Inflation came hard and fast after the pandemic, and we have been watching it hit the restaurant industry for nearly two-plus years. Around this time last year, analysts saw restaurant inflation supersede inflation at the grocery store, signaling an impact on diners’ choices to stay in or eat out. And now, reviewing data from the industry’s third quarter, those effects have been fully realized and experts are seeing a decline in lower-income families dining out, especially in casual establishments, according to this report from Nation’s Restaurant News (NRN).
Darden Restaurants, the parent company of casual dining establishments such as Olive Garden, has tracked Q3 data that suggests a return to COVID level habits in lower-income customers. “‘The lower income consumer does appear to be pulling back,’ said Rick Cardenas, Darden president and CEO, on an earnings call with analysts, ‘and the mix of guests based on income is now in line with pre-COVID.’”
According to Darden’s earnings data, numbers are still up in 2024 over 2023. “For the third quarter ended Feb. 25, Darden’s net earnings were $312.9 million, or $2.60 a share, up from $286.6 million, or $2.34 a share, in the same quarter a year ago. Sales increased to $2.975 billion from $2.786 in the prior-year period.”
However, watching customer behaviors is a key factor in preparing restaurant businesses for future trends and necessary adjustments. “‘We’re clearly seeing consumer behavior shifts,’ Cardenas said.” He adds that “Darden brands know how to operate in an environment where the lower-end consumer was pulling back, such as highlighting value without discounting and maintaining low staff turnover, which reduces training costs.”
It is the marketing and operations shifts that restauranteurs should be prepared for—and our restaurant consultants are experts in menu engineering and adjusting marketing efforts for customer service and profitability through economic shifts. Richard Weil, owner, and principal of National Restaurant Consultants notes, “Industry analysts and some of the largest brands in the foodservice and hospitality industry are experiencing reduced visits by middle- to lower-income guests. Experts are developing concepts to entice these customers back in with creative ideas from bundles, to early-bird specials, even on weekends.”
For Darden, though numbers have increased from 2023, the quarter-to-quarter data suggests these preparations are necessary. “Same-store sales in the third quarter declined 1% systemwide, including a decline of 1.8% at Olive Garden, an increase of 2.3% at LongHorn, a decline of 2.3% in its fine-dining division and a decline of 2.6% in its other business,” reports NRN.
Proper preparation according to the data can support month-to-month profitability, as well as long-term growth. Even as the quarterly data suggests slow declines, Darden is still preparing for up to 100 new restaurant openings throughout 2024 and into 2025, though they are proceeding cautiously.
If your restaurant is in the casual dining bracket, we recommend careful observation of diner habits over the coming months. Working with a restaurant consultant to engineer your menu according to consumer data will go a long way in profitability for the remainder of 2024 and into the coming year.