In recent months, several restaurant chains including Applebee’s and McDonald’s have noticed a concerning trend of customers cutting back on dining out as they watch their budgets. To address this issue, these chains have started offering meal deals and discounts to entice customers back. However, one major player in the industry, Olive Garden, is taking a different approach.
“We’re not doing that,” stated Rick Cardenas, CEO of Olive Garden’s parent company Darden Restaurants, during an analyst call on Thursday. “Even at a time that our competitors have ramped up discounting.”
The reason behind the sudden surge in discounts from other restaurants stems from the significant price hikes many chains implemented at the start of the pandemic. Customers initially didn’t seem to mind the higher prices, but now they are pushing back. As a result, restaurants are offering temporary discounts to offset these higher menu prices.
Olive Garden has chosen to buck this trend by keeping its pricing increases relatively moderate and avoiding deep discounts. While this approach has yielded mixed results, the chain has lost its edge in terms of sales performance compared to the industry.
In the most recent quarter, sales at Olive Garden restaurants open for at least 16 months dropped by 1.5%. Despite this, Cardenas remains confident in the strategy, stating, “We think that everyday low value… is more sustainable than deep discounting to try to drive people in. This is a long game for us.”
With customers expressing displeasure over high prices, especially at fast-food restaurants, Olive Garden has managed to minimize pushback by keeping its price increases low. The chain raised prices by just 1% in the most recent quarter, hurting dollar sales but maintaining strong restaurant traffic.
Looking ahead, Olive Garden plans to continue raising prices below the overall increase for Darden’s brands, including LongHorn Steakhouse and Cheddar’s Scratch Kitchen. While the chain is not implementing drastic pricing actions, it aims to stay in line with most sit-down restaurants in the US, which saw a 3.5% increase in menu prices over the past year.
Despite the temptation to offer deals as a short-term fix for declining sales, Olive Garden is wary of the risks involved in a race to the bottom when it comes to cutting prices. Instead, the chain intends to focus on highlighting its regular offerings, such as refills for soup or salad and breadsticks, to attract customers.
Overall, Olive Garden is banking on a back-to-basics operating philosophy and positive word-of-mouth to drive sales and maintain its value proposition in the competitive restaurant industry.
