Casual-dining chains are seeing a shift in customer preferences as people become frustrated with rising fast-food prices, according to Darden Restaurants CEO Rick Cardenas. While Darden itself hasn’t seen the benefits of this shift, its competitors like Brinker International, the owner of Chili’s, and Dine Brands, the parent company of Applebee’s, have been successfully attracting customers away from fast-food chains. In fact, Chili’s launched an ad campaign that specifically targets the high prices of fast-food burgers like the Big Mac. Dine Brands CEO John Peyton also mentioned that Applebee’s has been focusing on deals to entice fast-food diners.
During Darden’s quarterly earnings call, Cardenas shared that industry data is indicating a slight transition from quick-service restaurants to casual dining establishments. This shift is likely due to the fact that full-service menu prices have risen 3.5% over the past year, compared to a 4.5% increase for limited-service eateries. The overall consumer price index has also gone up by 3.3% in that same period. This means that consumers are feeling the impact of price hikes and are searching for alternatives that offer better value for their money.
Even fast-food chains like McDonald’s have faced criticism for their higher prices. Customers, social media users, and even House Republicans have raised concerns about the cost of meals at McDonald’s. In response, the company’s U.S. president, Joe Erlinger, defended its pricing by stating that menu prices have only increased by 40% since 2019, not doubled as some claim. Despite this, McDonald’s has taken steps to appeal to price-conscious diners by introducing a new $5 value meal and offering free French fries on Fridays for mobile app customers who make a minimum purchase of $1.
Darden has employed a different strategy to attract customers. The company has focused on television advertising and has kept its prices lower than inflation to entice diners. Although Darden reported flat same-store sales growth and weaker-than-expected revenue in its fiscal fourth quarter, its earnings still surpassed Wall Street’s estimates. Executives from the company also highlighted that Darden’s restaurants are performing better than the overall casual-dining segment.
While concerns about the consumer environment have caused Darden’s stock to fall 6% this year, shares rose over 1% following the announcement of their quarterly earnings. Despite facing a consistently weaker consumer environment and increased pricing pressure from competitors, Darden remains optimistic about its ability to outperform the broader casual-dining industry.
In conclusion, as consumers continue to feel the impact of rising prices, they are turning away from fast-food chains and exploring other options like casual-dining establishments. This shift has prompted companies like Chili’s and Applebee’s to introduce competitive pricing and deals to attract fast-food customers. Meanwhile, Darden has relied on television advertising and lower prices to win over diners. While the consumer environment remains challenging, Darden is confident in its ability to outperform its competitors in the casual-dining segment.
