Olive Garden Woos Millennials with Smaller Portions

October 10, 2013

Olive Garden, purveyor of the Never Ending Pasta Bowl, has discovered portion control.

In an effort to attract millennials and boost flagging sales, Darden Restaurants Inc.’s Italian restaurant chain is introducing small plates, including Parmesan asparagus and grilled-chicken tapas. This amounts to a 180 degree turn for a chain that has long sold big portions to eaters who like a deal.

The challenge for Olive Garden will be encouraging diners in their 20s and 30s, many of whom shun chain restaurants, to drop by for nibbles without alienating loyal customers who convene for regular family feasts.

For millennials, “social occasions generally don’t tend to be large meals in a traditional sense,” said Darren Tristano, executive vice president at Technomic Inc., a Chicago-based research firm. “They’re looking for items they can share, sample, that allow them to graze.”

Small plates may not be “a clean fit” for Olive Garden, given its focus on families and boomers, he said.

Olive Garden created the tapas recipes about six months ago and began testing the food earlier this year in cities including Atlanta, Los Angeles and Grand Rapids, Mich.

After offering the dishes for a limited time last month, the chain plans to add them to the permanent menu in December. It’s also trying out more small plate varieties such as garlic hummus, chicken meatballs and tortelloni stuffed with cheese, to gauge customer response before introducing them nationwide.

Olive Garden has been struggling in the aftermath of the downturn as Americans eat out less. Efforts to lure cash- strapped diners with such deals as three-course dinners and $6.95 lunches haven’t helped much because Brinker International Inc.’s Chili’s and Applebee’s, owned by DineEquity Inc., are also advertising cheap eats.

As a category, sit-down restaurants are lagging behind fast food and fast casual joints. Sales at full-service restaurants will rise 2.9 percent this year to $208.1 billion, compared with a 4.9 percent gain for fast-food eateries, according to National Restaurant Association estimates.

Same-store sales at Olive Garden, which has about 820 locations, have declined in five of the last eight quarters. Darden, which also owns Red Lobster and LongHorn Steakhouse, recently announced it is “significantly” cutting Olive Garden store openings to focus on attracting new customers.

“It’s wise to slow down that growth a little bit,” said Stephen Anderson, an analyst at Miller Tabak & Co. in New York. “They’re getting very close to that saturation point in the U.S.,” which would be between 900 and 1,000 stores, he said.

The company is reworking the recipe for its crispy chickpeas after the seasoning and breading didn’t resonate with diners in testing. It also increased the size of its grilled chicken tapas from one to two skewers of meat after customers said the portion was too small to share.

“If you only have one, people are fighting,” said Jay Spenchian, executive vice president of marketing.

The small plates, priced at $4, are “expanding the way people think about Olive Garden,” he said. “The reaction has been excellent.”

While some customers grab a quick glass of wine and a small plate, others eat them as appetizers to a larger meal or to sample something they’ve never tasted before, he said.

Olive Garden has plenty of competition in the race to win over millennials. Applebee’s has introduced late-night specials such as half-price appetizers and girls’ night out to attract younger customers. Its Club Bee’s locations stay open until 2 a.m. and sell sangria and bahama mamas to the party crowd.

Outback Steakhouse, owned by Bloomin’ Brands Inc., recently sold a $10.99 steak-tasting option with two or three pieces of beef with different sauces including brandy peppercorn and Bearnaise. Cheesecake Factory Inc. has small plates including chicken samosas and fried zucchini.

More millennials are dropping by the Olive Garden in Irving, Texas, to sample the small plates, Alex Aragon, the restaurant’s general manager, said in an interview.

The tapas are “closing the gap between lunch and dinner,” said Aragon, who noted that it’s easier for the younger crowd to text and check their phones while munching hand-held bites.

Chipotle, Panera Bread Copycats Turn Up the Heat

October 10, 2013

The success of fast-casual leaders Chipotle Mexican Grill (CMG) and Panera Bread (PNRA) have attracted their share of imitators.

Fast-food giant Yum Brands’ (YUM) KFC is among the latest and biggest names in the restaurant industry to throw its hat into the fast-growing fast-casual ring.

KFC is testing a fast-casual format that makes no bones about borrowing Chipotle’s business model, in which customers choose ingredients for staffers to assemble as they walk the food line.

The test restaurant near the chain’s headquarters in Louisville is called KFC eleven. It’s been “well received,” said spokesman Rick Maynard in an e-mail. He says KFC will open a second location in the area.

“The focus is on learning everything we can at this innovation restaurant and using it to benefit the KFC brand,” he said.

The interior features dark woods and stainless steel. The logo has a rooster instead of KFC’s rendering of the white-bearded Colonel Sanders. But the “eleven” in the name pays tribute to the founder for the 11 herbs and spices used in his original recipe for fried chicken.

The menu of salads and rice bowls is built around KFC’s relatively new boneless chicken product, which have received lots of TV air time this year from “I ate the bones” commercials.

KFC eleven is the company’s attempt to “remain relevant, evolve and raise the quality for a more affluent customer,” said Darren Tristano, executive vice president of Technomic, a foodservice research firm. “The plan is to roll it out. But they need to be sure it’s working (operationally).”

Meanwhile, Starbucks (SBUX) has moved deeper into Panera territory. It’s been offering new bakery products from its acquisition last year of La Boulange Café & Bakery, a Bay area fast-casual chain. New salad bowls and sandwiches also have been rolled out recently.

“They definitely intend to be more competitive with Panera,” as well as with McDonald’s (MCD) during breakfast, Tristano said.

KFC’s sister brand Taco Bell also has been experimenting with fast-casual foods with a “Cantina Bell” menu within its existing fast-food units. Meant to compete with Chipotle but with lower prices, the menu features cilantro rice-stuffed burritos and bowls with fresh-Mex ingredients such as corn salsa, black beans and romaine lettuce.

“It’s for Millenials who desire the ‘farm to table’ feel,” said analyst Conrad Lyon of B. Riley. “It takes the freshness factor up a notch.”

The ultimate imitator of fast-casual concepts and Chipotle in particular may be Chipotle itself. It’s applying its assembly-line approach of fresh-Mex items to a spin-off called ShopHouse Asian Kitchen, inspired by the popular one-dish shop houses of Thailand.

Three restaurants are currently open, two in Washington, D.C., and one in Hollywood, with a fourth soon to open in Santa Monica, Calif.’s Third Street Promenade.

Four others in the D.C. and L.A. markets are expected to open by mid-2014, for a total of eight.

Chipotle, Starbucks and Yum Brands shares all fell less than 1% in afternoon trading in the stock market today. Panera is down nearly 2%.