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This Is Exactly How Bad Things Have Gotten for Red Lobster

May 16, 2014

With the sale of Red Lobster, Darden Restaurants said its remaining restaurant chains, including Olive Garden, LongHorn Steakhouse and a growing roster of upscale brands, could now focus on reeling in their "core customers." Darden CEO Clarence Otis Jr. offered a clue as to who those core customers might be. Hint: they're "more financially secure."

"At Olive Garden," he explained during a recent investor call, "we had 11% more visits last year, fiscal 2013, from guests with household income over $100,000 than we did five years earlier." And that was small potatoes compared with LongHorn Steakhouse, which wrangled 50% growth out of the same income bracket.

"In contrast," Otis said, "Red Lobster traffic from this income demographic was flat."

Lodged squarely in the middle-income bracket, Red Lobster's sales have trailed behind Dardene's upscale brands, particularly Eddie V's, a premium seafood restaurant where diners can sip on world-class wines and enjoy live jazz performances at the "V Lounge." The columns bookending this chart tell a tale of two seafood chains.

Red Lobster

Source: Darden 2013 Annual Report

It was the best of times, it was the worst of times for Darden's 2013 income statement, and it's a sign of the times that it seems to be luring upscale diners with promotions that are a little more understated than a never-ending pasta bowl. Olive Garden, for example, has garnished its dishes with more exotic (read: Italian) ingredients, including capers, kale and polenta.

It may be a discouraging, lopsided, sluggish economic recovery, but at least it came with capers.

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