Fast food isn't cheap anymore, and fast-casual chains are benefiting from that. Rick Cardenas, CEO of Darden Restaurants, which owns Olive Garden, Longhorn Steakhouse, Bahama Breeze and Ruth's Chris Steakhouse, said on the company's earnings call Thursday that customers fed up with high prices and inflation for burgers and fries are causing a “gradual shift” away from fast food and toward sit-down competitors.
“Consumers are really paying attention to the price they pay [everywhere]”It's not just restaurants,” Cardenas said.
“But at the same time, our guests are not managing their checks as they have in previous quarters,” he added.
The trend Cardenas points out comes at a time when consumers are viewing fast food as out of reach: 78% of Americans call fast food a “luxury” because of the price, and 60% say they'll cut back on burgers and fries because they're too expensive. Following backlash over skyrocketing prices and overpriced Big Macs, fast-food burger chains have tried to appease angry customers with discounts and promotions, such as McDonald's newly unveiled $5 value menu and Wendy's own $3 breakfast menu.
But casual sit-down restaurants are capitalizing on customers' skepticism of fast-food companies. In April, Chili's launched the Big Smasher, a double cheeseburger that looks eerily similar to McDonald's Big Mac, which comes with fries, salsa and a non-alcoholic drink for $10.99. A Big Mac meal in Miami costs $9.39, and one in Los Angeles costs $10.19.
Although Darden reported weaker-than-expected sales and slowing same-store sales growth, Mr. Cardenas promised a continued focus on value and large portions, a strategy that Bank of America analysts are confident will help the company in the long run.
“We believe that marketing that highlights the everyday value of what is available online is key. [Olive Garden’s] “The price points and highly competitive menus being promoted by competitors should support increased foot traffic differentials and improved top-line performance,” the analysts wrote in a Thursday note.
Salad Bowl Design
While Olive Garden and other Darden chains wait to reap the full benefits of better competing with fast food, some fast-casual restaurants are already seeing success.
Sweetgreen, a salad chain that brands itself as healthy, reported better-than-expected first-quarter profits thanks in part to menu expansions that include steaks and swapping seed oils for avocado and olive oil. The changes have made Sweetgreen not just an attractive lunch option for young professionals, but also an attractive dinner option. Sweetgreen followed the same strategy as Cava, the Mediterranean grain-bowl specialist that also focused on steaks and add-ons to tap into consumers' desire for larger, healthier meals.
Kava CEO Brett Schulman said the strategy of offering healthier foods, even if they're more expensive than fast food, has worked for the company.
“We're seeing a very resilient consumer across the country and across all income groups,” he told Bloomberg. “We're not seeing check management.”
Schulman compares Kava to a fast-food chain and believes the concept has been so successful because it offers high-quality food at an affordable price that chains like McDonald's or fine dining restaurants can't offer.
“Consumers are really attracted to our value proposition, and the traditional full-service dining model has struggled to deliver that value proposition to the modern consumer,” he said. “As the prices of traditional fast food have skyrocketed, the relative value proposition of our serve Mediterranean cuisine has improved.”
