A Ruth’s Chris Steak House in Miami, May 3, 2023.
Joe Raedle | Getty Images News | Getty Images
Olive Garden owner Darden Restaurants is betting on fine dining with its $715 million acquisition of Ruth’s Chris Steak House.
The company’s announcement on Wednesday that it’s adding another fine-dining restaurant to its portfolio surprised some. TD Cowen analyst Andrew Charles wrote in a note to clients he was expecting the company to target another casual-dining chain, such as First Watch Restaurant Group.
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But Darden executives made it clear that the deal is because of their conviction in the high-end segment.
Fine-dining restaurants’ sales growth is expected to outpace that of casual-dining eateries through 2026, Darden CEO Rick Cardenas told investors Thursday on a conference call to discuss the deal. Upscale restaurants also have “significantly higher” margins, he added.
Even as Wall Street and economists worry about a potential recession this year, Darden said high-income diners aren’t pulling back on spending at The Capital Grille and Eddie V’s, the company’s existing fine-dining chains.
“As we have seen in our fine-dining brands, consumers with income levels above $150,000 continue to dine out and maintain or increase their spending at casual or fine-dining restaurants,” Cardenas said.
The average check at Ruth’s Chris is $97, according to Darden’s 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 segment has been struggling as inflation-weary consumers trade down to fast-casual options such as Chipotle Mexican Grill or fast-food chains such as McDonald’s. Both Outback Steakhouse owner Bloomin’ Brands and Chili’s reported falling traffic in their latest quarters. Darden’s LongHorn Steakhouse and Olive Garden restaurants bucked the trend and reported stronger results than their rivals, due in part to the company’s strategy of pricing below inflation.
Still, Darden executives emphasized the Ruth’s Chris acquisition is a long-term bet and the decision wasn’t made based on the current economic cycle. Cardenas also said third-party data shows there is little overlap between Ruth’s Chris customers and those who frequent The Capital Grill and Eddie V’s.
