Olive Garden said it plans to keep raising its menu prices — even as top executives admitted that sales dropped in the latest quarter as inflation-hammered customers pulled back on visits.
Olive Garden’s same-store sales — or sales at stores open at least a year, a closely watched industry metric — fell 1.5% in the quarter ended May 26 — missing Wall Street’s expectations for flat sales, the chain’s parent company Darden revealed.
In a Thursday earnings call with analysts, Darden executives blamed the sales shortfall on financial stress among its less-wealthy clientele, who continue to grapple with rampant food inflation.
“Consumers are generally concerned about inflation and they are becoming more concerned about the job market,” chief executive Rick Cardenas said on the call.
According to financial chief Raj Vennam, “The pullback is mostly at the below-median household income,” adding, “our other [customer] groups are stable or growing.”
But that isn’t stopping Orlando, Fla.-based Darden from hiking prices this year. The company is loathe to discount its food to lure in customers, CEO Cardenas said on the call.
Companywide, Darden — which also operates the LongHorn, Ruth’s Chris and Capitol Grille steakhouse chains, says it will raise prices companywide on average by 2% to 3% over the next 12 months.
Menu prices at Olive garden rose by 1% late last year.
They will rise again this month, executives said, without giving specifics.
“We’re not going to do things to buy sales even with the increasing discounting our competitors are doing,” Cardenas said. “Our focus is on profitable sales growth.”
Darden estimates that its same-store sales growth in fiscal 2025 will increase by 1% to 2% and that customer traffic will improve this year as inflation comes down, Vennam said.
“Last year we had a little too high profit margin,” Vennam said. “It was industry leading and we had talked about not pricing as much” this year.
It’s the second consecutive quarter that that same-store sales fell at Olive Garden – following a 1.8% decline in the previous quarter.
Other major restaurant chains including Applebee’s, Cracker Barrel and McDonald’s whose CEOs have attributed slowing sales to lower income consumers spending less at restaurants.
McDonald’s said Thursday that it is introducing a $5 value meal starting next week for the summer to entice customers – mostly those earning less than $75,000 a year – who have stayed away amidst ever increasing menu prices.
“We heard our fans loud and clear – they’re looking for even more great value from us, and this summer, that’s exactly what they’ll get,” the US president of McDonald’s Joe Erlinger said in a statement.
Similarly, casual dining chains Chili’s and Applebee’s are touting a $10.99 combo meal called “3 for Me” that includes a burger, fries, an appetizer and unlimited beverages and “2 for $25” meal deal, which includes an appetizer to share or two side salads, plus two entrees, respectively.
Darden said LongHorn Steakhouse is edging out Olive Garden as the best performing chain in the company’s portfolio.
The budget-friendly chop house was the only brand to grow sales, notching a 4% same store sales increase in the quarter, the company said.
LongHorn customers padded their checks with “add ons” including “parmesan crusting,” and a new lamb entree, Vennam said on the call.
Darden’s shares were up nearly 3% to $156 by mid-morning.
Credit: Source link
