Olive Garden Parent Predicts Food Inflation Will Blow Over

As restaurants face inflationary challenges, brands are taking different approaches to make the economics work both in the short and long term.

Darden Restaurants, the parent company of Olive Garden, Longhorn Steakhouse and other brands, is focusing more on the latter, absorbing much of the cost in the present with the expectation that prices will normalize down the line. On a call with analysts Thursday (June 23) discussing the brand’s fourth-quarter FY2022 earnings results, the company’s Chief Financial Officer Raj Vennam shared the prediction that the costs of the ingredients on which the brands rely will come back down.

“We’re choosing not to pass along all of our inflation to our guests,” Vennam said. “We don’t think all of this cost is permanent. For example, chicken, dairy and wheat, which are a significant portion of our basket especially at Olive Garden, are … at very high levels right now. We don’t believe that that’s very sticky for the long term, and so we think it’s prudent to be cautious and preserve flexibility rather than pass through these some costs that may not be permanent.”

Granted, Darden’s pricing actions are not the same across all its brands, given that its portfolio ranges from casual dining chains to restaurants that hew closer to fine dining. As such, the restaurant company is absorbing more pricing on the former end than on the latter with consideration of how much each brand’s customers are willing and able to pay.

The Consumer Price Index for All Urban Consumers (CPI-U), reported by the U.S. Bureau of Labor Statistics (BLS) earlier this month indicated that many restaurant brands may be leveraging a similar strategy. After all, while food prices overall rose 10.1% year over year in May, and food at home (i.e., grocery) prices increased 11.9%, food away from home (i.e., restaurant) prices only grew 7.4%. In fact, restaurant price inflation came in below the cross-category price increase for all items, which hit 8.6%.

As far as the ongoing effects of consumers’ mid-lockdown habits on their long-term behaviors, Darden’s President and CEO Rick Cardenas noted that, while off-premise sales have fallen since the previous quarter when the Omicron surge had many consumers ordering in, they remain well above pre-pandemic levels.

“Olive Garden is still about 25% to-go for the quarter, and Longhorn is right around 15% which is much higher than they were pre-COVID,” he said.

Across the restaurant industry, demand for off-premise options skyrocketed during 2020 and remained elevated even as the vaccine rollout had many consumers comfortable returning to dining rooms for on-premise meals.

According to findings from PYMNTS’ 2021 How We Eat Playbook, created in collaboration with Carat from Fiserv, consumers are 31% more likely to buy meals for delivery or pickup than they are to dine on-site. Moreover, 43% of all consumers reported that they are ordering home delivery for their restaurant meals or groceries more often now than they did before March 2020.

See more: Restaurants and Grocers See Path to Picking up 200M New Customers