By Evie Liu

Restaurants are facing more pressure as the price of dining out continues to rise at a fast pace, even as grocery inflation cools down.

This means consumers will remain sensitive to value -- the quality of both food and experience at a reasonable price -- when deciding how often and where to eat out. Some restaurants have catered to those expectations better than others.

Costs for "food away from home," a category that covers meals and snacks consumed at restaurants, cafeterias and vending machines, rose 0.4% in April, according to consumer price index data released by the Bureau of Labor Statistics on Tuesday.

That is the third month in a row where restaurant prices went up by 0.4%, even as grocery costs -- measured by the "food at home" index -- dropped 0.4% in April, the first monthly decline in more than a year.

Although the decline in grocery costs was mostly driven by the fall of highflying egg prices, the costs of eating out has climbed faster than overall food inflation. Over the past 12 months, restaurant prices gained 3.9%, according to the CPI, compared with the 2.8% growth in grocery costs.

This is "a reminder that cost pressures on restaurants haven't gone away, " said Joe Hannon, general manager of inventory & purchasing at Restaurant365, a tech firm that helps restaurants improve their financial and operational processes.

"With many expenses climbing again, operators face renewed urgency to keep a close eye on margins," he said. "Rather than signaling a return to stability, the increase suggests that unpredictability remains the norm -- making it more important than ever to fine-tune pricing, monitor spending, and reinforce value in the guest experience."

In the first quarter, Bloomin' Brands, the owner of Outback Steakhouse and other chains, saw its same-store sales in the U.S. decline 0.5% from a year ago, and expects it to fall 1.5% to 2.5% in the second quarter. Dine Brands Global, the operator of Applebee's and IHOP, saw the two chains' same-restaurant sales decline 2.2% and 2.7% year-over-year, respectively.

Fast-food chains, which typically benefit amid inflation as consumers trade down, face the same pressure. In the first quarter, McDonald's reported a 3% decline in total revenue, with U.S. same-store sales dropping 3.6% -- the steepest fall since 2020. Likewise, Wendy's posted a 2.8% year-over-year decline in U.S. same-restaurant sales.

Even fast-casual chains, the group that outshined peers in 2024, started to feel the pain. Chipotle Mexican Grill's same-store sales declined 0.4% from a year ago driven by a drop in transaction volume. Sweetgreen, the salad chain that saw a 5% same-store sales growth in the first quarter of 2024, now posted a decline of 3.1% in the latest report.

Still, some restaurants emerged as a standout performer. Revenue at Texas Roadhouse rose 10% year-over-year as same-store sales increased 3.5% in the first quarter, surpassing analyst projections. The company increased menu prices by approximately 1.4% in early April. For the first five weeks of the second quarter, comparable sales already increased 5% from a year ago.

There has been a rising consumer interest in steakhouse dining experiences, and Texas Roadhouse has capitalized on the trend with its focus on hand-cut steaks and hearty meals. By keeping prices below inflation rates and focusing on the quality of food and customer experience, the chain has maintained its appeal to cost-conscious diners.

"We are pleased to report that our operators successfully navigated us through a number of challenges this quarter and once again delivered traffic growth across all three of our brands," said CEO Jerry Morgan on the latest earnings call. "During this period of economic uncertainty, as always, we remain focused on the fundamentals of our business and on what we can control, which is creating an environment where our Roadies want to work and our guests want to dine."

Thanks to the strong growth, Texas Roadhouse has surpassed Olive Garden in domestic systemwide sales and is now the largest casual dining chain in the U.S., according to a recent report from Technomic, a food service consultancy company.

Texas Roadhouse stock has gained 14.8% over the past 12 months.

Write to Evie Liu at evie.liu@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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May 13, 2025 13:22 ET (17:22 GMT)

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