Babysitters and Burgers: What Will Olive Garden Do Next?

Sometimes crazy works. Is this one of those cases? Or are investors paying too much attention to these initiatives instead of focusing on the big picture for Olive Garden?

Feb 16, 2014 at 8:04AM

Olive Garden is pulling out all the stops to accomplish a turnaround. One of the company's recent initiatives is surely one of the most unique you will ever see from a casual-dining restaurant. Sometimes unique (or crazy) is an effective approach, sometimes it's not. What matters most is whether Darden Restaurants (NYSE:DRI) presents a quality investment opportunity going forward.

Unique initiative
On February 7, Olive Garden offered a date night for couples with children. Olive Garden partnered with 145 My Gym locations to make this offer.

Before going out to dinner at an Olive Garden restaurant, a couple could drop their child (or children) off at My Gym for supervision. A reservation was required, and spots were available on a first-come, first-serve basis. After dinner, as long as the couple showed their Olive Garden dinner receipt, they wouldn't be charged by My Gym.

This was really a way for Olive Garden to promote its two-for-$25 special, but buying the special was not necessary for couples to take advantage of the offer. Olive Garden figured that couples would enjoy their discounted meal and come back at later dates. Olive Garden promoted the event via Facebook, Twitter, and Instagram.

Something must be done
The casual dining space has been suffering over the past several years, which stems from the disappearance of the middle class, its key target market. Consider comps performances for some of Olive Garden's peers recently.

For the first nine months of 2013, comps for Applebee's -- a DineEquity (NYSE:DIN) subsidiary -- declined 0.1% (traffic down/average guest check up). For fiscal-year 2013, the comps range has narrowed to negative 0.5% to 0.5% from negative 1.5% to 1.5%. This aren't terrible numbers, but they don't drive a ton of optimism, either.

Brinker International's (NYSE:EAT) Chili's has also toed the line with success and failure on a comps basis. In the second quarter, Chili's saw comps increase a measly 0.3%, but that's still better than many other casual restaurant brands. And while domestic franchise-owned locations suffered a 0.7% comps decline, domestic company-owned locations enjoyed a 0.7% comps improvement. 

As far as Olive Garden is concerned, comps declined 0.6% in its most recent quarter. This was better than Red Lobster -- comps plummeted 4.5% -- but not as impressive as 5% and 6.7% jumps at LongHorn Steakhouse and The Capital Grille, respectively. 

Olive Garden might be best known for Italian food. Therefore, you might be wondering why it's being compared to Applebee's and Chili's. There's a simple reason. Although Olive Garden offers Italian food, it still competes for casual diners. In an attempt to achieve market-share gains, it added The Italiano Burger to its menu.

Tasty or not?
The Italiano Burger's menu description: Crispy Italian Prosciutto, fresh Mozzarella Cheese, arugula and marinated tomatoes with a garlic aioli spread with parmesan garlic fries. Price: $13.99. Calories: 1,020 Calories for French fries: 270. This burger might be tasty, but it's certainly not targeting today's health-conscious consumer. 

The Italiano Burger is an interesting attempt and it might drive some increased interest, but an Italian restaurant serving a hamburger is like a steakhouse selling pizza. It just doesn't work. 

The Foolish bottom line
A divestment of Red Lobster would immediately allow Darden to pay off debt, which would then free up more cash flow going forward. This would then allow Darden to return more capital to shareholders and reinvest in its growth brands.

A Red Lobster spin-off is likely. Darden will attempt to save Olive Garden with surprising and unique initiatives, but if it needs to eventually spin off Olive Garden, it will do so. The key is that Darden has several brands that offer significant growth potential. For that fact alone, Darden is likely to remain a long-term winner. Please do your own research prior to investing.

Only for long-term investors looking for methodical wealth creation....
It's no secret that investors tend to be impatient with the market, but the best investment strategy is to buy shares in solid businesses and keep them for the long term. In the special free report "3 Stocks That Will Help You Retire Rich," The Motley Fool shares investment ideas and strategies that could help you build wealth for years to come. Click here to grab your free copy today.

Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Facebook and Twitter. The Motley Fool owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers