The Chili's Economy Is Here: What's Behind the Casual-Dining Boom — Heard on the Street — WSJ

By David Wainer

Restaurant executives sound like they're operating on different planets these days.

In the fast-food and slightly higher-end fast-casual world, caution is the mood. Cava and Chipotle missed Wall Street forecasts and warned that customers are getting more price sensitive. McDonald's is seeing double-digit traffic declines among its lowest-income diners, while Wendy's also says budget-conscious customers are pulling back.

Meanwhile at sit-down casual-dining chains, the tone is more optimistic. Chili's has become the poster child for the group, reporting a 24% jump in U.S. same-store sales last quarter compared with a year earlier. Over the past three years, shares of Chili's owner Brinker International have returned over 300%.

Over at Olive Garden, Darden Restaurants Chief Executive Ricardo Cardenas told analysts the chain is winning "wallet share from fast food and fast casual." Cheesecake Factory CEO David Overton said customers still want special-occasion nights out — and his brand is well placed to keep gaining share. Cheesecake Factory stock has returned about 70% over the past 12 months, while Darden has delivered gains of about 45%. That easily outpaces chains like McDonald's, Chipotle and Wendy's.

This isn't exactly how many on Wall Street would have expected things to go. In a strained economy with inflation eating into spending power, Americans usually trade sit-down dinners for cheaper drive-through fare. But so far, something close to the opposite seems to be happening.

The biggest driver is a widening value gap since the pandemic. Eating out has become more expensive everywhere, but less so at sit-down restaurants: Menu prices are up 34% since 2019 versus a 38% increase at limited-service chains, according to JPMorgan. One reason, says Evercore ISI analyst David Palmer, is that casual-dining brands tend to operate a larger share of company-owned restaurants, giving management tighter control over pricing and promotions.

That centralized control has allowed casual-dining chains to play offense. Since taking the helm just over three years ago, Brinker CEO Kevin Hochman has simplified the menu and expanded the "3 for me" value meals starting at $10.99.

"We're not the cheapest thing out there," Hochman said in an interview. "But because we have a total value proposition that works — great food, great service and an atmosphere people enjoy — that's why we're winning."

He has also supercharged marketing: Spending climbed from $32 million in fiscal 2022 to $137 million in fiscal 2025, with campaigns that pit some of its deals, such as the "Big QP" burger meal with bottomless chips and salsa and a drink for $10.99, against a typical combo meal at McDonald's.

"You've got to get people to think and feel differently about you," Hochman said. "Everyone knows what a combo meal costs — they've had a Big Mac meal, they know it's around $10, and they know the size of the burger."

Casual dining is emerging from one of its toughest stretches in decades. In 2024, the sector saw more bankruptcies than in any year since the pandemic's onset. Bloomin' Brands — owner of Outback Steakhouse, Bonefish Grill, and Carrabba's — has cut its outlook and warned of a difficult second half. Red Lobster, TGI Fridays and others have closed locations or filed for bankruptcy. The upside of so many closures is a less crowded field, giving the survivors room to grow. And there are signs the "Chili's effect" is spreading. Even Applebee's, long a laggard, posted its first quarter of same-store sales growth after eight straight declines.

It isn't just about price. Hochman says Chili's has also ditched the old "cut to survive" playbook that hollowed out the experience offered at so many of his competitors. Instead, the chain invested in better ingredients, refreshed restaurants and added staff hours — accepting near-term margin pressure to keep customers coming back. Diners know they will need to add a tip to the cost of the meal, so better make the service worth paying for.

Chili's stock has already enjoyed a huge run, and year-over-year comparisons are going to start to get harder. For investors looking for another bet on quality and value, Texas Roadhouse offers a way in. Its shares are down 5% this year after an earnings miss tied to high beef costs. But its willingness to give up margin may be a positive. The chain has kept prices steady to protect its value proposition, explains Deutsche Bank analyst Lauren Silberman. She expects profits to rebound once beef prices ease.

Customer mix is another driver helping the group. Casual dining isn't as tethered to the low-income consumer as fast food is. The core diner skews middle class — the kind who might drop $60 at a strip-mall favorite on a Friday night then head out to a movie. And right now, while the middle and upper class are feeling fine, the low-income consumer is hurting from high prices and job insecurity. On its latest earnings call, McDonald's described a "bifurcated consumer environment": Visits from low-income customers are down sharply, while higher earning consumer visits are growing.

It may also be that structural changes like remote work and lifestyle shifts are benefiting the casual-dining group, says Deutsche's Silberman. Think of the worker who is at home all day, who now grabs dinner with a friend instead of coming home exhausted from the office after already spending $15 on lunch. Many casual-dining chains also improved takeout and delivery during the pandemic, she adds, letting them compete more broadly for food dollars even when customers stay home.

In this environment, the winners will be those that can deliver a good experience — while still making the price feel like a deal.

Write to David Wainer at david.wainer@wsj.com