How Texas Roadhouse Keeps Steak at $19 as Beef Prices Soar | WSJ

- Loud and proud, right? Texas.

- [Restaurant Employees] Roadhouse.

- You could spend a lot of money at Texas Roadhouse, but you can also be very value-oriented because everything comes with a protein and two side dishes and free bread and free peanuts.

- [Heather] In 2024, Texas Roadhouse overtook Olive Garden in sales for the first time.

Today, it's the largest casual dining chain in the US by sales, despite having fewer locations than some of its rivals.

The key to Texas Roadhouse's recent success has been this man, CEO Jerry Morgan.

- We've got a little bit of this rowdy energy that goes with our honky tonk.

- [People] Yeehaw!

- But Beef, the core of its menu, has grown more expensive amid a years-long cattle shortage.

And even some fans say they'd visit less if menu prices climb too high.

What do your customers tell you about why they love Roadhouse? Why do they come to you?

- Well, the fresh baked bread I hear is real popular and the honey cinnamon butter and the peanuts, right?

And then the friendliness of our people.

They talk about all of these things before they even talk about our stakes.

So I think it's really about the energy that we provide.

We do have kind of a casual country music-style, and as casual as we are on one side, extremely focused on the other side of being hospitable to our guests.

- Well, let's talk about the peanuts and the bread.

So everyone gets these. How do you afford to do that?

- Well, I mean, it's just part of who we are, and I believe it's the value piece of the menu.

And I think when you give a little bit of something to the guest and then you deliver on a food experience and hospitality, then it tells them that you know, that you care enough to be a little creative and a little different.

- Thank you very much.

- People don't associate a steakhouse with good value.

I mean, usually you can go to a steakhouse, you're dropping like 60 bucks on a steak, right?

But here at this restaurant, you can get an eight ounce hand-cut steak, plus two sides and the bread and the peanuts, I think it was for $19.

How can you afford to sell at that price?

- If it's in that sirloin category, you have four options.

You can get a six ounce sirloin, an eight ounce sirloin, or 11 ounce sirloin, or 16 ounce.

So you can pick what price range you want to be at based on the size of that steak.

It's still a quality experience, and a lot of our competitors may only give you one option.

So having multiple choices through, whether it be prime rib or ribeye, it allows you to determine how much you're hungry for.

- But you can make money on that $19.

- Yeah, absolutely.

- So during COVID, you had to change, you know, everyone had to change a lot of how you operate.

The peanuts that everyone loves and associate all over the place at Texas Roadhouse, you took those away, but now you brought 'em back in bags, which is more expensive to provide, right?

- It is a little more expensive to do the bag and the logo, but I will tell you that and what I shared with the operators was where are they taking these bags of peanuts?

They're taking 'em home.

But where are they gonna end up?

They're gonna be at their house when they have their friends over, they're gonna be in their kids' lunchboxes, they're gonna be all over the place and it's got our logo and they're gonna know that they're our peanuts.

So it's not a bad thing.

To me, it's great community partnership.

If we can drive our top line, which means provide a great experience for the guests to get more people to come to our business, we believe that that's more important than necessarily trying to raise prices to cover costs.

- [Heather] That balance between offering a good value and rising costs is one the company has had to strike as beef prices rise.

A pound of sirloin steak was up almost 16% compared to the same time last year.

- We do understand that we're heavily invested in the beef portfolio.

It is something that you have to share a little bit of that cost, but I think we should absorb some of it also.

- What share of your commodity basket is beef?

- About 50%.

- That's a lot.

- It's a lot of our menu. Yes.

- So how are you gonna handle this?

- Beef prices have cycled over to 30 plus years.

They have gone up and they have gone down, and this one seems to be extended on the upside.

And so, you know, we continue to look at every option that we can.

We're one of the largest buyers out there because of our volume.

And so we have great relationships with our packers.

The good thing is that there are maybe less cattle, but there's heavier weights on those cattle.

So there is plenty of beef available, but that is what's driving some of the cost to stay elevated.

- Texas Roadhouse increased prices by roughly 2% late last year, and plans to raise them again by a similar amount in April.

How are you gonna control costs in other ways in the restaurants?

- Light bulbs. All of the fixed costs.

If the more your sales are, utilities can go down.

So there's just other ways that we have to do a better job to find those pennies out there, those pennies, nickels and dimes to save and not turn the lights on until you're needed and not turn the fryers on.

So we just have to be very disciplined, like you would be managing your own home, your own businesses the same way.

You don't turn things on until you need them.

- Texas Roadhouse has increased prices before in response to growing costs.

You have taken some price increases previously, particularly, you know, since COVID has started, everyone's feeling inflation right now.

How have customers responded to those increases?

- If you look at our top line, I think they're telling us that they understand and we haven't changed our portion sizes.

More importantly, we've not changed anything that we were doing prior to that.

We've been probably a little under what most others have done.

I think it is important that they know we're being as conservative as we believe is right, and that what's good for both.

- So where do you think Texas Roadhouse will be in three years, five years?

- Well, I think we're trying to get Texas Roadhouse to over 900 restaurants.

We'll continue to build about 20 a year.

- So what keeps you up at night?

What are the things you worry about most?

- A lot of things you could let worry you.

Some of the things that you can't control, you can't sit there and fret over.

What I want to focus on is the positive energy.

We'll deal with all the problems and challenges of the world, right?

The politics, whatever that is.

But our job is to open these doors and serve customers tonight.

The industry itself excites me of what we get to do every day.