As Americans trim spending, these cheap steakhouses are booming

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Posted at 7:09 AM, Jun 25, 2024

New York (CNN) — “God I love Texas Roadhouse,” began one thread on Reddit, with over 1,000 upvotes. “Texas Roadhouse never disappoints,” began another, with over 5,000 votes. A third touted the “incredible value.”

If there’s anything Americans love, it’s cheap meat. So business is booming at Texas Roadhouse and LongHorn Steakhouse, even as Americans pull back elsewhere.

In the quarter ending on March 26, sales at company-owned Texas Roadhouse locations open at least 18 months jumped 8.4% compared to the year before. 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 the other chains in Darden’s portfolio, including Olive Garden.

That’s all happening as Americans curtail retail spending and plan to shell out less for vacations this summer. Most restaurant chains are feeling the heat, with even McDonald’s reporting that lower-income consumers are pulling back.

The two eateries have a history of performing well during periods of economic uncertainty — a few years ago, the pair were standouts as inflation-weary Americans began to pull back on spending.

It may seem counterintuitive for sales at steakhouses to rise when people feel short on cash. But both Texas Roadhouse and Longhorn Steakhouse seem to have done what every restaurant wishes it could: Make people feel like they’re getting a good deal when they need it most.

An affordable luxury

When it comes to steakhouses, Texas Roadhouse and LongHorn Steakhouse are on the cheaper end, noted Jim Salera, a research analyst at Stephens.

“That average meal at 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 its competitors’ pricing. At Texas Roadhouse, the average check was $22.

“For their core consumer, it really represents an affordable luxury,” Salera said. Americans might sacrifice vacations or spend less on home goods to save money, but still feel comfortable splurging on a night out. “No one gives up everything at the same time.”

And it might not feel like such a splurge when you’re getting a hearty meal of meat and potatoes. As a recent Bank of America note discussing Longhorn’s results put it: “Consumers recognize the center-of-plate value offered by steak.”

Plus, those checks may appear especially reasonable when fast food and other restaurants’ prices are way up.

Many restaurant chains have hiked their prices since the pandemic, not only because of high costs, but because they realized that 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, made a point of keeping their regular prices relatively low, BTIG restaurant analyst Peter Saleh told CNN. They’ve been trying to raise prices below inflation “for a while now,” he said.

That approach could be why Texas Roadhouse and Longhorn Steakhouse consistently earn top marks on the American Customer Satisfaction Index, Saleh noted.

Longhorn has also made moves to improve its menu. Back in June 2022, Darden CEO Rick Cardenas said during an analyst call that the chain “has made significant investments over the past few years in the quality of their food.”

Might as well go out

It’s not just about low prices compared to other restaurants. It’s also about what’s happening at the supermarket.

While grocery prices overall have been moderating, beef has stayed expensive. In the 12 months through May, uncooked beef steaks’ prices went up 5.7%, according to inflation data from the Bureau of Labor Statistics.

When people see pricey steaks in the meat aisle, it’s easier for them to justify going out for a nice steak dinner, noted Salera.

Texas Roadhouse also mentioned the trend during a recent analyst call.

“Retail demand has been probably a little bit weaker,” said Michael Bailen, senior director of investor relations at Texas Roadhouse. That has likely “led to a benefit for us.” Bailen noted that grocers may be offering deals on certain cuts, like strip steaks, but not ribeyes, making restaurant ribeyes seem like a steal in comparison.

Going out to eat can also release the anxiety some shoppers feel about ruining a supermarket steak, Salera said.

“From the consumer perspective they’ll say, ‘Okay, rather than me buy a steak at Kroger and then bring it home and mess it up, I can just pay somebody to prepare it for me.’”

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