Olive Garden said it plans to continue raising menu prices — even as top executives admitted sales fell in the latest quarter as inflation-hit customers pulled back.
Olive Garden’s same-store sales — or sales at stores open at least a year, a closely watched metric — fell 1.5% in the quarter ended May 26 — missing Wall Street expectations for flat sales, it found the parent company of the Darden chain.
In a Thursday earnings call with analysts, Darden executives blamed the lack of sales on financial stress among its less affluent customers, who continue to grapple with rampant food inflation.
“Consumers are generally concerned about inflation and they are becoming more concerned about the labor market,” Chief Executive Rick Cardenas said on the call.
According to chief financial officer Raj Vennam, “The pull is mainly in below-median household income,” adding, “our other [customer] groups are stable or growing.”
But that’s not stopping Orlando, Fla.-based Darden. to raise prices this year. The company is loathe to discount its food to lure 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 by an average of 2% to 3% over the next 12 months.
Menu prices at Olive Garden rose 1% at the end of last year.
They will rise again this month, executives said, without elaborating.
“We’re not going to do things to buy sales even with the increased discounting that 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 eases, Vennam said.
“Last year we had a very high profit margin,” Vennam said. “It was the industry leader and we had talked about not pricing so much” this year.
It’s the second straight quarter that same-store sales have fallen at Olive Garden — following a 1.8% drop in the previous quarter.
Other major restaurant chains, including Applebee’s, Cracker Barrel and McDonald’s, whose CEOs attributed slowing sales to lower-income consumers spending less at restaurants.
McDonald’s said Thursday it is introducing a $5 meal starting next week for the summer to lure customers — mostly those making less than $75,000 a year — who have stayed away amid ever-rising menu prices. .
“We heard our fans loud and clear — they’re demanding even more value from us, and this summer, that’s exactly what they’re going to get,” McDonald’s U.S. President Joe Erlinger said in a statement.
Similarly, casual dining chains Chili’s and Applebee’s are advertising a $10.99 combo meal called “3 for Me” that includes a burger, fries, an appetizer and unlimited drinks and a meal deal “2 for $25,” which includes an appetizer to share or both sides. salad, 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 cutting house was the only brand to increase sales, posting a 4% increase in same-store sales in the quarter, the company said.
LongHorn customers stuffed their checks with “extras” including “parmesan crust” and a new lamb entree, Vennam said in the call.
Darden shares were up nearly 3% at $156 in mid-morning trading.