High-End Dine-In Divides: Darden Faces Lower-Income Diner Downturn

📝 SUMMARY: Darden Restaurants Inc. ($DRI), owner of popular chains like Olive Garden and LongHorn Steakhouse, is navigating a challenging economic landscape as lower-income consumers cut back on dining out, affected by tough operating conditions and unfavorable weather. CEO Rick Cardenas highlighted a significant decrease in transactions from households earning below $75,000, which has impacted the company's revenue stream and contributed to a missed sales forecast. This downturn was particularly evident following a 1% traffic reduction in January due to bad weather and an exposure of consumer weakness in February, notably in Texas and California.

In contrast, Darden observed an increase in spending from households with incomes over $150,000, marking a shift from previous quarters and indicating a divide in consumer behavior. This trend has notably benefited the company's fine-dining brands, such as Capital Grille and Ruth’s Chris Steak House, which saw a 58% sales increase from the previous year, against a backdrop of 7% overall company sales growth.

The broader restaurant industry reflects these patterns, with low- and middle-income consumers facing financial strain from high credit card balances and delinquencies, while higher-income consumers enjoy the benefits of rising stock, crypto, and home prices. Despite these challenges, Darden intends to continue offering prices below inflation to attract customers, avoiding heavy promotions. The company's restaurant margin improved to 21.7%, thanks to lower-than-expected commodities and labor inflation—a trend consistent with wider U.S. economic observations. Looking ahead, Darden anticipates a 3% increase in costs for commodities except seafood in the upcoming quarter.

🔍 SOURCE: https://www.bloomberg.com/news/articles/2024-03-21/olive-garden-owner-darden-seeing-lower-income-customers-spend-less?srnd=industries-v2