Signs of economic uncertainty are pointing to potential for a “restaurant recession.”
Darden Restaurants, the corporate holder of full-service restaurant chains like Olive Garden and Longhorn Steakhouse, could have a particularly rough time compared to fast-casual competitors.
Even McDonald’s was feeling the heat over the summer with a short-term slowdown on sales growth.
Darden is attempting different innovations in technology by adopting tableside kiosks for many of its Olive Garden restaurants to provide faster checkout services for guests. The question is whether these innovations are enough to keep them ahead in a food service industry becoming more dominated by quick service tactics.
Despite positive labor reports and mild wage growth over the year, consumers are starting to nix eating out as part of their weekly routine. After a high peak period for restaurant sales in 2015, the industry is starting to see sales flatten across the board according to a Bloomberg analysis.
The possible downturn of the restaurant industry could deter investors from advancing stocks for major fast-casual restaurant corporations like Bloomin’ Brands, which operates chains like Outback Steakhouse, or Cracker Barrel Old Country Store.
However, there are some analysts are more positive about the future of Darden Restaurants Inc.
Last month Canaccord Genuity analyst Lynne Collier released coverage on 15 different restaurant stocks and only four, including Darden, received buy ratings.
“Darden’s portfolio of brands offers diversification and strong average unit volume,” Collier wrote in a research note.
Analyst marking Darden as buy, like Collier, say that its menu innovation and influence of technology will keep them afloat over other restaurants.
But is Darden immune to the looming restaurant recession in comparison to its competitors?
Slow revenue growth and future estimates show Darden’s competitors holding up a bit better over the next few years. Additionally, the threat of healthy, quick-service companies like Chipotle Mexican Grill and Panera Bread could deter Darden shareholders as popularity for those brands increases.