Olive Garden said it plans to continue raising menu prices, even as executives acknowledged that sales fell in the most recent quarter as inflation kept customers away from restaurants.
Olive Garden’s same-store sales – a closely watched industry metric that measures sales at restaurants open at least a year – fell 1.5% in the quarter ended May 26, below Wall Street expectations of flat sales, the chain’s parent company Darden said.
Darden executives, on an earnings call with analysts on Thursday, attributed the sales decline to financial stress among lower-income customers who continue to suffer from skyrocketing food inflation.
“Consumers are generally concerned about inflation and are increasingly concerned about the job market,” Chief Executive Officer Rick Cardenas said on a conference call.
“The cuts are mainly happening at or below the median household income,” Finance Director Raj Vennam said. “Others [customer] The group is stable or growing.”
But Orlando, Fla.-based Darden is refraining from raising prices this year, and the company is reluctant to discount food to lure customers, Chief Executive Officer Cardenas said on a conference call.
Darden, which also operates the Longhorn, Ruth’s Chris and Capitol Grill steakhouse chains, said it plans to raise prices company-wide by an average of 2 to 3 percent over the next 12 months.
Olive Garden’s menu prices increased 1% at the end of last year.
Executives said they expect shares to rise again this month but did not provide details.
“Even if our competitors are increasing their discounts, we’re not going to do anything to make more sales,” Cardenas said. “Our focus is on growing profitable sales.”
Darden expects same-store sales growth to increase 1% to 2% in fiscal 2025, and foot traffic should improve this year as inflation falls, Venham said.
“Our margins were a little too high last year,” Venham said, “and we were at the top of the industry, so we’ve talked about not raising our prices too much this year.”
This marks the second consecutive quarter that Olive Garden’s same-store sales have declined, following a 1.8% decrease in the previous quarter.
The CEOs of other major restaurant chains, including Applebee’s, Cracker Barrel and McDonald’s, blame sagging sales on lower-income consumers spending less at restaurants.
McDonald’s said Thursday it will introduce a $5 value menu starting next week for the summer in an effort to attract customers — mostly those making less than $75,000 a year — who have shied away from the chain amid rising menu prices.
“We’ve heard our fans loud and clear: They want more from us, and this summer they’re going to get just that,” McDonald’s U.S. president Joe Erlinger said. It said in a statement.
Similarly, casual dining chains Chili’s and Applebee’s are promoting a “3 for Me” combo menu that includes a burger, fries, appetizer, and all-you-can-drink for $10.99, and a “2 for $25” menu that includes two shareable appetizers or side salads and two entrees.
Darden said LongHorn Steakhouse has surpassed Olive Garden as the best-performing chain in its portfolio.
The company said its more affordable Chop House was the only brand to see sales growth, with same-store sales up 4% in the quarter.
Venham said on the conference call that Longhorn customers were adding “menu add-ons” such as “Parmesan crust” and a new lamb entrée to their bills.
Darden shares were up nearly 3% to $156 by mid-morning.
