Casual restaurant chains like Olive Garden see declining sales
Casual restaurant chains like Olive Garden see declining sales
Americans’ appetite for dining out has been strong for the past few years, despite inflation eating into their wallets. But for some restaurants, that trend seems to be waning.
Darden Restaurants, which owns chains like Olive Garden and LongHorn Steakhouse, had its first same-store sales decline since the pandemic.
The first thing consumers usually do when they’re trying to spend less money on eating out is pull back on indulgences.
“I still wanna go out, but maybe when I get to this restaurant I’m not going to order that appetizer or I might not get desserts,” said Stephen Zagor, a business professor at Columbia.
Basically, the idea is to have a sit-down dining experience for less. The next shift people tend to make is when they eat; they prioritize happy hour, lunch or brunch. And finally, when things start to feel too tight to justify tipping, they trade down to fast food.
That puts sit-down chains like Olive Garden in a tough spot, Zagor said. “Yeah, they’re kinda caught in the squeeze,” he said.
They aren’t the kind of places that usually lure in higher-income customers, who are more padded to deal with inflation. Meanwhile, casual chains aren’t the most affordable option for lower-income households, according to Kevin Schimpf at Technomic, a restaurant research firm.
“I actually think that there’s a lot of overlap between the quick service consumer and Olive Garden consumer,” he said.
For many people, Schimpf said, Olive Garden has become less of a habit and more of a treat. And it’s not necessarily the kind of treat consumers are looking for right now. If they’re going to go out, they might go big.
“You know, they can go down and get a steak or something that makes it feel like they’re getting a lot for their money,” he said.
Big picture, Schimpf thinks this dip in dining is a temporary blip. That’s important for these sit-down restaurants to keep in mind, per Sean Dunlop, a senior equity analyst at Morningstar. Many competitors are hawking Dollaritas, Endless Shrimp and prices that nearly match fast food.
“The reaction from a lot of brands has been, ‘Hey, let’s increase sales at basically any cost,'” Dunlop said.
Those brands will have trouble getting rid of those deals down the line, he said. But for pasta? People will probably pay full price.
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