Olive Garden just signalled an ominous threat to the restaurant industry

The restaurant industry needs some blood-letting according to the CEO of a major restaurant chain.

The CEO of Darden Restaurants, the owners of chains such as Olive Garden and Longhorn Steakhouse, said in the company’s quarterly earnings call on Tuesday that the restaurant industry needs to see some changes in order to become healthy again.

Currently, traffic for restaurants overall is falling. There are a number of reasons for this: the relative cost of buying groceries and the shift in tastes towards smaller, local restaurants. Additionally, some restaurant CEOs have also surmised that consumer uncertainty is higher due to the election.

Darden CEO Gene Lee said that all of these issues that have led to weakness across the industry are not going away.

“I would say that as we think about the industry, we prepare our plans and we assume the industry is going to stay where the industry is going to stay,” said Lee. “we’re not assuming the industry is going to get a whole lot better.”

Lee cited consumer uncertainty for driving down sales as well.

“I think there is some real uncertainty in the near-term here, but that’s going to pass, and from a consumer standpoint,” said Lee. “I think we’re focused on the long-term.”

Despite Lee’s claims of uncertainty, consumer confidence as measured by both the Conference Board and the University of Michigan are at or near post-recession highs. Additionally, Darden itself beat on both sales for the whole chain as well as for its Olive Garden franchise. The company beat on earnings per share and raised guidance for the rest of the year.

The solution? Lee said that the closure of some restaurants in the industry at large could help to improve the outlook for everyone.

“I’m hoping that more inventory will come out of the system,” said Lee. “We’ve seen some big announcements of closures lately and I also think that if you drive down the road you’re starting to see more restaurants closed. You also see more restaurants opened, but we could use some inventory to come out. That would be helpful.”

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