Darden: Restaurant Customers Skip the Fancy Wine Amid Financial Challenges

As consumers struggle with ongoing budgetary pressures, many are reining in their alcohol spending at nice restaurants by sticking to more budget-friendly brands, Darden Restaurants observed.

The full-service restaurant (FSR) group, which is the parent company of Olive Garden, LongHorn Steakhouse, and a number of other casual dining and fine dining brands, shared on a call with analysts Thursday (Sept. 21) discussing its first-quarter fiscal 2024 financial results that consumers are steering clear of more premium alcoholic beverages.

“There was a lot of negative mix on alcohol when we look [at] fine dining. There is trading down to lower-priced wines and other alcohol on a one-year basis,” Darden’s chief financial officer, Raj Vennam, said. He noted that the company saw “a little bit of pullback in alcohol sales” at Olive Garden and LongHorn Steakhouse as well.

Many consumers are indeed taking stock of how they spend at FSRs. According to PYMNTS Intelligence, 34% of respondents reported that their spending on food from a table-service restaurant had been indulgent in the previous 30 days. The data is from “New Reality Check: The Paycheck-to-Paycheck Report – The Nonessential Spending Deep Dive Edition,” a PYMNTS report created in collaboration with LendingClub, which drew from a survey of more than 3,400 U.S. consumers.

Consumers are pulling back on visits overall. Darden saw a roughly 7% decrease in traffic versus Q1 of last year at its Capital Grille and Eddie V’s brands, according to a presentation shared with investors.

Indeed, PYMNTS Intelligence from the Connected Dining series reveals that 70%-79% of restaurant customers who have noticed menu price inflation (depending on the generation) have been eating at home more often in response to these increases.

As many restaurant chains step up their discounting efforts in an attempt to reengage consumers and drive traffic, Darden is taking a different approach.

“We believe that the best [thing for the] long-term health of our business is to keep our strategy overall of pricing below inflation, running better restaurant and not getting into huge deep discounting to buy guests,” president and CEO Rick Cardenas explained.

He argued that discounts draw in customers who are “a little bit less core to our business,” whereas the company is focused on driving frequency with its “core guests,” noting that, while competitors stepping up their deals and offers, Darden is holding off, even if that has a negative effect on the company in the immediate future.

Certainly, on consumers’ end, restaurant inflation has increased demand for discounts.

PYMNTS Intelligence from the study “Connected Dining: Consumers Like the Taste of Discount Meals,” which drew from a census-balanced survey of more than 1,800 U.S. consumers, revealed that discount redemption on restaurant meals jumped 86% from March 2022 to February. More specifically, the portion of consumers who had used a discount on their most recent purchase from a restaurant rose from 14% to 26% in that time.

Darden, for its part, believes that while heavy discounting in this period of inflation may gain consumers’ favor right now, it will ultimately hurt the business.

“We think we’ll be better off in the long term if we stay with where we’re going,” Cardenas said.