Chain restaurants are typically known for offering affordable and accessible dining options for everyone. Examples include Olive Garden’s endless soup, salad, and breadsticks, and LongHorn Steakhouse’s irresistible rolls.
Despite Darden Restaurants Inc. (the company that owns these brands) seeing a 6.8% increase in total third-quarter sales to $3 billion, CEO Rick Cardenas noted a shift in consumer behavior. Lower-income families are dining out less at their establishments compared to last year. Transactions from households earning below $75,000 and below $50,000 have decreased across all brands.
In contrast, higher-income individuals are dining out more, with households earning at least $150,000 showing an increase in transactions. This reflects an ongoing change in Darden’s income mix, highlighting a two-track economy where lower-income consumers are cutting back while higher-income families are spending more.
The Impact of Inflation on Dining Habits
Cardenas did not delve into politics during the earnings call, but his observations provide valuable insight into the state of the American consumer as the country approaches a crucial 2024 election focused on the economy. Despite positive economic data, consumer sentiment remains low, leading to what some have termed the “vibecession.” The housing market’s high mortgage rates and prices may contribute to this sentiment, but Darden’s earnings reveal a disparity between the upper-middle class and lower-income households.
Similar trends are seen in other restaurant chains, including fast-food giants like McDonald’s, which have raised prices to keep up with inflation and labor costs. McDonald’s CEO Chris Kempczinski acknowledged the challenge of appealing to low-income consumers and highlighted the affordability issues faced by many in this demographic.
Despite these challenges, Darden plans to maintain competitive pricing and offer discounts to attract customers. While lower-income households may be dining out less, certain Darden restaurants have achieved record sales, indicating a return to normalcy in terms of income diversity among diners.
