The sluggish and uneven recovery of the US economy is posing a big threat to the restaurant industry. Almost all restaurants are experiencing a tough time maintaining their top and bottom lines due to the decrease in the customer traffic.
It seems people now prefer to cook food at home as it is much cheaper than going out and dining in a restaurant. Thus to attract the budget-constrained customers, most of the restaurants are focusing on their value meals. One such company is Darden Restaurants, Inc. (NYSE:DRI), one of the world's biggest full-service restaurant operators,which after facing the pinch of the decreasing consumer traffic has finally starter focusing on its value items.
What’s the fix?
Darden Restaurants, Inc. (NYSE:DRI) operates more than 2,100 restaurants in the U.S. and Canada under several brands, including Red Lobster, Olive Garden, Long Horn Steakhouse and Bahama Breeze. In order to attract customers, its flagship restaurants, Olive Garden and Red Lobster, have introduced new meal combos at cheaper costs, giving consumers more choices and greater variety.
Last year, the company also added some lighter dishes to the Olive Garden menu. As per the company, the introduction of those lighter dishes has helped it to capture about 10% more orders. The company plans to add more such options to its menu in order to attract customers. This will also help the company to boost sales further.
As I have already mentioned before, attracting budget-constrained customers with value meals is not a unique strategy for Darden Restaurants, Inc. (NYSE:DRI). Many restaurants have applied the same strategy to increase the consumer traffic.
We have seen Burger King Worldwide Inc (NYSE:BKW) make some aggressive adjustments in its menu over time. The burger chain has tempted customers with its 55th anniversary Whopper hamburger deal and limited-time deal offering Whopper Junior sandwiches for only $1.29, which really paid off well. The company reported 64% surge in its fourth-quarter earnings results backed by the 2.7% rise in comp sales and a 6.7% rise in its system-wide sales.
Another restaurant chain, The Wendy's Co (NASDAQ:WEN), has introduced menu offering options with price tiers from $0.99 cents to around $2. The company already performed decently in its last quarter as its North American company-operated restaurants generated a same-store sales increase of 2.7% and franchise same-store sales in North America increased 2.9%. The introduction of the company's “Right Price, Right Size” menu further attracted the budget-constrained customers with more options and thus boosted The Wendy's Co (NASDAQ:WEN) customer traffic.
However, things are yet not so good for Darden Restaurants, Inc. (NYSE:DRI). The introduction of the value meals has no doubt increased consumer traffic, but it has also increased the company's cost of sales which has resulted in another not so good quarter for the company.