CNBC recently published an article saying that consumers would rather cut back on restaurant visits than go to lesser-tier restaurants to adapt to inflationary times. In the article, it notes that:

This behavior, where consumers would rather cut back on restaurant visits than trade down, is different from the behaviors we saw during the Great Recession of 2008, where consumers hunted for bargains, trading down to cheaper restaurants or picking the least expensive menu options. The reason for this behavioral change is that households have been more comfortable with cooking at home than ever before, all because of the pandemic.

Darden Restaurants, famous for owning and running Olive Garden, operates in the casual dining space. This niche is in the middle of fine dining and quick-service restaurants. Because of their large scale, Darden naturally has higher margins than the rest of the restaurant industry and can afford to lower prices to attract customers. The higher volumes compensate Darden for the lowering of their prices.

With consumers not interested in bargain hunting for restaurant meals as they once were, there is a concern that Darden will be negatively impacted. The customers that they hope to attract by lowering prices might not come and Darden will see profits being affected negatively as a result. Already, Darden operates in the fine dining space with brands like The Capital Grille and Eddie V's Prime Seafood but as the CNBC article notes, consumers would rather reduce the number of visits they make to those restaurants than trade down to Olive Garden or Cheddar's Scratch Kitchen. This makes it more difficult to Darden to keep its customers spending their money within its different restaurant brands.

Darden can lower the prices of its meals in its premium restaurant brands to boost sales volume in this environment, but that will tarnish the prestige and luxury perception of those brands, and Darden wouldn't want to do that to a brand it spent years building. That's why they employ these strategies to their flagship and brand, Olive Garden. Darden isn't worried about tarnishing Olive Garden's branding through price cuts because they've been employing that strategy on the brand for a long time. It was worked out consistently in each recession. Only in this upcoming recession, I expect this business strategy to stop working.

I'm neither bullish or bearish for Darden Restaurants. I like the scale that the restaurant has and how they're able to use it to boost volumes during times of economic slowdown. I just think that Darden will either need to make prices irresistibly low to help bring more sales volume to Olive Garden (they can afford to with the scale that they have) or they'll have to bear with lower sales for a couple quarters before the economy gets on better footing.