- The Washington Times - Sunday, February 6, 2005

ORLANDO, Fla. - All-you-can-eat dinners have been a staple at Red Lobster restaurants, but as the casual dining chain tries to lift its sagging sales, customers are going to see a little more portion control.

Parent company Darden Restaurants Inc. is giving Red Lobster a diet of sharper advertising, a more moderately priced menu and less reliance on those famed all-you-can-eat promotions.

Restoring Red Lobster’s health has been paramount to Darden’s fortunes since the seafood chain started slumping in September 2003. With 680 locations, Red Lobster accounts for about half of the $5 billion in annual sales at Darden, the nation’s largest casual dining restaurant company.

Improvement at Red Lobster, combined with continuing strong momentum from its Olive Garden Italian restaurants and the steady expansion of its Smokey Bones barbecue chain, is key to further boosting Darden’s stock, which has traded from a 52-week low of $19.30 in August to its current high in the $29 range.

Although the company can chug along powered by the success of Olive Garden, it needs a strong Red Lobster for its stock to perform well, said Lynne Collier, an analyst with Stephens Inc.

“Would the company be OK with one concept working? Yes,” Miss Collier said. “Will the stock work? Probably not. It takes both of them.”

Darden had earnings of $43 million, or 26 cents a share, in the second quarter ended Nov. 28, compared with $30.1 million, or 18 cents a share, in the same period in the previous year. Sales rose to $1.23 billion from $1.14 billion, but Red Lobster’s sales growth trailed that of Olive Garden; Red Lobster’s sales from restaurants open at least a year rose 3.4 percent compared with Olive Garden’s 5.5 percent.

Problems started a few years back when Red Lobster raised its menu prices more frequently than its rivals did at a time when it became cheaper for the competition to offer shrimp dishes, said David Palmer, an analyst for UBS Investment Research.

Red Lobster’s prices approached those of tonier brands, such as the Cheesecake Factory and P.F. Chang’s China Bistro, and made the seafood chain more of a special-occasion choice rather than an everyday one, he said.

Moreover, when Red Lobster began relying heavily on all-you-can-eat crab and shrimp promotions to increase traffic and sales, customers’ third and fourth helpings of crab made it difficult for the company to make money.

“What ended up evolving is you had customer satisfaction scores falling at Red Lobster because people would either go in when there was no promotion and feel like the prices were too high,” Mr. Palmer said, “or they would go in when there was a promotion, feel compelled to trade down to the promoted item, and not get very good service because the staffing levels were poor.”

Darden isn’t going to abandon the promotions; instead, it will use them in a more balanced approach, said the company’s new leadership team of Clarence Otis and Drew Madsen.

In December, Mr. Otis became the company’s chief executive officer after stints as president of the Smokey Bones chain and chief financial officer. He succeeded Joe Lee, who helped open the first Red Lobster in 1968. Mr. Lee remains chairman, although he plans to hand that role to Mr. Otis as well in December.

Mr. Madsen became president and chief operating officer, moving from a job as president of Olive Garden. Kim Lopdrup last year also was named president of Red Lobster, which had gone through two presidents in as many years.

The new management is redesigning the menu and adding more entrees in the $10-to-$15 range.

Red Lobster last year introduced its health-oriented Lighthouse Selections menu, which lists the amount of calories, carbohydrates and fat in each dish.

“It will probably be a little simpler than it is today,” Mr. Madsen said of the tinkered menu.

“There probably will be a little more price-point variety than there is today, but it’s not going to be a dramatic shift,” he said.

That is fine with customers David and Ginger Nolan as long as the chain doesn’t eliminate popcorn shrimp, which is their reason for coming to Red Lobster at least once a month. The Orlando couple find the prices more reasonable than other seafood restaurants in the area.

“Some of the times we split a dish because they give you too much to eat,” said David Nolan, 56, who is retired.

The seafood chain also is changing the interior design of its future restaurants.

It is abandoning the New England fishing village decor that resembles the set of the movie “Jaws” in favor of a “coastal home” design that includes pastel interior colors, a wide-open floor plan with views of the kitchen and a bar that is the focal point of the restaurant.

Mr. Palmer praised Darden for sharpening Red Lobster’s advertising by focusing on food rather than prices.

“They’re not doing as much value-first, or price-first type promotions,” Mr. Palmer said. “When they do advertising, it is much more about the food.”

Darden officials, though, still are working on defining a customer experience for Red Lobster in a way that they have done for Olive Garden, which strives to deliver an idealized Italian family meal as summed up in its catchphrase: “When you’re here, you’re family.”

“We now have an opportunity to make the brand a bit crisper,” Mr. Madsen said.

In addition to turning around Red Lobster, Darden officials are linking growth plans to Smokey Bones, which they intend to expand by 30 to 40 restaurants this year.

Expansion of a fourth brand, the Caribbean-themed Bahama Breeze, has stalled; Darden closed six locations around the country last year while the company works on reducing the costs of opening new restaurants.

Darden’s grill and wine bar concept, Seasons 52, has one test restaurant in Orlando, and two other locations are expected to open in Orlando and Fort Lauderdale this year.

Restaurant analysts have conflicting views on whether Red Lobster is making progress.

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