- Tony Malloy/Flickr
The restaurant industry needs some bloodletting, according to the CEO of a major restaurant chain.
The CEO of Darden Restaurants, the owner of chains such as Olive Garden and Longhorn Steakhouse, said in the company’s quarterly earnings call on Tuesday that the restaurant industry needs to see some changes in order to become healthy again.
Currently, traffic for restaurants overall is falling for a few reasons, including the relative cost of buying groceries, and the shift toward smaller, local restaurants. Some restaurant CEOs have also surmised that consumer uncertainty is higher because of the election.
Darden CEO Gene Lee said that all of these issues that have led to weakness across the industry are not going away.
“I would say that as we think about the industry, we prepare our plans, and we assume the industry is going to stay where the industry is going to stay,” Lee said. “We’re not assuming the industry is going to get a whole lot better.”
Lee cited consumer uncertainty for driving down sales as well.
“I think there is some real uncertainty in the near term here, but that’s going to pass, and from a consumer standpoint, I think we’re focused on the long term” said Lee.
Despite Lee’s claims of uncertainty, consumer confidence as measured by both the Conference Board and the University of Michigan are at or near postrecession highs. Additionally, Darden beat on both sales for the whole group as well as for its Olive Garden franchise. The company beat on earnings per share and raised guidance for the rest of the year.
Lee said the closure of some restaurants in the industry at large could help to improve the outlook for everyone.
“I’m hoping that more inventory will come out of the system,” Lee said. “We’ve seen some big announcements of closures lately, and I also think that if you drive down the road you’re starting to see more restaurants closed. You also see more restaurants opened, but we could use some inventory to come out. That would be helpful.”