Darden Restaurants (NYSE:DRI) is leading its turnaround of its Olive Garden Italian restaurant concept with a promotion to drive traffic that just might bring back some bad memories for longtime investors: it's offering a seven-week, all-you-can-eat pasta promotion for $100. Included are salad, bread, and Coca-Cola soft drinks.
Let's hope it goes better than one of the restaurant operator's other smorgasbord deals.
It was a little over a decade ago that Darden's Red Lobster chain ran a summer-long promotion that allowed customers to fill up their plates with as many crab legs as they wanted, and let them go back for more ... and more and more. It turned into a debacle of epic proportions.
Darden executives found out that diners really, really like crab legs and can eat quite a lot of them. Or, as its CEO noted at the time, "It wasn't the second helping, it was the third that hurt. And the fourth."
Occurring just as crab leg prices were rising (the crustacean supply is tightly regulated by the government), Darden's profits tumbled by some $3 million, its stock sank, and the marketing executive that shepherded the program through resigned.
The seafood restaurant was a long suffering concept, though, and Darden just sold it off for $2 billion. Some of the restaurateur's activist investors thought it ought to shed Olive Garden too, so management already faces the prospect of an incendiary environment when it holds its annual shareholder meeting, Darden better hope the all-you-can-eat fest doesn't go awry.
Which is likely why it built safeguards into this promotion. First, it is limiting the number of diners who can participate to just 1,000, so if they prove as gluttonous as their crab leg-loving counterparts did the impact will be limit.
Second, it's pasta. Unlike crab legs, it's cheap, plentiful, not subject to government regulation, and perhaps most importantly, filling. Whereas you can eat a few platefuls of crab legs and still feel the need to push back from the table, pasta can have you feeling bloated quickly.
Darden also has experience running these pasta promos. Olive Garden routinely offers Never Ending Pasta Bowls -- where unlimited soup, salad, and breadsticks can be mixed and matched with a number of pasta options for one low price -- and last year served more than 13 million bowls of pasta, proving its popularity. The $100 pass is being run in conjunction with the never-ending past promo.
Of course, other companies have also run campaigns that failed equally spectacularly. Yum! Brands (NYSE:YUM), for example, hired Oprah Winfrey to give away a new grilled chicken special at its KFC chain and the response was so great that its stores ran out of chicken nearly causing riots. McDonald's (NYSE:MCD) had a Twitter hashtag campaign runaway from it, And Yum's Pizza Hut tried to inject itself into the presidential debates two years ago by giving a free pizza every week to someone who would ask the question of the candidates, "sausage or pepperoni?" The backlash over trivializing the debates for commercial gain caused them to drop the idea.
So there are plenty of companies in the failed marketing campaign group, but with DRI in the midst of trying to make Olive Garden the centerpiece of a turnaround it has put in place safeguards to ensure it doesn't get away from it.
Store traffic has been of particular concern, because even though its was barely able to get same restaurant sales positive in August (they were up 0.8%, the first time since last November they were up), traffic remained negative for the ninth straight month and for 15 out of the last 16 months.
It would seem, though, Darden has learned from the mistakes it made at Red Lobster, and in all fairness it was able to run all-you-can-eat shrimp feasts without the same sort of run on the kitchen.
No doubt it's hoping the publicity of the $100 Never Ending Pasta Pass (like from this article here) helps drive more customers to the chain, but Italian restaurants generally face growing competition and a declining number of patrons, something not even a bottomless bowl of fettucini may be able to reverse.
Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends McDonald's. 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.