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Red Lobster Needs to Go Local or Die

Stocks in this article: DRI EAT CMB PNRA DIN BLMN

PORTLAND, Ore. (TheStreet) -- Red Lobster and its struggling casual dining cohorts don't need more deals or better decor to keep customers: It just needs some quality and even the faintest suggestion that its local diners matter.

There was a time when casual dining paid at least lip service to the notion that restaurants should not only draw repeat business, but should be neighborhood fixtures. Pre-DineEquity (DIN), Applebee's filled its walls with local high-school tchotchkes and made its case as a post-graduation, Thanksgiving Eve community meeting place. For years, Olive Garden's pitch was "When You're Here, You're Family." Even Red Lobster was positioned as the "fancy" dining option -- or only seafood option -- in many suburban U.S. towns. At the very least, DineEquity's IHOP had its peaked ceilings, Olive Garden had its Tuscan decor, and Ruby Tuesday had its salad bar and Tiffany-style lamps.

At some point, all of these ideas became "outdated" and the food was left to stand on its own. What resulted was absolutely awful. Sales at Red Lobster have been sliding since the last recession, with same-store sales last quarter down 4.5%. It parent company, Darden Restaurants  (DRI - Get Report), flirted with the idea of ditching wait staff for counter service, spinning Red Lobster off into its own division and tinkering with both the menu and pricing. Darden increased the number of chicken and beef items offered at Red Lobster from 8% of the menu to nearly a quarter of it, but its 2-for-$25 and 2-for-$30 meal deals not only couldn't match competitors' offerings, but hurt Red Lobster's little remaining chance of being a premium brand.

Meanwhile, Darden added low-calorie options to Olive Garden's menu and changed its slogan to the more fast-paced "Go Olive Garden" and tore down its faux-Tuscan decor in favor of a more streamlined look. It even replaced Olive Garden's president early last year in an effort to boost results. Olive Garden's sales remain stagnant, but it's not the only casual dining chain that's suffering.

NPD Group notes that the number of restaurant visits driven by deals rose between 3% and 5% at the height of the recession in 2008 and 2009, but slumped 3%in 2012. The cost of dinners out rose nearly 3% over the last year, according to the Consumer Price Index. That's more than the overall rate of inflation and isn't helped when a $10 promotional meal jumps to $12 or $14, jacking up the price 20% to 40%. Combined with drops in casual-dining spending reported by NPD Group every quarter since spring of 2010 and the gradual shunning of roadside chains by people ages 18 through 47, casual dining is having a tough go of it.

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