Fast-food customers are shifting to casual-dining chains, Darden Restaurants CEO says

Customers arrive at an Olive Garden location in San Antonio, Texas.Callaghan O'Hare | Bloomberg | Getty Images

Casual-dining chains are gaining customers who have grown frustrated with higher fast-food prices, Darden Restaurants CEO Rick Cardenas said on Thursday.

While Darden itself hasn't benefited from the shift, its competitors, like Chili's owner Brinker International and Applebee's parent Dine Brands, have been reigniting a rivalry with their fast-food counterparts — and it seems to be working. Chili's rolled out an ad campaign that calls out the Big Mac and other fast-food burgers for their prices. Dine Brands CEO John Peyton told CNBC in May that Applebee's has been leaning into deals to win over fast-food diners.

On Darden's quarterly earnings call Thursday, Cardenas told analysts that industry data is showing "a little bit of a shift from [quick-service restaurants] to some of those competitors" in casual dining.

As of May, full-service menu prices had risen 3.5% over the last 12 months, compared with a 4.5% increase for those of limited-service eateries, according to Department of Labor data. The overall consumer price index rose 3.3% in that period.

Consumers have been feeling the pinch of the more than two years of price hikes, even with fast-food chains, which typically benefit from tougher economic environments because consumers trade down to their cheaper meals. But both full-service restaurants and grocers alike have been highlighting their own value compared to fast-food meals, whether it's the actual price or the overall experience and quality.

In particular, McDonald's has faced backlash from customers, social media users and even House Republicans for its higher prices. In an open letter in late May, the company's U.S. President Joe Erlinger hit back at critics claiming its menu prices have doubled, saying its prices are up just 40% since 2019.

Even so, it has taken steps to try to appeal to price-conscious diners. On Thursday, McDonald's announced a new $5 value meal, plus free French fries on Fridays with any purchase of at least $1 for its mobile app customers.

Darden has been using a different strategy to win over diners. It has leaned on television advertising and kept its overall pricing lower than inflation to attract customers. In its fiscal fourth quarter, the company reported flat same-store sales growth and weaker-than-expected revenue, although its earnings beat Wall Street's estimates.

Cardenas said that the company has dealt with a "consistently weaker consumer environment," as well as increased discounting and marketing pressure from its rivals. Still, executives touted that its restaurants are outperforming the broader casual-dining segment.

Shares of Darden rose more than 1% in morning trading on Thursday. The company's stock has fallen 6% this year, dragged down by concerns about the consumer environment.

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