Olive Garden parent Darden Restaurants fine dining Ruth’s Chris deal

Owner of the olive garden Darden Restaurants It bets on fine dining with its $715 million acquisition Chris Steakhouse Ruth.

The company’s announcement on Wednesday that it would add another fine dining restaurant to its portfolio came as a surprise to some. TD Cowen analyst Andrew Charles wrote in a note to clients that he had expected the company to target other casual dining chains, such as First Watch Restaurant Group.

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But Darden executives made it clear that the deal was due to their conviction in the high-profile segment.

Sales growth for fine dining restaurants is expected to outpace sales growth for casual restaurants through 2026, Darden CEO Rick Cardenas told investors Thursday in a conference call to discuss the deal. He added that high-end restaurants have “much higher” profit margins.

Even as Wall Street and economists worry about a potential recession this year, Darden said high-income diners aren’t holding back on spending at The Capital Grille and Eddie V’s, the company’s existing fine dining chains.

“As we’ve seen with our fine dining brands, consumers with income levels over $150,000 continue to eat out and maintain or increase their spending at casual dining or fine dining,” Cardenas said.

The average check at Ruth’s Chris is $97, according to Darden Investor Presentation. For comparison, the average check at Olive Garden, which accounts for roughly half of Darden’s revenue, was $21 in fiscal 2022.

In recent months, the casual dining sector has been struggling as swell-weary consumers turn to fast-casual options such as Chipotle Mexican Grill Or fast food chains like McDonald’s. Both are the owner of the Outback Steakhouse Bloomin Brands Chili’s reported reduced traffic in their last two neighbourhoods. Darden’s LongHorn Steakhouse and Olive Garden bucked the trend and reported stronger results than their competitors, in part because of the company’s strategy of below-inflation pricing.

However, Darden executives emphasized that the Ruth’s Chris acquisition is a long-term bet and the decision was not made based on the current economic cycle. Cardenas also said that third-party data shows there is little overlap between customers of Ruth’s Chris and those who frequent The Capital Grill and Eddie V’s.