Why Olive Garden doesn’t want to give discounts

Danielle Wiener-Bronner, CNN

New York (CNN) — Restaurant chains from Applebee’s to McDonald’s person successful caller months clocked a troubling trend: Customers watching their budgets are spending less, and eating retired little often. So they’ve travel up pinch a solution — connection repast deals and discounts to bring group back.

But Olive Garden is holding out.

“We’re not doing that,” said Rick Cardenas, CEO of Olive Garden’s genitor institution Darden Restaurants, during an expert telephone Thursday. “Even astatine a clip that our competitors person ramped up discounting.”

There’s a logic that truthful galore restaurants are turning to discounts now, aft years of avoiding nan practice. Since nan commencement of nan pandemic, chains person been hiking prices dramatically — partially because of expanding costs, and partially because customers didn’t look to mind spending more. But recently, diners person started to push back. So restaurants started offering impermanent discounts connected those higher paper prices.

The Italian casual eating concatenation has bucked nan trend, making comparatively mean pricing increases and avoiding heavy discounts.

The attack has yielded mixed results. In nan past, Olive Garden utilized to outperform nan manufacture during times of economical uncertainty. The concatenation has mislaid that edge, astatine slightest successful position of sales.

In nan 4th ending connected May 26, income astatine Olive Garden restaurants unfastened astatine slightest 16 months dropped 1.5%.

Still, Cardenas is assured successful nan strategy. “We deliberation that mundane debased worth … is much sustainable than heavy discounting to effort to thrust group in,” he said Thursday. “This is simply a agelong crippled for us.”

Raising prices, but not by much

Customers person precocious started to fume complete higher prices, peculiarly astatine accelerated nutrient restaurants. On TikTok, complaints of $3 McDonald’s hash browns and $16 meals person gone viral. The grumblings reached specified a fever transportation that chains for illustration Applebee’s and Chili’s person made a bid for those customers, offering deals that they opportunity put their prices connected par pinch those astatine celebrated accelerated nutrient chains.

Olive Garden has tried to debar specified pushback by keeping its value increases low.

In nan astir caller quarter, Olive Garden raised prices by 1%. That alteration wounded dollar sales, but kept edifice postulation strong, Darden CFO Raj Vennam based on during nan telephone Thursday.

“While Olive Garden aforesaid edifice income were beneath nan industry, same-restaurant impermanent counts outperformed nan industry,” Vennam said. “This move was owed to our determination to minimize pricing.”

Over nan people of nan fiscal year, Olive Garden hiked prices up astir 3.5%, compared to astir 4% crossed Darden’s brands, which see LongHorn Steakhouse, Eddie V’s and Cheddar’s Scratch Kitchen, among different chains. Next year, executives expect Olive Garden to erstwhile again raise prices beneath Darden’s brands overall.

“We’re not talking astir immense pricing actions,” said Vennam.

The increases put Olive Garden much aliases little connected par pinch astir sit-down restaurants successful nan US. According to ostentation information from nan Bureau of Labor Statistics, paper prices astatine full-service, aliases sit-down, restaurants roseate 3.5% successful nan 12 months done May. They jumped 4.5% astatine limited-service restaurants, which see accelerated nutrient and accelerated casual locations.

The problem pinch discounting

Offering deals is simply a short-term hole to declining sales, but it’s a risky business.

A title to nan bottommost is “always nan danger,” erstwhile it comes to cutting prices, David Henkes, a elder main astatine nan nutrient manufacture investigation and consulting patient Technomic, antecedently told CNN. “Margin and profitability is going to beryllium nan situation for 2024,” he said. “These worth meals successful nan short word are only going to exacerbate that.”

Cardenas sees nan believe arsenic mounting a vulnerable precedent.

“If you do heavy discount …. you person to do moreover much nan adjacent year,” he said. “The measurement we do it is much sustainable.”

Rather than vie for customers pinch steep discounts, Olive Garden is readying to bring group successful by highlighting its regular offerings. One example? Refills for crockery aliases crockery and breadsticks. “That refill is simply a beautiful large portion of what we do and a large portion of nan worth equation.”

The concatenation is besides hoping to get immoderate buzz nan old-fashioned way, done connection of mouth.

“Our champion measurement to thrust income is our attraction connected a back-to-basics operating accuracy and our guests telling others what a awesome worth they person erstwhile they travel to our restaurants.”