There has been a shift in the customers of quick-service restaurants (QSRs), as they are preferring casual dining chains over fast food counterparts. Darden Restaurants’ (NYSE:DRI) CEO Rick Cardenas stated on the restaurant chain’s earnings call that customers are shifting from quick-service restaurants to some of Darden’s competitors in casual dining.
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Indeed, Darden’s casual dining restaurant chain, Olive Garden, saw increased competitive pressure as its same-store sales declined by 1.5%, while its total sales increased by 0.7% to $1.27 billion in Fiscal Q4. Olive Garden is the biggest contributor to Darden’s sales, accounting for more than 40% of the company’s total sales of $3 billion in fiscal Q4. Darden reported mixed results in the fourth quarter.
Why Are Consumers Shifting to Casual Dining?
High inflation over the past two years is heavily weighing on consumers. Typically, fast-food chains benefit during high inflation as people opt for cheaper meals during tough times. However, full-service restaurants and grocers are now emphasizing their value, price, experience, and quality compared to fast food.
Interestingly, according to data from the Department of Labor, full-service menu prices have risen by 3.5% over the past year, compared with a price increase of 4.5% for limited-service eateries.
McDonald’s Is Facing the Brunt of Irate Customers
Fast food chain McDonald’s (NYSE:MCD) has faced severe backlash from irate customers and even House Republicans over its high fast food prices. In May, MCD’s U.S. president, Joe Erlinger, stated in a letter to consumers that its prices have not exceeded inflation.
Erlinger pointed out that the average price of a Big Mac in the U.S. was $4.39 in 2019, and despite rising inflation, wages, and higher supply chain costs, the average cost of a Big Mac is now $5.29—an increase of 21%, not a 100% rise.
Additionally, to counter the critics and entice customers to McDonald’s, the company announced on Thursday that on June 25, MCD will launch a campaign for a meal deal priced at $5.
Erlinger told Bloomberg News, “We’re committed to winning the value war.”
Is McDonald’s Stock a Buy or Sell?
Analysts remain cautiously optimistic about MCD stock, with a Moderate Buy consensus rating based on 19 Buys and 11 Holds. Over the past year, MCD has declined by more than 10%, and the average MCD price target of $310.84 implies an upside potential of 22.5% from current levels.
