This past Monday Olive Garden, a chain of 800+ locations that that serves Italian food began offering passes that gave 1,000 people the chance to eat as much pasta as they wanted for seven weeks. The passes cost only $100 and entitled the holder to any kind of pasta dish. Plus, the pass holder and everyone who ate with the pass holder got unlimited soda. A few days before the promotion I gave a lecture that emphasized well- run companies focused on making a profit. One of my students asked “Why would any business do something this crazy, since Olive Garden was going to make a loss, not a profit, on every pass sold?”
Some simple math shows Olive Garden likely made a profit, not a loss, when running this promotion even if every pass was sold to a ravenous individual. To keep the math simple, let’s assume the company simply gave the passes away for free, instead of charging $100. Let’s also assume that a person who bought the pass goes 50 times, which is once a day for seven weeks plus an extra time for indigestion.
Olive Garden’s website shows that their pasta with toppings costs around $14 a dish at dinner. However, it does not cost Olive Garden $14 to serve a plate of pasta with chicken or meatballs. Using some rough figures my guess is it costs Olive Garden about $7 per dish. Let’s assume the person is ravenous and can eat three plates of food every time they walk into an Olive Garden. Rounding again to keep the math simple means the person costs Olive Garden about $20 worth of pasta per day.
Let’s put these figures together to figure out how much it will cost Olive Garden at a maximum.
50 visits X $20 per visit X 1,000 people ==> $1 million.
For a maximum cost of $1 million Olive Garden got a huge amount of publicity. As the picture at the end of this post shows, it made ABC news, Fox, Time, and other media channels. They even got written up in this blog. Wow, that is a great promotion! The costs were at most $1 million and the benefits in free advertising were worth many millions more.
Moreover, it is doubtful that the pass holders will eat $1 million worth of pasta. People like variety. Many individuals do not want to go to the same restaurant 50 times in a row. We marvel at movies like “Supersize Me” which focuses on a man who ate only McDonalds food for an entire month since they are so unrealistic. My guess is that the typical pass will probably be used only two or three times a week, just so pass holders don’t get sick of eating pasta.
It is also very hard to eat three plates of Olive Garden pasta in one sitting. Olive Gardens’ dinner size spaghetti with meatballs contains 1,120 calories, without including a soda. Eating three plates means consuming 3,360 calories, which is well in excess of the 2,000 calories most people consume in a day. Other pasta dishes like their Chicken Alfredo (1,540 calories) are even more filling than spaghetti with meatballs. This means few people are able to consume three plates and will likely eat just one or two.
Together, this suggests Olive Garden’s actual costs are not a million dollars, but instead less than 1/3 of a million dollars. Olive Garden, however, gets revenue from the promotion. They earned $100,000 from selling the passes. Coca Cola likely paid Olive Garden thousands of dollars to be highlighted in the promotional materials. Finally, Olive Garden increased their sales because the publicity made people think about eating spaghetti. It certainly did in my family. Together, Olive Garden’s revenues from this promotion are in the same range as their costs. Add in a side order of millions of dollars of free publicity and Olive Garden’s pasta pass looks like a very profitable dish.