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Olive Garden’s on the rocks. Is it the economy, or just bad food?

Nobody wants your calamari. (Olive Garden Facebook page)

This time last year, Neil took a look at the strong results from Darden Restaurants, the parent company of such middle-class standbys as Olive Garden, Red Lobster and the slightly more aspirational Capital Grille. The healthy financials hid a sad truth about the economy: Darden had been able to reduce labor costs because workers, desperate for jobs, didn't have the leverage to ask for better pay.

Well, the next year didn't go so well. Darden's stock took a dive, and is still looking a little anemic. Despite in-store remodels, in yesterday's quarterly earnings report the company disclosed that Red Lobster, Olive Garden and LongHorn Steakhouse sales were down 3.3 percent, and the chief operating officer was leaving (always a suspicious sign). So what does the bottomless pasta bowl indicator tell us about the economy now?

Sad lettuce. (Yahoo)

First of all, the days of bottomless pasta bowls might be numbered. Both Red Lobster and Olive Garden have lost market share to cheaper and arguably more delicious fast casual chains such as Chipotle and Panera. They've started introducing cheaper and healthier options, like Olive Garden's "Taste of Italy" small plates menu, priced at $4-$5 apiece (which horrifies some wonks among us).

Second of all, though, it looks like along with commodity costs — which almost always rise — labor costs are increasing, too. That may mean the chain is having a harder time finding people to sling linguine, because fewer unemployed people are looking for work. What it definitely means is that they're cutting back on jobs, dulling that bright spot in a workforce that's otherwise suffering from offshoring and robots.

So Darden's fate could be the result of two stories: Either an American population that doesn't feel like splurging on dinner, or one that just finds fresh fast food is a better bet. Or, more likely, some of both.

Lydia DePillis is a reporter focusing on labor, business, and housing. She previously worked at The New Republic and the Washington City Paper. She's from Seattle.



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Neil Irwin · September 20, 2013

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