Casual-dining chains are attracting customers frustrated with rising fast-food prices, according to Darden Restaurants CEO Rick Cardenas. While Darden itself hasn’t benefited significantly from this trend, its competitors, such as Brinker International (owner of Chili’s) and Dine Brands (parent of Applebee’s), have been actively competing with fast-food chains. Chili’s recently launched an ad campaign highlighting the higher prices of fast-food burgers like the Big Mac, and Dine Brands CEO John Peyton noted in May that Applebee’s has been offering deals to attract fast-food customers.
On Darden’s quarterly earnings call, Cardenas mentioned that industry data indicates a shift from quick-service restaurants to some casual dining competitors. Department of Labor data shows that as of May, full-service menu prices rose 3.5% over the past year, compared to a 4.5% increase for limited-service eateries. The overall consumer price index increased by 3.3% during the same period.
Consumers have felt the impact of more than two years of price hikes, even in fast food, which usually benefits during tougher economic times as consumers seek cheaper meals. Both full-service restaurants and grocers have been emphasizing their value compared to fast-food meals, focusing on price, experience, and quality. McDonald’s, in particular, has faced criticism for its higher prices. In an open letter, McDonald’s U.S. president Joe Erlinger responded to claims that menu prices have doubled, stating that prices have increased by 40% since 2019. The company has introduced a $5 value meal and offers free French fries on Fridays with any purchase of at least $1 through its mobile app to appeal to price-conscious customers.
Darden has employed a different strategy to attract diners, relying on television advertising and keeping its pricing lower than inflation. Despite reporting flat same-store sales growth and weaker-than-expected revenue in its fiscal fourth quarter, Darden’s earnings exceeded Wall Street’s estimates. Cardenas acknowledged that the company faces a “consistently weaker consumer environment” and increased discounting and marketing pressure from competitors. Nonetheless, Darden’s restaurants are outperforming the broader casual-dining segment.
Shares of Darden rose more than 1% in morning trading on Thursday, though the company’s stock has declined by 6% this year due to concerns about the consumer environment.
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