The Math Behind Olive Garden's 'Never Ending Pasta Pass'
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What is the main topic discussed in this episode?
Here's your Money Briefing. I'm J.R. Whelan at The Wall Street Journal in New York. Who doesn't love to go to the Olive Garden? It's a great restaurant, but how does it stay in business by offering its never-ending pasta pass every year? Wall Street Journal news editor Lee Hawkins takes over the interviewer's chair in a moment to get to the bottom of the pasta bowl. First, some money and market news you should know. American shoppers gave the U.S.
What current consumer and retail sales trends frame this Money Briefing?
economy a boost in July, but their outlook for the rest of the year is growing a bit cloudy. The Commerce Department says their retail sales rose 0.7 percent in July compared to June, but the latest reading of consumer sentiment fell to a seven-month low. The survey of consumers shows the interest rate cut by the Federal Reserve, as well as the ongoing trade battle with China, is beginning to weigh on consumer shopping spirits. Now, the news isn't dire. Despite the pullback in sentiment, including the feeling that inflation will inch higher in the coming months, the measurement of how consumers view the future is still at a historically high level. And teens as well as those in Generation Z are likely to be happy about their finances.
Summer unemployment among young Americans is the lowest it's been since the 1960s. The Labor Department says that for Americans between ages 16 and 24, the jobless rate ticked down to 9.1% in July from 9.2% a year ago. That's the lowest such rate since July 1966. Let's digest these numbers just a bit. The jobless rate reflects a lower labor participation rate among young people, That's mainly because more students are taking summer courses or building their resumes with unpaid internships, which indicates a shift to a knowledge-based economy. Also, wages from summer jobs are unlikely to make a dent in tuition costs, and that deters some would-be summer workers. Up next, Lee Hawkins on the legend of the Olive Garden's unlimited pasta pass.
Darden Restaurant's next earnings report comes in September, and the balance sheet of its flagship brand, Olive Garden, is closely followed by investors. The restaurant chain has seen great success over the past four years with its never-ending pasta pass, which lets customers pay $100 for a card that gives them unlimited food for nine weeks. And 50 of those people spent $500 to eat unlimited pasta for a lifetime. How does this promotion help Olive Garden cook up success? Let's check in with WSJ Heard on the Street editor Spencer Jacob to help us break down the numbers. So, Spencer, I know you said $100 for unlimited food, but there are actually limits. You have to pay extra for things like drinks.
So is that where Olive Garden makes its money?
First of all, it's a great promotion. I mean, you know, there are just dozens and dozens of articles, including in our paper, about the promotion. So it's great publicity for the chain. Second of all, it's coming at a time of year when their restaurants are not that full. And, you know, in September, October, November, you know, they're not really packed. And so it's not like people are going to be like, you know, standing in line and waiting for all these pasta pass people. Also, you know, go and eat in Olive Garden. Are you going to eat by yourself? Are you going to bring, you know, your wife or your husband or your kids? You know, unless they have pasta passes, they're paying customers. Also, you know, you're probably going to get a drink.
You're going to get dessert. So it's difficult for them to lose money. They have a calculation that, you know, if you were just going in there and just eating by yourself, that by the ninth time you ate pasta, you know, you'd be breaking even. On average, people eat 14 times. That was the number last year. So people are getting their money's worth. But pasta is not that expensive.
And Wall Street is on board with this promotion?
Wall Street likes it because the results have been pretty good. Since 2014, they've been doing this. And 2014 happens to be about the time that they really turned this chain around.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:05–0:27
2
What current consumer and retail sales trends frame this Money Briefing?
0:27–4:43
3
How did summer unemployment and youth labor trends factor into consumer sentiment?
4:43–8:13
4
What is Olive Garden’s Never Ending Pasta Pass and how long does it last?
8:13–11:15
5
How does Olive Garden make money from the $100 pasta pass despite unlimited meals?
11:15–11:40
Speakers
3 identifiedMore from WSJ Your Money Briefing
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