Texas Roadhouse is arguably the biggest anomaly in the restaurant industry right now.
While many of its casual-dining competitors agonize over their bottom lines, the 671-unit steak chain is sacrificing profit in favor of top-line growth. That has helped it deliver record traffic, even as other restaurants watch their guest counts shrink.
One would expect nothing less from Roadhouse, the 30-year-old nonconformist that doesn’t discount, advertise, serve lunch or deliver. Its counterintuitive approach has helped it become one of the most successful restaurant brands in the U.S. over the past three decades, and especially over the past 12 months: As other casual-dining chains jockey for customers with value promotions, TV spots and even wholesale makeovers, Texas Roadhouse has doubled down on what it has always done, and to great effect.
The chain’s rebellious attitude was embodied by late founder and CEO Kent Taylor, who envisioned an affordable, Texas-themed restaurant that valued its employees above all. After being turned down by dozens of potential investors, he eventually opened the first Roadhouse in Clarksville, Ind., in 1993, with backing from a trio of local doctors.
Taylor took his own life in 2021 after a battle with post-COVID symptoms including severe tinnitus. Despite the tragic loss of its guiding force, the brand doesn’t seem to have missed a beat under Taylor’s successor, former President Jerry Morgan, which has made its recent performance that much more impressive.
It helps that Morgan has been drinking the brand’s Kool-Aid almost since the start. He was an area director at Bennigan’s when he first stepped into a Roadhouse about 27 years ago and was immediately captivated by its unabashed country vibe and made-from-scratch menu. “There was just something about the energy of the restaurant and the food that they were serving,” he recalled.
That energy—and the opportunity to own and operate his own restaurant as a managing partner—led him to sign on with the upstart Texas Roadhouse over the more established Outback Steakhouse. He was responsible for opening the brand’s first Texas location, in Grand Prairie, and would go on to build about 20 more Roadhouses in the state before making the jump to the corporate office in Louisville, Ky.
Morgan speaks at a staff meeting, or "Alley Rally," at the Texas Roadhouse in Greensburg, Pa. | Photo courtesy of Texas Roadhouse
Morgan said the brand has not changed much since he first joined. Even though it has grown from a scrappy chain to a global conglomerate, with more than 722 restaurants across 11 countries and two sister brands, Bubba’s 33 and Jaggers, its focus is still at the unit level—and it is still a growth chain.
“What we were trying to do was build one great restaurant at a time,” he said.
It has been able to sustain that effort by sticking to the two promises in its slogan: “Legendary food, legendary service.” It still makes virtually its entire menu from scratch daily, including hand-cut steaks and fresh-baked rolls. And it prides itself on staff that are tight-knit, hard-working and known to break out in a line dance mid-service.
While many restaurants preach similar values, they don’t always translate to results. But it is hard to argue with the success those principles have delivered for Texas Roadhouse. From 2000 to 2022, the chain averaged annual sales growth of 15%, according to Technomic data, with only one year of negative sales, in 2020. It has opened more than 500 U.S. restaurants over that span.
And the brand has hit a new gear coming out of the pandemic. In the first quarter of this year, it served more customers than any other three-month period in its history. Over the past 18 months, its average same-store sales growth has outpaced that of other big casual-dining chains by more than 6 percentage points.
This performance has been made more notable by the fact that consumers are showing clear signs of pulling back on their restaurant spending, especially at full-service places, as inflation takes its toll. It appears that they may be shifting some of that spending to Texas Roadhouse.
“People do want to go out to eat,” Morgan said. “But they want to go somewhere where their money is well spent.”
Roadhouse calls itself an “everyday value” brand. Its menu is centered around reasonably priced steaks and a wide variety of sides, resulting in meals that feel generous for the price. Its Texas Sized Combos, for instance, offer two protein options, plus two sides, for as little as $20.
Over the past two years, it has leaned into that value proposition by deliberately keeping its prices lower than other full-service restaurants.
Coming out of the pandemic, the chain has also focused intensely on staffing, which has been key to maintaining customer service and meeting strong demand. As soon as it was able to open its dining rooms again, “we got very aggressive about that whole mindset of getting staffed,” Morgan said. It now has 90,000 restaurant employees, or “Roadies”—a full 20,000 more than before the pandemic.
Executives have said better staffing is the No. 1 reason for its recent surge. But more workers making more money has also added to the brand’s labor costs. In the third quarter, for instance, its weekly per-store labor hours were 3.3% higher than last year on top of 5.6% wage inflation.
And as a chain that serves a lot of steak, ongoing beef inflation has also hit Roadhouse hard. Its commodity prices were up 4.2% year over year in the third quarter.
All of that has amounted to shrinking restaurant-level profit margins, which has moved Roadhouse further away from its long-term target of 17%. In the third quarter, margins were 14.6%, a decrease of 80 basis points from the prior year.
While Roadhouse clearly has some room to offset those higher costs with higher menu prices, it has chosen not to—a strategy that has been questioned by financial analysts during the chain’s quarterly earnings calls.
Morgan is largely unmoved by their concerns. “You could take pricing if you want to cover all of your costs, but I don’t know if long-term that’s the right decision,” he said. “The consumer will pay a certain amount, but they expect you as a businessperson to share in some of that cost.”
Plus, he said, beef prices will moderate at some point, which should reap big rewards for Roadhouse, although when that happens is anyone’s guess.
Texas Roadhouse embraces its "country" roots. | Photo courtesy of Texas Roadhouse
And it’s not as if the chain isn’t looking for ways to be more efficient. All its restaurants now have Roadhouse Pay, which allows guests to settle the bill themselves using a tablet at their table. It’s also in the process of digitizing its kitchens to help speed throughput, though just a portion of its restaurants have that technology today.
In the meantime, the chain seems content with running laps around the industry on traffic and sales.
That momentum has led Texas Roadhouse to broaden its vision for just how big it can be. Last October, executives said they now believe Roadhouse can have 900 restaurants in the U.S., up from a previous range of 700 to 800. At the time, Texas Roadhouse had just over 600 locations and was on pace to hit 700 within a few years.
“We felt like we needed to make the statement of, obviously we’re about to hit that [700] number, so what is it that we really could project to do?” Morgan said.
If Texas Roadhouse can meet its updated goal, it would have a shot at becoming the biggest casual-dining chain in the country in terms of annual sales. Last year, it leapfrogged Buffalo Wild Wings for the No. 3 spot and was about $200 million behind No. 2 Applebee’s and $500 million behind No. 1 Olive Garden.
It has been able to generate those sales on a much smaller base of restaurants than the chains ahead of it thanks to average unit volumes of nearly $7 million—the highest mark of any chain of its size besides The Cheesecake Factory. And it has been opening new restaurants at a faster pace than both Olive Garden and Applebee’s.
Regardless of how Texas Roadhouse ultimately stacks up against other chains, it has already far exceeded its own wildest dreams.
“I don’t think many of us thought that that was where we would be today,” said Morgan, who insists that Roadhouse is still “a people-first company that just happens to serve steaks,” as Kent Taylor once put it.
But his modesty belies a fierce ambition at Texas Roadhouse. The chain recently held its annual conference for managing partners, where it celebrated its 30th anniversary and charted a course for the coming years.
The theme of the conference? “We’re just getting started.”