Feel free to share this article!

One of my favorite ways of doing investment research is to experience the products and services that those companies are providing. For the restaurant industry, that means experiencing their food. And that’s what I did when researching Texas Roadhouse $TXRH ( ▼ 0.64% ) .

Texas Roadhouse is an American steakhouse chain that offers a Texan vibe to its dining experience. When I arrived at the parking lot of the restaurant, I immediately see the Texas flag next to the American flag. Even if we’re in California, there was no California bear flag found anywhere. The name of the brand itself has the state’s name, “Texas”.

I’ve heard amazing reviews of Texas Roadhouse for a long time. I’ve always wanted to go there and experience their steaks. But there wasn’t one near me, and I wasn’t eager to drive very far just to deal with hour-long wait times and risk making a long trip just for a bad experience.

Thankfully, there was a location that opened near my cousins’ house, and I was able to have company with me while researching more about this restaurant chain.

I was impressed when I first went there. It was lunch time, on a Sunday afternoon, and despite how crowded the place was, our wait time for a table was around 15 minutes for a party of 3. The restaurant was crowded with guests sitting close to each other and busers cleaning tables as fast as F1 pit stops. The energy is high, and many staff members would come together to greet people on their birthdays.

As our host led us to our table, she stopped by a meat display that showcased the different steaks the restaurant was offering its guests. We didn’t know much about steak, so we said we’d rather look at the menu before deciding on what to order.

Reading the online reviews, guests emphasize that first-timers get their steaks. It’s affordable, and it’s what they’re best known for. Out of all the steaks being ranked, the bone-in ribeye was the most popular, and that’s what I chose to get.

There are no regrets with eating a bone-in ribeye at Texas Roadhouse. The steak was juicy, seasoned to perfection, and I had a memorable experience. I’ve tried steaks at other places, and Texas Roadhouse just does steak the best. Since this is the consensus, it’s understandable how $TXRH ( ▼ 0.64% ) was able to capitalize on the growing steak trend the best.

Texas Roadhouse - a superior business in many ways

From what I said before, describing the short wait times, the fast table cleanups, and how tightly packed the restaurant is with guests, it makes sense why $TXRH ( ▼ 0.64% ) would have way more sales per restaurant than LongHorn Steakhouse (owned by $DRI ( ▲ 0.06% ) ) and Outback Steakhouse (owned by $BLMN ( ▲ 5.64% ) ).

On top of that, Texas Roadhouse has seen high single-digit year-over-year (YoY) increases in annual visits. Knowing the lively atmosphere and great food, and shorter wait times, it makes sense why many would want to dine more often there.

Even beyond the great customer experience, when you compare the prices of the steaks that Texas Roadhouse and its top two competitors offer, you’ll find they’ve consistently ranked lower in price than their competitors.

Menu sources:

• Texas Roadhouse (source)

• Longhorn Steakhouse (source)

• Outback Steakhouse (source)

Potential Pricing Power

Without the price advantage, it’s tough to say if Texas Roadhouse would continue to dominate. From what we know so far, Texas Roadhouse has the cheapest steaks out of the three. If they raised prices and became a bit pricier like Longhorn Steakhouse or Outback Steakhouse, it’s hard to tell if they’ll continue to dominate the steakhouse industry.

I say that even without a price advantage, I think Texas Roadhouse would continue to dominate the steakhouse industry. When someone goes to a nice restaurant, and they’re probably celebrating a birthday or anniversary or holiday, they’re going to want to splurge on great food and a great experience. They wouldn’t think much about the prices they have and compare it to other steakhouses.

In FSR magazine, a magazine dedicated to the full-service restaurant industry, the editor sees Texas Roadhouse in a similar level of desirability as the Cheesecake Factory $CAKE ( ▲ 2.05% ) . When we think of the guests that dine in at the Cheesecake Factory, we typically don’t think of them as being cost-conscious. Sure, they’ll probably avoid a Filet Mignon, but they won’t be comparing the prices of that restaurant to the prices of other restaurants within the same industry to decide where to celebrate.

There are numerous full-service restaurants that try to undercut the Cheesecake Factory, thinking they’ll achieve a similar level of success. But in the end, consumers prefer to dine in at the Cheesecake Factory. The customer service, the atmosphere, and the unique cheesecakes are all reasons why the Cheesecake Factory continues to dominate despite being one of the more expensive full-service casual dining destinations.

With that, I can see Texas Roadhouse choosing to employ more pricing power as the demand for dining outpaces the number of new restaurants they can open. They see their competitors offering more for similar steaks while having less desirability from consumers.

The story of today is that they have many more markets to open new locations without risking market saturation. In the future, when their restaurants are within a 20-minute drive distance to most Americans, the new story for the stock will be their pricing power.

Conclusion

After dining in at Texas Roadhouse, I understand why the business has been able to thrive over the past several years. If ever I find a great entry point to acquire shares of $TXRH ( ▼ 0.64% ) , at least this experience gives me confidence in the company’s future.

I wish I had known about this company long ago, so I could have enjoyed the immense compounding that this restaurant chain has given to investors. At least this experience opens my mind to consider going to restaurants of smaller publicly traded restaurants and find the next $TXRH ( ▼ 0.64% ) .

Disclosure

About Me

I am an independent personal finance writer and blogger. I do not have any formal training or certifications in finance, but I have a deep passion for the subject and have been researching and writing about personal finance topics for several years.

Disclaimer

The information provided in my articles is for educational and informational purposes only. It is not intended to be a substitute for professional financial, investment, or tax advice.

I encourage you to do your own research, consult with a licensed financial advisor, and make decisions that are best suited to your individual financial situation and goals. I cannot guarantee any specific outcomes or results from following the advice in my articles.

Please remember that investing involves risk, and you should only invest what you can afford to lose. Past performance is not a guarantee of future results.

If you have any questions or concerns, please don't hesitate to reach out to me. I'm here to help!