Why Darden Kept Olive Garden and Dumped Red Lobster

They're both struggling restaurant brands, so why did Darden drop one and keep the other?

Jun 29, 2014 at 12:00PM

Darden Restaurants (NYSE:DRI) has been running a victory lap with investors, bragging about how it just dumped the Red Lobster business for a cool $2 billion despite the fact that the chain is shedding customers and profits. But the same could well be said for Olive Garden, and yet Darden is determined to try to turn that restaurant around. 

Olive Garden

Olive Garden suffered a 6% decline in customer traffic in March. Source: Darden Restaurants.

In the video below, Fool contributor Demitrios Kalogeropoulos discusses a few reasons Darden has a better shot at reviving Olive Garden than it did with Red Lobster. For one, food costs trends are much kinder on the Italian restaurant chain, given that seafood prices are climbing while bread and pasta costs are shrinking. Darden's management can also engineer an easy win by remodeling the Olive Garden locations that badly need a facelift, which will bring sales growth levels for that group back in line with the rest of the chain. And finally, while Red Lobster tends to attract a narrow demographic of diners, Olive Garden is more popular with exactly the demographic showing the most growth in the casual-dining sector. Watch the video below for Demitrios' full take.

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