Fast food is no longer cheap, and fast-casual chains are benefiting from it. Rick Cardenas, CEO of Darden Restaurants—which owns Olive Garden, Longhorn Steakhouse, Bahama Breeze, and Ruth’s Chris Steak House—said during the company’s Thursday earnings call that consumers are seeing “a little bit of a shift” from fast food to its sit-down competitors due to the high cost of burgers and fries and inflation-weary customers.
“The consumer is really focused on what price they’re paying [everywhere], not just in restaurants,” Cardenas said.
“But at the same time, our guests aren’t managing their check like we’ve seen in prior quarters,” he added.
The trend Cardenas notes comes at a time when consumers are seeing fast food as unaffordable, with 78% of Americans calling fast food a “luxury” because of its price tag, and 60% saying they plan to cut back on burgers and fries because they’re so expensive. After backlash over surge pricing and overpriced Big Macs, fast-food burger chains have worked to placate angry customers with discounts and promotions, such as McDonald’s newly announced $5 value meal and Wendy’s own $3 breakfast meal deal.
But casual sit-down restaurants are taking advantage of customers’ skepticism of fast food companies. Chili’s rolled out its Big Smasher in April, a double cheeseburger bearing eerie resemblance to McDonald’s Big Mac, which—alongside chips, salsa, and a bottomless nonalcoholic drink—retailed for $10.99, compared to a $9.39 Big Mac meal in Miami and $10.19 meal in Los Angeles.
Darden reported weaker-than-anticipated revenue and slow same-store growth—but Cardenas pledged to continue to focus on value and big portions, a strategy Bank of America analysts are convinced will help the company in the long run.
“We believe that marketing highlighting the sharp everyday value available on [Olive Garden’s] menu — extremely competitive with the price point value competitors are promoting — should support a widening traffic gap/improving topline,” analysts wrote in a Thursday note.
The salad bowl blueprint
While Olive Garden and other Darden chains are waiting to feel the full benefit of leaning into its competitive edge over fast food, some fast-casual restaurants are already winning.
Better-for-you-branded salad chain Sweetgreen’s first-quarter earnings soared above expectations in part thanks to its expanded menu, which included steak and the replacement of seeds oils with avocado and olive oil alternatives. The changes have made Sweetgreen not only an appealing lunch option for young professionals, but also an appealing dinner prospect. Sweetgreen followed the same playbook as Mediterranean grain bowl spot Cava, which also leaned into steak and add-on menu items, successfully appealing to consumer’s desire for big portions and healthier food.
Cava CEO Brett Schulman said the strategy of healthier foods, despite being pricier than fast food, has worked for the company.
“We’re seeing a very resilient consumer consistent across the country and across all income brackets,” he told Bloomberg. “We’re not seeing check management.”
Comparing Cava to fast-food chains, Schulman believes his concept is so successful because it can promise what chains like McDonald’s and nicer sit-down restaurants can’t: higher-quality food at an affordable price point.
“Consumers are really gravitating to our value proposition, where the traditional full-service dining model has been struggling to deliver that value proposition to a modern consumer,” he said. “As prices have increased at a faster pace in traditional fast-food, it’s improved the relative value proposition of our helpful Mediterranean cuisine.”
This story was originally featured on Fortune.com
Source Agencies
