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Tuesday, July 23, 2024

Olive Garden Is Raising Menu Prices Amid Inflation

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As fast casual and fast food chains continue to grapple with inflation and related costs, another American restaurant has announced it is raising menu prices to offset expenses.

Olive Garden, whose parent company Darden Restaurants announced its fiscal Q4 and full year 2024 earnings on Thursday, said it expects prices to slowly increase to keep in line with inflation over the next year.

“The good news on pricing is we’ve actually kept pricing very modest over the last five years, so we do expect pricing for this year to be more in line with inflation, so in that 2.5% to 3% [increase] range, probably,” Darden Restaurants CFO Raj Vennam said during the earnings call. “But as we think about how that’s going to be spread, we expect it to be more consistent quarter to quarter out.”

Related: ‘Customers Haven’t Returned’: Kevin O’Leary Warns That More Restaurant Closures Are on the Way Due to ‘Inflation Virus’

Olive Garden had a relatively weak Q4, marking a 1.5% quarterly decrease in same-store sales, though Vennam noted that the chain’s same-restaurant guest count was 60 basis points higher than the benchmark for the fast-casual industry.

“If you look at over the last five years, we’ve underpriced a lot, and that gives us some flexibility, and we’ve talked about that before,” Vennam explained, noting that Olive Garden increased prices by around 1% in Q4. “We feel like we’ve done a lot of work on keeping prices low, and we’re going to continue to do that.”

Darden explained that the general concern for business right now is the consumer bracket that’s below median household income, about $75,000 per year.

“Consumers are generally concerned about inflation and they’re becoming more concerned about the job market. And what we’re seeing are some behavior shifts that we had already started to see,” Darden Restaurants CEO Rick Cardenas told investors on Thursday’s call.

Related: Olive Garden Secretly Sells Its Cheese Graters, Syrups, Art

Inflation has become a widespread issue for fast casual restaurants nationwide, including Red Lobster, which filed for Chapter 11 bankruptcy last month.

“The consumer is really focused on what price they’re paying everywhere, not just in restaurants,” Cardenas said. “And if you think about the cost that they have on the nondiscretionary costs, they’ve been growing faster than wages for quite a few years, and that eats into discretionary spending.”

“Shark Tank” star Kevin O’Leary also spoke about restaurant closures and how consumers shouldn’t expect it to stop anytime soon.

“Supply chains crippled by the Covid pandemic lockdown haven’t recovered. Food costs — especially for proteins like chicken, beef, and seafood — are up 30 to 40 percent over the last 36 months,” O’Leary wrote in an op-ed last week. “Worst of all for the restaurant industry — customers haven’t returned from the shutdowns.”

Darden Restaurants was down over 8.5% year over year on Friday afternoon.

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