New York
CNN
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“God I love Texas Roadhouse,” began a thread on Reddit, with over 1,000 upvotes. “Texas Roadhouse never disappoints,” began another, with over 5,000 votes. A third proclaimed “unbelievable value.”
If there’s one thing Americans love, it’s cheap meat. So business is booming at Texas Roadhouse and LongHorn Steakhouse, even as Americans gravitate elsewhere.
In the quarter ending March 26, sales at company-owned Texas Roadhouse locations open for at least 18 months rose 8.4% from a year earlier. And in the three months through May 26, sales at Longhorn Steakhouse locations open at least 16 months rose 4%. Longhorn, which is owned by Darden Restaurants, outperformed other chains in Darden’s portfolio, including Olive Garden.
All of this is happening as Americans cut back on retail spending and plan to pay less for vacations this summer. Most restaurant chains are feeling the heat, with even McDonald’s reporting that lower-income customers are falling away.
The two restaurants have a history of performing well during periods of economic uncertainty — a few years ago, the pair stood out as inflation-weary Americans began to pull back on spending.
It may seem counterintuitive that sales at steakhouses go up when people feel cash-strapped. But both Texas Roadhouse and Longhorn Steakhouse seem to have done what every restaurant wants: make people feel like they’re getting a good deal when they need it most.
When it comes to steakhouses, Texas Roadhouse and LongHorn Steakhouse are cheaper, noted Jim Salera, a research analyst at Stephens.
“That average meal at the Longhorn or Texas Roadhouse is actually very affordable,” when compared to local establishments or higher-end chains like STK Steakhouse. The average check per person at Longhorn Steakhouse was $26, Salera said, according to a recent presentation from The Cheesecake Factory, which outlined the prices of its competitors. At Texas Roadhouse, the average check was $22.
“For their core consumer, it really represents affordable luxury,” Salera said. Americans may sacrifice vacations or spend less on household goods to save money, but still feel comfortable indulging in a night out. “No one gives up everything at once.”
And it might not seem like such a splurge when you’re having a hearty meal of meat and potatoes. As stated in a recent Bank of America note discussing Longhorn’s results: “Consumers recognize the central value of the plate that steak provides.”
Plus, these checks can seem especially reasonable when the prices of fast food and other restaurants are very high.
Many restaurant chains have raised their prices since the pandemic, not only because of high costs, but because they realized diners would pay. Frustrated customers are finally pushing back, prompting restaurant chains to try to reverse course by offering short-term discounts and meal deals (but not lowering their overall prices).
In contrast, both Longhorn and Texas Roadhouse have decided to keep their regular prices relatively low, BTIG restaurant analyst Peter Saleh told CNN. They have been trying to raise prices below inflation “for a while now,” he said.
That approach may be why Texas Roadhouse and Longhorn Steakhouse consistently earn high marks on the American Customer Satisfaction Index, Saleh noted.
The Longhorn has also made moves to improve its menu. In June 2022, Darden CEO Rick Cardenas said during an analyst call that the chain “has made significant investments over the last few years in the quality of their food.”
It’s not just about low prices compared to other restaurants. It is also about what is happening in the supermarket.
While food prices have generally moderated, beef has remained expensive. In the 12 months through May, prices of prime beef steaks rose 5.7%, according to inflation data from the Bureau of Labor Statistics.
When people see expensive steaks in the meat aisle, it’s easier for them to justify going out for a nice steak dinner, Salera noted.
Texas Roadhouse also mentioned the trend during a recent analyst call.
“Retail demand has probably been a little weaker,” said Michael Bailen, senior director of investor relations at Texas Roadhouse. This is likely to “lead to a benefit for us”. Bailen noted that grocers may offer deals on certain cuts, such as steaks, but not ribeyes, making restaurant ribeyes look like a steal by comparison.
Eating out can also relieve the anxiety some shoppers feel about spoiling a supermarket steak, Salera said.
“From the consumer’s perspective, they’re going to say, ‘Okay, instead of buying a steak at Kroger and then bringing it home and messing it up, I can just pay someone to prepare it for me.’
