Like it or not, we all know the restaurant industry works tirelessly to earn a slice of our discretionary income. If one thing is sure for larger chains, it's that keeping diners coming back for more is an increasingly complicated game, as they battle with everything from supplier issues to changing consumer preferences and disruptive activist investors. All too often, the end result is a restaurant millions of consumers and investors alike love to hate.
Below, three Fool contributing writers discuss why Yum! Brands' (YUM 0.03%) Kentucky Fried Chicken, McDonald's (MCD 0.38%), and Darden Restaurants' (DRI -0.45%) Olive Garden fit that bill perfectly:
Steve Symington: Arguably, no restaurant chain has more experience enduring -- then subsequently correcting -- a damaged reputation than Yum! Brands' Kentucky Fried Chicken. Two years ago, for example, KFC struggled badly in China following a tainted chicken scandal at one of its suppliers. It then extended its grief into 2013 amid fears of whether its food was safe to eat during an Avian flu outbreak in the region. (Spoiler: It was. Bird flu doesn't affect properly cooked chicken.)
Then, just as things seemed to be improving earlier this year, KFC saw third-quarter same-store sales plunge again in China after an undercover reporter witnessed abhorrent meat handling practices at a local supplier. For consumers at that point, it didn't particularly matter that Yum! promptly broke off the supply agreement and pursued legal action, or that this was a minor supplier that only provided two breakfast items to the company.
In a testament to consumers' short memories -- and barring another incident -- Yum! expects it will take another six to nine months before its operations return to normal in The Middle Kingdom. In the meantime, things are actually going quite well for KFC in the rest of the world. KFC's comps outside of China actually increased 3% last quarter, leading to 16% growth in operating income. Perhaps it's those delicious mashed potatoes, or even the occasional return of guilty-pleasure items like the all-meat Double Down sandwich; but it's apparent KFC is a restaurant we all love to hate.
Andres Cardenal: Things are going from bad to worse for McDonald's lately. The company has reported declining comparable-store sales during the last several months, and there is no sign of improvement judging by recent financial reports. The fast-food giant reported a worrisome decline of 3.3% in global comparable-store sales during the third quarter of 2014, while consolidated revenues fell 5% year over year.
Consumers around the world are increasingly conscious about calories and other health implications of the food and drinks they consume -- especially young ones, who are a key demographic segment in the fast-food industry. McDonald's is clearly on the wrong side of that trend.
Making things worse, fast-food regulars don't even find McDonald's tasty anymore. According to a recent survey from Consumer Reports, McDonald's ranks in the last place among U.S. fast-food chains when it comes to the taste of its burgers.
The company is trying to reinvigorate sales by offering more complex and sophisticated menu items; however, this is not generating the desired traction among customers, who don't seem to be willing to pay premium prices when eating at McDonald's. Adding insult to injury, increased complexities in the kitchen are hurting the speed and quality of the service, so its attempts to move up the quality ladder are clearly backfiring.
An increased focus on quality is not working at all, and there's no guarantee that the company can get back to the basics and reverse the declining sales trend with a simpler menu. McDonald's is between a rock and a hard place.
Rick Munarriz: "When you're here, you're family" is the old slogan at Darden Restaurants' Olive Garden; but these days, it's a pretty dysfunctional family. The oft-lampooned Italian restaurant chain is struggling, and things have gotten so bad that shareholders decided to vote in an entirely new slate of board of directors earlier this month.
Darden sold off Red Lobster in a fire sale earlier this year, presumably to focus on Olive Garden and several of the other smaller concepts that it owns and operates. It's not working so far. Comps at Olive Garden have fallen for five consecutive quarters, and you know it's bad when an activist investor with a mere 8.8% stake can blow up your boardroom with a 294-slide presentation detailing all of the missed opportunities that Darden, in general, and Olive Garden, in particular, have let slip through its garlicky fingers.
Starboard Value LP's missive took Olive Garden to task for being too generous with its breadstick servings, and dousing its salads in too much dressing. It seemed petty, but apparently, Darden investors are as tired of the company as diners are of Olive Garden judging by the sharp drop in restaurant traffic during the past year and change.
