Although the company had negative traffic numbers in Q3, it still outperformed the industry and gained share.

The lower-income guest is apparently giving up pasta and steak in the face of economic uncertainty.

That’s the story Darden Restaurants—parent of Olive Garden and LongHorn Steakhouse—reported to investors this past Thursday. The company’s third quarter started well with a strong holiday performance in December but was hit with unfavorable weather in January and underlying softness in February due to lower-income consumers pulling back. Transactions from households below $75,000 were much lower compared to last year, according to CEO Rick Cardenas. At every brand in the Darden family, transactions from households below $50,000 decreased. The shifts were most pronounced in the fine-dining segment (Capital Grill, Eddie V’s, Ruth’s Chris Steak House).

Olive Garden’s same-store sales dipped 1.8 percent and traffic slipped 3.8 percent in Q3. Fine dining’s comps dropped 2.3 percent and other business (Seasons 52, Cheddar’s Scratch Kitchen, Yard House, and Bahama Breeze) decreased 2.6 percent. LongHorn’s comps grew 2.3 percent, but traffic lowered more than 2 percent.

The restaurant group doesn’t attribute the losses to anything it’s doing operationally. Cardenas pointed out every category in the industry, from quick service and up, had negative traffic in the quarter. Darden, to its credit, still gained share and increased its traffic and sales gap from everyone else between January and February. In fact, each of Darden’s segments saw total sales and profit increase year-over-year.

Q3 SalesQ3 Segment Profit
($ in millions)2024202320242023
Consolidated Darden$2,974.8$2,786.2
Olive Garden$1,310.2$1,301.2$294.7$293.0
LongHorn Steakhouse$730.7$695.5$136.6$121.2
Fine Dining$372.9$235.6$81.4$51.3
Other Business$561.0$553.9$83.7$77.8
YTD SalesYTD Segment Profit
($ in millions)2024202320242023
Consolidated Darden$8,432.7$7,718.8
Olive Garden$3,789.5$3,608.6$819.5$728.0
LongHorn Steakhouse$2,043.5$1,900.6$365.8$298.8
Fine Dining$964.4$621.0$177.7$120.2
Other Business$1,635.3$1,588.6$234.5$209.1

Also, even though lower-income customers are walking away, higher-income households above $150,000 are coming back. This means Darden is returning to its pre-COVID mix of customers.

“At least that makes us feel like we know how to operate in this environment,” Cardenas said during Darden’s Q3 earnings call. “We’ll continue to monitor what we see with the guests and what we see on that lower-end consumer. But we’re pleased that it’s back to our normal pre-COVID levels.”

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Darden Isn’t Concerned with Promotional Activity in the Marketplace

Don’t expect Darden to do anything drastic to win back lower-income customers. The company is firmly against becoming overly promotional and subscribing to deep discounting. It prefers to build profitable traffic by focusing on core guests and everyday value, pricing below inflation, executing at a high level within restaurants, and using word of mouth to build awareness. There’s plenty of room to do that with 1 million guests flowing through all nine of Darden’s restaurants each day. Internal metrics prove the strategy is working. All chains are at or near all-time highs for overall guest satisfaction. Also, the Capital Grill set a monthly sales record in February, and Eddie V’s reached a total weekly sales record in the same month. Olive Garden established a new sales record for Valentine’s Day.

And even though Olive Garden isn’t on air as much as its competitors, the chain is still top three in share of voice. Plus, Darden has other ways of getting in front of the consumer other than advertising. There are 25 million to 30 million active members in the company’s e-club. But that’s not to say the company would create a loyalty program; the frequency just isn’t high enough to justify it. Additionally, Darden is able to get valuable customer data from other sources, like reservations.

Cardenas also suggested there’s room for menu innovation to keep customers’ attention. But there has to be a balance between new items and improvement of existing products so menu choices remain compact and simple. Darden also doesn’t want to alienate core consumers by switching around the menu too much. This would look like limited-time offers, but not promotional ones. For instance, LongHorn currently has lamb on the menu and it’s performing well.

Regardless, Darden feels its best plan to woo customers is committing to core equities.

“We’re just focusing on what we can do right now to continue to execute better to drive results and not to drive something that’s just buying sales because we’ll have to keep buying it next year and the year after that. We don’t want to go out and buy sales. We want to go out and earn those sales,” Cardenas said. ” … We worked really hard through COVID and before to get to what we think is a better, stable, stronger business for us for the long term.”

The company is more than willing to deal with short-term pressures for the greater good. It takes the same approach with unit development. Darden expects to open 45 to 50 new restaurants during its 2024 fiscal year. That’s still within its long-term framework, but a lower range than previous years. Cardenas blamed the slower development on higher construction costs and having to walk away from some deals. It’s also taking longer to get construction started and obtain certificates of occupancy. Many openings are scheduled for the end of the fiscal year and could slip into 2025.

“We’re willing to slow it down a little bit to get a better result in the long term,” Cardenas said. “But the good news is at least the construction cost is stabilized.”

Feature, Finance, Growth, LongHorn Steakhouse, Olive Garden