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As fast-casual and fast-food chains continue to struggle with inflation and the costs that come with it, another American restaurant has announced it will raise menu prices to offset costs.
Olive Garden, whose parent company Darden Restaurants reported its fourth-quarter and full-year 2024 results on Thursday, expects price increases to be slow and reflect inflation next year.
“The good news on prices is that we have actually kept prices very moderate over the last five years. So we expect prices this year to be more in line with inflation, around 2.5 to 3%. [increase] “We'll probably stay in some range,” Darden Restaurants CFO Raj Vennam said during the quarterly earnings call. “But as we think about how that's going to spread out, we expect it to be more consistent quarter to quarter.”
Related: 'Customers haven't returned': Kevin O'Leary warns more restaurant closures are imminent due to 'inflation virus'
Olive Garden had a relatively weak fourth quarter, reporting a 1.5% quarterly decline in store sales, although Vennam noted that the chain's in-store guest count was 60 basis points above the fast-casual industry benchmark.
“If you look at the last five years, we've been charging way too low prices, and that gives us some flexibility, and we've talked about it before,” Vennam explained, noting that Olive Garden raised prices by about 1% in the fourth quarter. “We feel like we've done a lot of work to keep prices low, and we're going to continue to do that.”
Darden explained that the general concern of companies right now is the group of consumers whose incomes are below the median household income of about $75,000 per year.
“Consumers are generally concerned about inflation and they are increasingly concerned about the labor market. And what we are seeing are some behavioral changes that we had already noticed before,” Rick Cardenas, CEO of Darden Restaurants, told investors on Thursday's conference call.
Related: Olive Garden secretly sells its cheese graters, syrups, art
Inflation has become a widespread problem for fast-casual restaurants across the country, including Red Lobster, which filed for Chapter 11 bankruptcy last month.
“The consumer is really paying attention to the price they're paying everywhere, not just at restaurants,” Cardenas said. “And when you think about the cost they have to pay for non-discretionary spending, it's been rising faster than wages for several years, and that's eating into discretionary spending.”
“Shark Tank” star Kevin O'Leary also spoke about restaurant closures, saying consumers should not expect it to end anytime soon.
“Supply chains crippled by the Covid pandemic have not recovered. Food costs – particularly for proteins such as chicken, beef and seafood – have risen 30 to 40 percent over the past 36 months,” O'Leary wrote in an opinion piece last week. “The worst part for the restaurant industry is that customers have not returned after the closures.”
Darden Restaurants reported a year-over-year decline of more than 8.5% as of Friday afternoon.
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