Customers arrive at an Olive Garden location in San Antonio, Texas.
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Casual dining chains are winning over customers frustrated by higher fast food prices. Darden Restaurants CEO Rick Cardenas said Thursday.
While Darden itself hasn’t benefited from the shift, its competitors, like the owner of Chili, have Brinker International and Applebee’s Parent Dine brands, have reignited a rivalry with their fast food counterparts – and it seems to be working. Chili’s has launched an advertising campaign touting the Big Mac and other fast food burgers for their prices. Dine Brands CEO John Peyton told CNBC in May that Applebee’s had struck deals to win over fast food restaurants.
On Darden’s quarterly earnings call on Thursday, Cardenas told analysts that industry data showed “a slight shift.” [quick-service restaurants] compared to some of these “competitors” in the casual dining space.
As of May, full-service menu prices had risen 3.5% over the past 12 months, compared with a 4.5% increase at limited-service restaurants, according to Labor Department data. The overall consumer price index rose 3.3% during this period.
Consumers are feeling the pressure of more than two years of price increases, even at fast-food chains that typically benefit from a tougher economic environment as consumers forego their cheaper meals. But both full-service restaurants and grocers alike emphasize their own value compared to fast food, be it the actual price or the overall experience and quality.
In particular, MC Donalds has faced backlash from customers, social media users and even House Republicans over its higher prices. In an open letter in late May, the company’s U.S. president, Joe Erlinger, hit back at critics, claiming menu prices had doubled. Prices have risen by 40% since 2019.
Still, the company has taken steps to appeal to budget-conscious guests. On Thursday, McDonald’s announced a new $5 meal for its mobile app customers, as well as free fries on Fridays with any purchase of $1 or more.
Darden is pursuing a different strategy to win over guests. To attract customers, the company relied on television advertising and kept its overall prices below inflation. In the fiscal fourth quarter, the company reported flat same-store sales growth and weaker-than-expected sales, although profits beat Wall Street estimates.
Cardenas said the company was struggling with a “persistently weaker consumer environment” as well as increased discounting and marketing pressure from its competitors. Still, executives emphasized that the restaurants are outperforming the broader casual dining segment.
Shares of Darden rose more than 1% in morning trading Thursday. The company’s stock has fallen 6% this year, driven by concerns about the consumer environment.
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2024-06-20 17:52:55
www.cnbc.com
