The competition in the dining business is getting brutal. New competitors pop out of the woodwork and moving to new areas can be tough. Applebee's learned that wooing a "more youthful and affluent" customer base doesn't help if they don't love you. So it went back to Middle America and all-you-can-eat and 2-for-$20 specials.
Now it's Olive Garden's turn. Or, rather, the brand's owner, Darden Restaurants, as the New York Post put it.
Comparable sales across Olive Garden’s 900 eateries nationwide rose 1.5 percent -; their skimpiest increase in two years -; and likely would have dropped if management hadn’t begun dangling discounts in late September for the nine-week promotion, officials admitted.
There was also an additional 1.1 percent growth from new locations. But the big focus in retail establishments is on comparable sales because it's a way to see the strength of the ongoing business. And Olive Garden wouldn't have grown even this much except for a last minute rescue by that one popular promotion, as Darden CEO Gene Lee said during the earnings call:
As a reminder, Olive Garden had a difficult promotional ramp to start the quarter with Lasagna Mia comping over Buy One Take One for the first four weeks. Additionally, we made some changes to our promotional messaging and we reduced marketing spending. As a result, we had to make up some ground from negative same restaurant sales at the beginning of the quarter. Sales trends improved as we moved into Never Ending Pasta Bowl with more comparable marketing spend.
Let's break that down. Lasagna Mia was a customizable lasagna promotion in which people got a choice of sauce to go on top. Buy One Take One let a diner pay an extra $5 to take an additional entrée home. Comping over? Normally in a restaurant, comping means providing something for free, often because the restaurant screwed up somehow. In this case, it sounds more like in jazz, where comping is playing accompaniment to a soloist. Whichever way you take it, combined with reduced marketing expenditures and new messaging, it sounds bad. Notice that it wasn't slow growth, but negative early in the quarter.
Two things saved them: more marketing money and that Never Ending Pasta Bowl. As Wedbush Securities analyst Nick Setyan told the Post, "Olive Garden felt that it could roll back on the promotional cadence now because the economy is doing well." Only, they were wrong.
Olive Garden had a taste of the same lesson that Applebee's faced. You can't suddenly decide that your business wants a different type of customer, whether that means a replacement demographic or a shift in attitudes among existing patrons because it would be convenient and more profitable for you.
There's a business concept that a company needs permission from its customers. Seth Godin wrote about permission marketing in the sense of delivering relevant messages to consumers who have the option to tune you out.
But it's broader and applies to branding. A brand is a compact with customers. Your company provides certain products and services delivered in particular ways and people pay money to get them. The relationship is a contract. To change the underlying brand promise, a company needs customers to provide permission. As Yale's Center for Customer Insights explains:
For example, a product can be well accepted, but some channels or pricing strategies may be taboo to the consumer. Would consumers give permission to Pepsico to sell their unhealthy snacks in schools? How about giving permission to a soft drink company to charge higher prices on a hot summer day? Brand permission is the study of these limits that are rarely understood until they are broached.
In other words, a company may establish its brand, but it doesn't unilaterally control it. As the Center for Customer Insights articulated it, consumers perceive norms for brands. The norms can vary significantly, even for competing products that would seem similar.
The article mentioned a problem that Pepsico’s Tropicana fruit juice brand had when trying to update its packaging for a more modern look. Sales fell by 20 percent in the first month. Now, was it a matter of consumers getting mad that the company had the temerity to redesign the packaging? Or was it a more practical matter, that they looked for the old packaging, the company didn't bother to introduce the new look to aid in a transition, and so they bought something else because they didn't see what they expected?
My bet would be the latter. Perhaps you've had the same experience of scanning a shelf for set of colors or shape you expect to find, only to be jarred when you realized that a company changed its packaging. Possibly you didn't find the item at all.
People embrace brands for their own reasons. For Olive Garden, as with Applebee's, it was for price-driven promotions. When the brand no longer delivers, customers go elsewhere.