Olive Garden & Red Lobster to raise prices after a painful quarter

Not even a Playboy centerfold can boost Olive Garden's profits in this economy, so the restaurant is taking matters into its own hands and raising its menu prices to offset skyrocketing costs. Parent company Darden Restaurants will be raising menu prices at its Olive Garden and Red Lobster restaurants by about 3% to start its 2009 fiscal year.

The price increase is not huge, but it is on the higher end of standard for the company, which generally raises prices between 2% and 3% each year. Several economic factors have hurt Darden's profits recently, including record high meat and grain prices, minimum wage increases, and slower sales, as many customers are feeling financially pinched as well. They are either staying home or opting instead for cheaper dining options, like fast food restaurants.

Darden's first quarter profit sank 23%, and same store sales were down 1%. Like so many other businesses, these restaurants simply cannot cope with rising operational costs unless they pass some of those costs onto the consumer.

The question remains, though, as to whether customers will be willing to take on these costs. Most people are getting tighter with their money each day, and these small price hikes could be the breaking point for some. Darden recognizes the need for incentives, and plans to offer more coupons at its higher end LongHorn Steakhouse chain. The company will also offer more lobster-based promotional bargains at the Red Lobster chain, since lobster prices have declined, and will continue to look for more ways to reach out to its "price sensitive" customers -- a group that is rapidly expanding. With challenges coming from all angles, the restaurant industry is going to have to get creative if they want to meet their financial goals in 2009.

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