The U.S. restaurant industry is showing a distinct polarization trend. As high prices increase consumers' price sensitivity, the fast-food sector, which emphasizes low-priced menus, is suffering from sluggish sales, while casual dining chains focused on table service are recording unexpectedly strong performances. It appears that the traditional belief that fast-food operators thrive during prolonged inflation has been broken.
According to a report by The Wall Street Journal (WSJ) on the 18th (local time), the fast-food and fast-casual (upscale fast food) sectors in the U.S. have shown poor results in their recent earnings announcements. Mediterranean fast-casual chain Cava and Mexican chain Chipotle fell short of Wall Street's expectations in their earnings reports, while McDonald's, the world's largest fast-food chain, stated that 'customer visits at some locations have decreased by double digits.' Wendy's, the third-largest player in the industry, also noted that 'as household burdens have increased, demand for low-priced menus has actually decreased.'
In contrast, the relatively higher-priced casual dining sector is thriving. Mexican family restaurant Chili's reported a 24% increase in same-store sales in the U.S. compared to the previous year, and parent company Brinker International's stock has risen over 300% in the past three years. Italian chain Olive Garden's parent company Darden Restaurants, Inc. and The Cheesecake Factory Inc. also recorded stock price increases of 45% and 70% over the past year, respectively.
Ricardo Cardenas, chief executive officer (CEO) of Darden Restaurants, emphasized, 'This seems to be the result of absorbing customers from the low-priced fast-food segment, as customers still want a special evening out.'
This trend is interpreted as arising from the price gap that occurred after COVID-19. According to an analysis by JPMorgan, the fast-food sector's menu prices have reportedly increased by an average of 38% since 2019. In contrast, casual dining chains, which have a higher percentage of company-owned locations, are relatively better at managing prices and promotions, making it possible to provide consumers with a 'cost-effective experience.'
The strategic shift of casual dining firms has also been effective in improving performance. Kevin Hochman, CEO of Chili's, simplified the menu significantly after taking office and introduced cost-effective options like the '3 for me' set, which can be enjoyed for $10.99 (about 15,279 won). Additionally, the company significantly increased its marketing investment, expanding its advertising budget from $32 million in 2022 to over $137 million this year, focusing on increasing consumer touchpoints.
CEO Hochman emphasized, 'Chili's is certainly not the cheapest restaurant,' but added, 'It's not just the low price, but the value of the overall experience, including taste, service, and atmosphere, that we have built as our core competitiveness.'
The differences in the core consumer demographics visiting restaurants are also believed to have an impact. As low-income consumers, the primary customers of fast-food establishments, reduce their expenditures amid high prices and employment instability, casual dining customers from the middle class and above have maintained their visitation rates steadily while retaining their dining capacity. Furthermore, the substantial improvements in delivery and takeout services after the pandemic are cited as factors enhancing the competitiveness of casual dining.
However, not all casual dining sectors are thriving. In fact, Bloomin' Brands, Inc., operator of Outback, downgraded its earnings forecast last year, and both Red Lobster and TGI Fridays, a first-generation family restaurant, have entered store closure and bankruptcy procedures.
Nevertheless, analysis suggests that this kind of restructuring has instead mitigated competitive intensity, creating favorable conditions for surviving companies. For instance, casual restaurant chain Applebee's has recently succeeded in rebounding after experiencing revenue declines for eight consecutive quarters.
Investors are now paying attention to the next-generation growth candidates. Lauren Silverman, a Deutsche Bank analyst, forecasted that 'companies that maintain consumer trust while minimizing price increases will become long-term winners.'