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Olive Garden parent Darden Restaurants bets on fine dining with $715 million Ruth’s Chris deal

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A Ruth’s Chris Steak House in Miami May 3, 2023

Joe Riddle | News from Getty Images | Getty Images

Owner of an olive garden Darden Restaurants bet on fine dining with the $715 million acquisition Ruth’s Chris Steak House.

The company’s announcement Wednesday that it was adding another fine-dining restaurant to its portfolio surprised some. TD Cowen analyst Andrew Charles wrote in a note to clients that he expects the company to target another casual dining chain, such as First Watch Restaurant Group.

But Darden executives made it clear that the deal was because of their belief in the high-end segment.

Fine-dining sales growth is expected to outpace casual dining by 2026, Darden Chief Executive Officer Rick Cardenas told investors Thursday on a conference call to discuss the deal. Upscale restaurants also have “significantly higher” margins, he added.

Although Wall Street and economists worry about a potential recession this year, Darden said high-income diners are not giving up spending at The Capital Grille and Eddie V’s, the company’s existing fine-dining chains.

“As we’ve seen across our fine dining brands, consumers with incomes 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. By comparison, the average check at Olive Garden, which accounts for roughly half of Darden’s revenue, was $21 in fiscal 2022.

The casual dining segment has struggled in recent months as inflation-weary consumers shift to fast-casual options such as Chipotle Mexican Grill or fast food chains like McDonald’s. Both owner of Outback Steakhouse Bloomin’ Brands and Chili’s reported declines in traffic in their most recent quarters. Darden’s LongHorn Steakhouse and Olive Garden restaurants bucked the trend and outperformed their competitors, thanks in part to the company’s below-inflation pricing strategy.

Still, Darden executives emphasized that Ruth’s acquisition of Chris is a long-term bet and the decision was not 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 visit The Capital Grill and Eddie V’s.

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Tags: Bloomin Brands IncBreaking News: BusinessBusinessbusiness newsChipotle Mexican Grill IncDarden Restaurants Inc.First Watch Restaurant Group IncMcDonald's Corp.Mergers and acquisitionsRestaurantsRuth's Hospitality Group Inc
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