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TheStreet Open House

Olive Garden Is the Hill Darden Wants to Die On

Stocks in this article: DRIEATDINERTBWLDBLMNPNRA

PORTLAND, Ore. (TheStreet) -- The Olive Garden is now an open-floored, art-strewn replica of a Panera Bread  (PNRA) location instead of a muted, grapevine-laden replica of a Tuscan eatery.

This is Darden Restaurants'  (DRI) big plan for saving what is now its flagship chain: Stripping the faux-Italian elements, speeding up service, adding online ordering and swapping out its old logo for one that looks as if it was stolen from a short-lived mid-2000s cupcake boutique. The "Italian Restaurant" is now an "Italian Kitchen" as Darden attempts to convince customers that Olive Garden isn't the '90s strip mall parking lot casual dining establishment they remember.

This assumes that any of the above changes -- the chain's first aesthetic tweaks in 15 years -- were what was plaguing Olive Garden or Darden. Unfortunately, restaurant industry market research group NPD Group notes that casual dining has been losing customers steadily for the last five years. Since 2009 casual dining traffic has dropped 2% each year, taking roughly 7.1 million visits off the table during that span. Olive Garden's old "When You're Here, You're Family" slogan was turned into an outright lie as families with children made 1 billion fewer visits to U.S. restaurants over the past six years, compared to 306 million fewer visits by adult-only parties.

As of February, visits to casual dining establishments like Olive Garden are at a six-year low. Those visits dropped another 2% in the first quarter of 2014 despite casual dining restaurants slashing prices on their food routinely since the economic downturn. In the past six years, big casual dining chains relied on their promotional offers -- including 2-for-$20 meals -- so heavily that they accounted for 29% of all visits in 2013. That's nearly a third of customers who ate at places like Olive Garden simply because they were ridiculously cheap.

Consider that fast-food chains got roughly 27% of their business from such discounts, while independent restaurants only received about 17% of their visits through price cuts since 2006. That's dropped casual dining spending each quarter since spring of 2010 at the same time as people ages 18 through 47 have started shunning these roadside restaurants.

It not only hasn't helped traffic, but it's crushed the perceived value of those all-you-can-eat breadsticks and Tour Of Italy platters. 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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