More Food at Olive Garden and Carrabba's May Be a Problem

By Markets

Image source: Olive Garden.

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We may or may not be in a "restaurant recession," but some casual dining chains are going to extremes to woo customers.Darden Restaurants(NYSE: DRI)is back with Olive Garden's "Buy One Take One" promotion, where diners ordering from a select menu can take one of four pasta dishes home when they leave. The promotion began in mid-August. It's billed as a "limited time" offer, but there is no firm end date to the deal.

lt's not alone. Bloomin' Brands' (NASDAQ: BLMN) Carrabba's is offering a somewhat similar deal, but only for this week. Its latest Amici Club offer -- available to anyone that mentions it -- gives anyone ordering a spaghetti entree a complimentary spaghetti and meatballs order to go. The Carrabba's deal ends on Sunday.

Darden Restaurant and Bloomin' Brands require the first order to be a dine-in order with the freebie available only as a takeout order at the end of the meal. They wouldn't dream of making it an outright BOGO for dine-in or takeout customers, but in the eyes of the restaurant industry, it has to feel pretty much the same. It's another round of deep discounting at a time when the industry is truly smarting.

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Folks aren't dining out the way they used to. Industry tracker NPD Group claims that lunch visits to restaurants plunged 4% during the second quarter when pitted against the prior year's levels. The situation is worse at casual dining chains -- that category includes Darden Restaurants and Bloomin' Brands -- where visits are off by a sharp 6%.

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Carrabba's Italian Grill experienced a 4.8% drop in comparable-restaurant sales during the quarter. Olive Garden fared considerably better. Its comps actually grew 1.6% in its latest quarter, but that fiscal period ended in May. We'll get a closer look at Darden Restaurants when it reports quarterly results for its summer quarter next week.

There is no shortage of reasons for the industry's downturn. Supermarket chains and even convenience stores are getting better in improving the quality of their prepared meals. The boom of "better burger" chains and food trucks also can't be helping traditional operators. Some analysts argue that the value proposition has been tweaked as food costs have generally moved lower over the past year, making it even cheaper to eat at home. Restaurants would normally pass along those savings, but they're stuck with higher labor and general operating costs now, making the drop in traffic even more problematic.

That brings us back to what Darden Restaurants has been doing for more than a month and what Bloomin' Brands is kicking around this week. Why give diners a second meal on the way out at no additional cost? The last thing that someone wants after having a heaping portion of pasta is more pasta to eat later. If I had Olive Garden meals back-to-back I'd be less likely to return soon to my local outlet than if I had consumed just one of their signature meals. Having two restaurant-quality meals also makes it less likely that I hit up any restaurant.

Darden Restaurants will argue that it knows what it's doing. It did this at Olive Garden last year, too. Bloomin' Brands is just following the leader. However, it seems like the wrong response to a problem that is weighing on the near-term fortunes of the casual dining industry.

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.