Darden's Diet: Don't Bite Into Your Own Profits
The "endless salad and soup" deals remain popular items at Darden Restaurants, but CEO Clarence Otis is more concerned about whether consumers continue to skip dessert or go easy on the cocktails.
"It is very difficult to forecast where are things are going to go," Otis says, in an interview with CNBC. "We think the prudent thing to do is to assume that it could stay tough because it is easier for us to gear up in response to a better environment than it would be if we planned an environment and saw some deterioration."
Darden , the operator of several casual-dining chains including the Olive Garden, Red Lobster and LongHorn Steakhouse, recently reported a 21 percent profit increase in the fourth quarter, but it disappointed investors hoping for a quick recovery, by forecasting traffic and sales at its established restaurants to decline in fiscal 2010.
Otis acknowledges there has been aggressive discounting in the casual dining space, but they have yet to follow this trend. (To hear all of Otis's comments, click here to watch the video.)
According to Otis, their brands already offer consumers a good value, and they continue to see customers coming back to their brands.
Darden expects to keep their prices stable, but the company is aware of the rough economic conditions. The company has seen a decrease in the value of the average check as customers skip extras like appetizers, desserts and drinks, says Otis.
Brands like Applebee’s, Ruby Tuesday and TGI Friday’s have already began to lower their menu prices to lure their customers in, but that plan has backfired in some cases, as the promotions have cut into profit margins.
"We do not expect to run down our brands buy lowering their prices," said Otis. "We are unsure what is going to happen, but we have been preparing for a range of possibilities."
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