Traffic Slump at Olive Garden, Red Lobster, LongHorn; Smaller Plates, Cheaper Items at Olive Garden; Saturation Everywhere

High gasoline prices coupled with 2% payroll tax hikes is going to take a bite out of restaurant sales this year. For some chains the slump has already started.

Consider Darden Restaurants, the owner of Olive Garden, Red Lobster, LongHorn Steak House. Darden Restaurant Traffic is down an average 4.5, with Red Lobster leading the pack down 7.5%.

Smaller Plates, Cheaper Items at Olive Garden

At Olive Garden, Smaller, Cheaper Plates are on the way, along with new uniforms including a more contemporary black button-down shirt and black slacks.

Don't worry, endless breadsticks remain.

Olive Garden is also creating a new logo and toning down its the "Old World Style" Tuscan stonework and wooden archways that have been a signature part of Olive Garden restaurants since 2000.

Saturation Everywhere

The main problem is saturation. I see endless miles of restaurants on strips nearby. Those restaurants include Steak & Shake, Red Lobster, Olive Garden, Pizza Hut, Subway, China Express, Chili's, Chipotle, Panera, and other chains intermixed with some local eateries.

If the problem is saturation (and it is), spending money on architecture style changes, creating a new logo, and the new uniform changes is a waste of money, especially the architectural revisions.

People want good food, fast friendly service, and good value.

To pick up market share, restaurants need to lower prices, not make logo changes. And lower prices will take a bite out of earnings. One final point: as soon as restaurants stop expanding (and they will), the hiring will stop with it.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com