Restaurant Chains Get Makeovers

Jan. 24, 2012 -- Struggling to re-invent themselves, middle-market restaurants are tweaking menus, cutting prices and sprucing up decor. Even successful chains like Olive Garden are undergoing makeovers. Their goal: to win back customers shell-shocked by recession, reluctant to spend money or lost to new competitors.

"Starting in the 1980s, Olive Garden and Outback Steakhouse pretty much defined casual dining," explains Christopher Muller, dean of Boston University's School of Hospitality. "They found a niche in between the pomp of 'fine dining' and what you'd expect to get at a singles bar like T.G.I. Fridays. The market revolved around them." When it came to family-friendly Italian restaurants, Olive Garden, he says, "owned the market."

They still do.

With 763 restaurants in the U.S. and Canada, and with sales of $3.49 billion, Olive Garden is five times bigger than its next-biggest Italian chain competitor. But sales, growing modestly, have slowed, and management is taking steps to freshen-up a product some customers say has become tired and over-priced.

"They pour subpar wine and play Dean Martin music and call it an Italian restaurant," complains Olive Garden customer Mark Athridge, 32, to the Orlando Sentinel. He says whenever he visits the chain he finds "the same thing all over again."

An Olive Garden spokesman says the chain is taking "initiatives to enhance the overall guest experience" including development of a new menu with "greater affordability" and the remodeling of more than 400 restaurants.

Dennis Lombardi, an expert on restaurant turnarounds and consultant with WD Partners in Ohio, says the recession hit chains like Olive Garden hard--or rather, it hit their customers. Baby Boomers in particular, he notes, are still reeling, having seen their retirement savings reduced or erased. They're reluctant to spend, and when they do spend are sensitive to value.

The consumer confidence index remains low at 64 as of Dec. 27. "It needs to be at 90 or above," he says, "for the restaurant business to do well."

Overall the U.S. added 100,000 restaurants in the decade before the recession hit in 2008. Analysts reckon about 20,000 need to close to bring supply and demand back into balance.

So, chains are cutting prices. Chris Muller says Olive Garden is trying to win back the price-sensitive diner with new offerings--for example, a $12.95 three-course meal.

Portion-size, he says, had always been part of the chain's appeal: "With all-you-can-eat salads and bread sticks, you could go there and take food home with you--lunch for the next day." But with more consumers worried about healthful eating and their weight, big portions are no longer such a draw. "Markets change," he shrugs.

Lombardi compares restaurant brands to relationships: "They're either getting better or they're getting worse--they're never stable. The changes may be too small to be noticed right away."

A host of factors have to be tweaked constantly to keep the appeal contemporary and competitive--menu offerings, service, price, decor. If management allows those to get out of balance, he warns, a restaurant chain "starts to teeter, like a plate spinning on a stick." The brand gets out of kilter. And the more out of kilter it gets, the harder it is to fix.