Michelle Thompson“God, I love Texas Roadhouse,” one Reddit thread began, receiving over 1,000 upvotes. Another thread, with over 5,000 votes, stated, “Texas Roadhouse never disappoints.” A third praised the “incredible value.”
Americans have a strong preference for affordable meat, which is why Texas Roadhouse and LongHorn Steakhouse are thriving even as spending decreases in other areas.
In the quarter ending March 26, sales at Texas Roadhouse locations that had been open for at least 18 months increased by 8.4% compared to the previous year. From March to May 26, sales at LongHorn Steakhouse locations open for at least 16 months went up by 4%. LongHorn, owned by Darden Restaurants, outperformed other chains in the Darden portfolio, such as Olive Garden.
This growth is occurring despite Americans reducing their retail spending and planning to spend less on vacations this summer. Most restaurant chains are struggling, with even McDonald’s noting a decline in spending among lower-income consumers.
Texas Roadhouse and LongHorn Steakhouse have a history of performing well during economic downturns. A few years ago, both were successful as inflation-wary Americans started cutting back on spending.
It might seem illogical for steakhouse sales to rise when people are tightening their budgets. However, both Texas Roadhouse and LongHorn Steakhouse have managed to make customers feel like they’re getting a good deal when they need it the most.
A budget-friendly indulgence
Jim Salera, a research analyst at Stephens, mentioned that Texas Roadhouse and LongHorn Steakhouse are among the more affordable options when it comes to steakhouses. “A meal at LongHorn or Texas Roadhouse is actually quite reasonably priced,” especially when compared to local restaurants or more upscale chains like STK Steakhouse. According to a recent presentation from the Cheesecake Factory, which compared competitor pricing, the average check per person at LongHorn Steakhouse was $26, while at Texas Roadhouse, it was $22.
In November 2023, customers at a Texas Roadhouse restaurant sit at the bar, enjoying watching sports.
“For their core consumer, it truly represents an affordable luxury,” said Jim Salera. Americans might cut back on vacations or home goods to save money but still feel justified splurging on a night out. “No one gives up everything at the same time.”
It might not seem like much of a splurge when you’re enjoying a hearty meal of meat and potatoes. As a recent Bank of America note on LongHorn’s results stated, “Consumers recognize the center-of-plate value offered by steak.”
Moreover, these prices may seem particularly reasonable when fast food and other restaurant prices have surged.
Since the pandemic, many restaurant chains have increased their prices due to high costs and realizing that customers would still pay. However, frustrated customers are now pushing back, leading these chains to offer short-term discounts and meal deals, though not reducing their overall prices.
In contrast, both LongHorn and Texas Roadhouse have focused on keeping their regular prices relatively low, according to BTIG restaurant analyst Peter Saleh. They have been trying to keep price increases below the rate of inflation “for a while now,” he told CNN.
On June 22, 2023, customers are seen leaving a LongHorn Steakhouse restaurant in Skokie, Illinois.
According to Saleh, this strategy may explain why Texas Roadhouse and Longhorn Steakhouse consistently achieve high ratings on the American Customer Satisfaction Index.
Longhorn Steakhouse has also focused on enhancing its menu. In June 2022, Darden CEO Rick Cardenas mentioned during an analyst call that the chain “has made substantial investments in the quality of their food over the past few years.”
Might as well dine out.
It’s not just about lower restaurant prices compared to other dining options; it also ties into supermarket dynamics.
While overall grocery prices have stabilized, beef prices have remained high. According to inflation data from the Bureau of Labor Statistics, prices for uncooked beef steaks increased by 5.7% in the 12 months through May.
Jim Salera noted that when consumers encounter expensive steaks in the supermarket meat aisle, they find it easier to justify treating themselves to a quality steak dinner at a restaurant.
Texas Roadhouse also acknowledged this trend during a recent analyst call. Michael Bailen, senior director of investor relations, mentioned, “Retail demand has been somewhat weaker,” which has potentially benefited their business. Bailen pointed out that while grocery stores might discount certain cuts like strip steaks, ribeyes remain expensive, making restaurant ribeyes appear more economical in comparison.
Salera added that dining out can also alleviate the anxiety some shoppers feel about preparing a steak at home. “From the consumer perspective,” he said, “they might think, ‘Instead of buying a steak at the supermarket and risking cooking it wrong, I can pay someone to prepare it for me.’”
