Have Americans Lost Their Taste for Italian Food, or Has Olive Garden Done Something Wrong?
Sales at the once-popular Italian chain Olive Garden are plummeting, and it's not because Americans have lost their taste for Italian food or full-service dining. It appears, rather, to be a case of mismanagement at parent company Darden Restaurants .
During the past few years, it's been widely assumed that the proliferation of fast-casual chains like Chipotle Mexican Grill has eroded the market share of full-service restaurants such as Darden's Olive Garden and Red Lobster -- click here to read about Chipotle's phenomenal success and the massive opportunities that still lie ahead for the burrito-slinging chain.
According to research from The NPD Group, a consulting company catering to the restaurant industry, annual traffic growth in the fast-casual segment "far surpassed" every other group for the fifth-consecutive time last year. Its data showed that visits to fast-casual restaurants were up 8% in 2013 over the prior year, while there was no growth at all for the total industry.
The implication is that sales in other segments must have fallen. And to a certain extent, of course, this can't be denied. We saw this recently when McDonald's reported that its domestic same-store sales dropped on a year-over-year basis by 1.7% in the three months ended March 31. And we've seen similar performances from numerous other companies in both the quick- and full-service dining segments.
But while these trends can't be denied, they also don't fully explain the dismal performance at Darden's flagship chain, Olive Garden. To appreciate this, all you have to do is compare its performance to that of Maggiano's Little Italy and Carrabba's Italian Grill, both of which are Italian-themed full-service competitors -- for the record, the chart below only includes Maggiano's, as Carrabba's publicly available same-store sales only go back to its parent company's initial public offering in 2012.
As you can see, Maggiano's has reported positive same-store sales every quarter since the beginning of 2012. Meanwhile, Olive Garden's comps have been positive in only three out of the past 11 quarters. And the same is true of Carrabba's. During the past seven quarters, it's reported negative comparable sales only two times versus five periods of declining comps at Olive Garden.
The net result is that at least the magnitude of Olive Garden's problems appears to be self-inflicted. Does this mean Darden's stock isn't a good investment? Not necessarily, as one could always hope for a turnaround. At the same time, however, it's certainly an ominous sign that Darden's shareholders should keep in the forefront of their minds.
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The article Have Americans Lost Their Taste for Italian Food, or Has Olive Garden Done Something Wrong? originally appeared on Fool.com.John Maxfield has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill and McDonald's. The Motley Fool owns shares of Chipotle Mexican Grill and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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