A lettuce production problem costs Olive Garden owner millions


New York
CNN

High lettuce costs are coming for Olive Garden’s never-ending salad.

Darden Restaurants, which owns the casual dining chain in addition to Longhorn Steakhouse, Cheddar’s Scratch Kitchen and other restaurant chains, said that a spike in wholesale lettuce prices led to a big hit in the quarter ending November 27.

“It was, call it, $4 million to $5 million impact in the quarter,” Darden CFO Raj Vennam said during a Friday analyst call discussing financial results. “That’s meaningful.”

He pointed to “poor growing conditions and weather-related events” as reasons for the price increase.

Extreme weather like droughts and flooding, in addition to produce and animal diseases, have squeezed supply and led to wild price swings across food items this year.

The price of eggs, for example, has been soaring because of a deadly avian flu that’s harming egg-laying hens. In Florida, a disease called citrus greening is killing orange trees and leading to predictions of historically low production.

Darden anticipated high prices for items like dairy, grain and chicken, Vennam noted. But the lettuce prices were “a big surprise.”

Crop disease in California, where much of the country’s lettuce is grown, has hit lettuce supply and forced prices to rise.

This year there was “a high incidence of virus infection that has affected the crop quite significantly in some fields” in California, Almuhanad Melhim, a fruit and vegetable analyst at Rabobank, previously told CNN. “That led to really low supply and low quality of lettuce.”

The shortage was exacerbated by a normal seasonal transition that happens in the fall, Melhim explained, when production moves from California to Arizona. The crop virus in addition to the geographical shift “was the perfect recipe for really historically high prices,” he said.

High lettuce prices are hitting consumers in the grocery store, as well.

In the year through November, not adjusted for seasonal swings, lettuce prices jumped nearly 20%, according to recent data from the Bureau of Labor Statistics. The leafy vegetable’s price rose almost 9% from October to November alone, seasonally adjusted.

Consumers have been paying more at restaurants, as well.

Darden (DRI) said that its restaurants raised menu prices about 6.5% in the quarter compared to the year before. Still, sales at Darden (DRI) restaurants open at least a year grew 7.3% in the quarter, led by Olive Garden with an increase of 7.6%.

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