Inflation-exhausted Americans: Let's just go out for steak

In the three months ending on May 29, sales at Longhorn Steakhouse locations open at least a year popped 10.6%.

Texas Roadhouse reported that in the first three months of the year, sales at company-owned restaurants open at least a year jumped 16%. The chain is slated to release its second-quarter earnings Thursday afternoon.

Demand for steak was rising even before the pandemic, said Robert Byrne, director of consumer and industry insights at the restaurant consulting firm Technomic.

But over the past few years, many people have spent more time at home. They're getting meals delivered or cooking more often. So when they do go out, Byrne said, they want to "make it count." They might pick places like steakhouses, which offer a nice ambiance and a filling meal.

Although it may seem counterintuitive, people may also feel like their money goes further when they spend on steak compared to fast casual or fast food meals — especially if they visit chains like Texas Roadhouse and Longhorn Steakhouse, where the portions are big and the prices are relatively cheap.

More steak for your buck

Longhorn Steakhouse has been on a long journey to improve its offerings, according to Ricardo Cardenas, CEO of the chain's parent company, Darden Restaurants (DRI).

Longhorn "has made significant investments over the past few years in the quality of their food," he said during a June analyst call. One big change: "They've increased the size of most of their steaks."

Larger steaks make people feel like they're getting a good deal, which is especially important as inflation soars.

In fact, restaurant meals overall may feel like a deal right now. While grocery prices jumped 12.2% in the year ending in June, unadjusted for seasonal swings, menu prices grew just 7.7%, below inflation overall. At the supermarket, uncooked beef steaks actually dipped 0.3% in that time — making steak a good deal for home cooks, too.

"Consumers see the value in what we put on the plate," said Cardenas. "For every dollar they spend at a steakhouse, they get more food."

During a May call with investors discussing Texas Roadhouses' first quarter earnings, an analyst asked how inflation might impact consumer interest in the chain moving forward.

To get through hard times, "you deliver on your promise," responded CEO Jerry Morgan. At Texas Roadhouse that includes a commitment to "heaping sides and keeping our portions strong."

The strategy appears to be working.

Satisfied customers

Longhorn Steakhouse and Texas Roadhouse tied for the top spot for full-service restaurants in the American Customer Satisfaction Index (ACSI) restaurant study for 2021-2022, which was published in June. Both restaurants achieved scores of 80, unchanged from the previous year.

Generally, customers are more satisfied with their experiences at full-service restaurants, where a server takes the order and delivers food to the table, than at fast food chains, according to the index.

The two steak restaurants are in something of a sweet spot, said Forrest Morgeson, director of research emeritus at the ACSI and an assistant marketing professor at Michigan State University. "They're not outrageously expensive ... but they're certainly a notch or a notch and a half above your fast food or your fast casual restaurants."

Plus, consumers may be especially satisfied with larger meal sizes at these places because they're seeing portions shrinking elsewhere, Morgeson noted.

Consumer goods companies in particular have been dealing with higher costs by employing a tactic known as shrinkflation, where they charge the same amount for an item but decrease its contents or size.

Plus, large portion sizes can smooth over service shortcomings, noted Byrne.

Many restaurants are still short-staffed, and overworked employees sometimes have to balance filling to-go and delivery orders with serving guests in the dining room. A big steak and heaping sides can help diners forgive and forget.