From electronics and air travel to clothes and eating out, inflation has prompted consumers to cut back on things they don’t deem necessary.
But that doesn’t mean consumers won’t occasionally splurge, especially for products or services they deem special or provide great value.
And there’s one item that, despite soaring prices, Americans apparently just can’t do without: the good old fashioned steak served at your local restaurant. What could be more American, especially with the upcoming Fourth of July holiday, than a juicy pink ribeye, cooked medium-rare?
LongHorn, Outback Performing Well
Take LongHorn Steakhouse, owned by Darden Restaurants Inc. (DRI), for example. Cattle prices have soared this year but traffic to the steak house chain has remained remarkably resilient.
In May 2023, visits to LongHorn increased 5.5% compared to January 2022, according to data from Placer.ai. The chain also performed particularly well during holidays like Christmas and Mother’s Day. The Mother’s Day week of May 8, traffic at LongHorn soared 18.4% versus the previous week.
“Persistent inflation has raised concerns about the performance of the dining sector,” the Placer.ai report said. But “LongHorn Steakhouse has been able to drive visits despite consumers tightening their belts. The brand’s recent visit growth is a sign that they will continue to find success as they expand throughout the country.”
Overall, LongHorn has performed well for Darden. In the fourth quarter 2023, which ended May 28, LongHorn sales jumped nearly 10% to $712 million compared to $647 million during the same period a year ago.
Moreover, LongHorn generated a profit margin of 18.6% in the fourth quarter versus 17.9%. That figure is especially telling. Restaurants will pass on high cattle prices to consumers. But despite the extra cost, consumers are paying up, which means LongHorn is not just growing revenue but profitable revenue.
LongHorn is not the only steak chain that’s enjoying a love fest with consumers despite persistent inflation.
In the recently released American Consumer Satisfaction Index (ACSI) report on full service restaurants, three of the top four highest rated restaurants were steakhouses: Outback Steakhouse, LongHorn, and Texas Roadhouse.
The ACSI ranks restaurants on a 1-100 scale. Top-ranked Outback earned an 82, a whopping 8% gain from 2022. LongHorn and Texas Roadhouse each scored a 81, a 3% improvement from last year.
Consumers Want Steak
The figures offer some fascinating insight into consumer mindset during high inflation. Yes, consumers are cutting back but will treat themselves to what Darden CEO Rick Cardenas calls an “affordable luxury.”
“There is a tension between what people want and what they can afford,” Cardenas said. “Consumers continue to seek value … and food away from home is one of the most difficult expenses to give up because going out to a restaurant is still an affordable luxury for them.”
And there’s no better example of an affordable luxury than a steak. No matter the price or cut, consumers have long regarded steak as a premium item. Think about it: waiters will always ask how you want the restaurant to cook your steak. Some might enjoy an adult beverage, like a wine or whiskey along with it. It's a seemingly bespoke experience that few consumers are willing to give up cold turkey.
The ACIS report also offers another reason behind the strong performance of steak chains: that people with higher incomes are “trading down” to less exclusive places like LongHorn because of inflation.
“With beef prices on the rise, these brands may face challenges in managing price increases and supply chain pressures,” said Forrest Morgeson, an assistant professor of marketing at Michigan State University and director of research emeritus at the ACSI.
“On the other hand, the current inflationary environment is benefiting some of these brands as higher-income consumers opt for more affordable chain restaurants over pricier alternatives. This is definitely worth monitoring.”
So these steakhouses might be benefiting from higher end customers whom they don’t normally attract.
Whether steak restaurants can keep this up amid rising prices is not clear. Darden, for example, projects beef prices to grow at least another 10% for the rest of the year.
But for now, the message is clear: Americans just gotta have their steak, inflation or not.
