olive Garden took nearly two weeks to make a public statement after the incident, allowing the media to jump all over the story before the company could get in front of it, wasn't its finest moment. I'm guessing the mother wouldn't settle for a lifetime of unlimited breadsticks in this case.

Two of the three winners in this free report are restaurant chains
Profiting from our increasingly global economy can be as easy as investing in your own backyard. The Motley Fool's free report "3 American Companies Set to Dominate the World" shows you how. Click here to get your free copy before it's gone.


Read/Post Comments (11) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 28, 2013, at 4:00 PM, jimmicks wrote:

    like the Olive Garden, enjoy the food, but I hate waiting 15 to 30 minutes to be seated in a dining area that is 1/3 filled. This is a consistent situation that keeps me from stopping more often. Inexperienced bar service is also annoying.

  • Report this Comment On September 28, 2013, at 4:43 PM, onlytruth wrote:

    On the article about "Olive Garden" and Darden restaurants, I think all restaurants right now are having problems.

    I do know that any of the Darden Restaurants have the BEST "quality control" of their foods and kitchens.

    I have stopped going to some of the other

    restaurants because of their lack of being clean in the dining room, so what does the Kitchen look like? or their "prep stations?

  • Report this Comment On September 28, 2013, at 5:21 PM, shan4067 wrote:

    A mother took her 2 year old to the hospital after the child was served sangria instead of orange juice. Excuse me but where I come from sangria is red and orange juice is, um, well orange, please unless they were advertising blood orange juice the mother should be the one chastised for not paying attention to what her child was consuming. I am no fan of Olive Garden but any injury to that child was also the fault of the mother.

  • Report this Comment On September 28, 2013, at 6:40 PM, rigg8280 wrote:

    @shan4067 OG had 3 flavors of sangria, one was tropical which was made with white wine, oj, and sangria syrup--looked very similar to oj. The reason this happened is OG makes their oj from concentrate in a gallon jug then makes sangria in the same size jug with a different color top. During a busy shift its easy for a bartender to grab the wrong container. That's why they no longer make gallons of sangria--they are made to order now.

  • Report this Comment On September 28, 2013, at 9:35 PM, gstonehunter wrote:

    Fool,

    Do you have a interest in Darden's? I ask because it seems every other day there is an article about them.

    It would seem to me their financial woes might be connected to the last election when they decided to voice their political views...a sure fire way to lose half your customer base.

  • Report this Comment On September 28, 2013, at 9:38 PM, imDanielle2 wrote:

    Sorry.. Olive Garden owner decided to get involved in politics and made it very clear how it feels about its employee's and their right to equal pay and benefits.. I will never eat there again!

  • Report this Comment On September 28, 2013, at 10:30 PM, Teapartysucks wrote:

    There are Many Great Italian Restaurants around here so why go to Olive garden and eat frozen food!

  • Report this Comment On September 29, 2013, at 1:58 AM, JohnnyGeetar wrote:

    I'm happy to see a couple of folks reinforce why I won't give ANY Darden restaurant the time of day. They did indeed take a political side, and as soon as I saw that photo spread with Michelle Obama at a Red Lobster, and Darden's stated intent to jump on board with her food Nazi program, that slammed the door for me. There's been a silent boycott in place against Darden since their endorsement. Folks that are turned off by Obama and friends are tired of supporting companies that run counter to their belief system. Sorry, but i don't eat with socialists, and i sure as hell won't pay to keep em in business. Call it a character flaw...

    Oh yeah, almost forgot; The food at Olive Garden is atrocious as well. If i can make better italian dishes at HOME with generic brand ingredients, then i have NO use for these people.

  • Report this Comment On September 29, 2013, at 12:51 PM, vegasbabe31 wrote:

    Olive Garden food is over-priced garbage the only thing they have that IS any good is the bread sticks & MAYBE the salad..

  • Report this Comment On September 30, 2013, at 9:02 AM, Pootsiebear wrote:

    Look at you pots calling the kettle black. Those that say they don't have a political chip in the pot are fooling themselves. You point fingers because a person (or company) doesn't believe in your politics... makes you a hypocrite.

    A better question might be; How many jobs have you created?

  • Report this Comment On April 03, 2014, at 8:36 PM, SSqaz wrote:

    i have created zero jobs which is far more than bush or obama have created. hphph5hpph

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2659622, ~/Articles/ArticleHandler.aspx, 11/20/2014 11:58:58 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement