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That said, there is also a consensus that 2025 will at least be less choppy considering trends leading into the New Year. Most public restaurant companies reported sequential improvement into the fourth quarter, for instance, and traffic in October turned positive in the quick-service segment for the first time all year, according to Revenue Management Solutions. Further, federal data showed that restaurant spending reached a new high compared to grocery shopping in October, with restaurant market share at 56.4%.
Couple these patterns with declining interest rates — to 4.5-4.75% from a peak of 5.25%-5.50% throughout most of 2024 — and we’ll likely see some more stabilization in the year ahead. At least, that’s a prediction from Bank of America.
“With consumer spending rebounding and interest rates on a declining trajectory, advancements in technology and a more stable operating environment are expected to fuel growth in the restaurant industry in 2025. Enjoying food away from home is expected to remain a priority for consumers, who are responding to rising prices by adjusting spending habits and dining choices rather than depriving themselves of restaurant meals,” BofA Global Research wrote in a report.
Technomic’s forecast is similar, as the foodservice insights company notes, “Following a challenging year of declining traffic amid high inflation, 2025 holds the promise of a modest recovery. Expect lower inflation and interest rates to boost consumer confidence, while greater operator focus on promotional efforts will encourage more frequent foodservice purchases. As the population matures, we’ll see more multigenerational strategies that increasingly resonate with younger diners to drive traffic and build loyalty while also catering to an aging customer base. Together, these factors will restore a more normal growth cadence and much welcomed stability for the industry.”
Because of these factors, Placer.ai’s head of analytical research R.J. Hottovy is “cautiously optimistic” about a stronger 2025.
“The election is out of the way, so that uncertainty is gone. We’re no longer seeing huge spikes in inflation. Pricing has stabilized a little. I think, given the stable price environment from the input side, it points to some positive growth in ‘25,” he said.
Lapping sluggish numbers from 2024 will also help, Henkes added, so expectations of “positive growth” should be tempered.
“The industry pre-pandemic was a very mature, slow growth industry. Our belief is we have normalized and reverted back to a pre-pandemic cadence of growth,” Henkes said, adding that the cadence is 1-2% real growth and 3.5-4% nominal growth.
“Our sense is that once inflation stays low and incomes start to catch up with prices, people will feel better about their own situations. We’ll see improvement. It won’t be 10% growth, but it will be better than this year and more in line with historic trends,” he said.
After the past four years, the industry is due for “normal” and “stable.”
“Restaurants are certainly in the right position to see continued relief and growth,” MarginEdge co-founder Bo Davis said. “Sales are far less volatile, inflation has steadied, and labor is no longer a red-hot issue. On top of that, restaurant tech has improved, and we know now that ghost kitchens are absolutely not an existential threat.”
Still, it’s a bit too early to call this a full-fledged “turnaround.”
Though there are plenty of proof points signaling momentum, plenty of roadblocks remain, softening what could otherwise be a bullish forecast. While inflation has moderated, menu prices remain much higher than the general Consumer Price Index and grocery prices, for instance. Return to office remains slow, impacting urban restaurants. And labor costs have increased 73.9% for full-service restaurants and 60.2% for quick-service restaurants over the past seven years, according to Square data.
There is also the expectation that recovery for lower-income consumers will continue to lag — a trend that initially ignited the value war across the industry.
“We remain concerned about low-income consumers amid a K-shaped economy; chains with little exposure to the cohort, like Shake Shack and Chipotle, can outperform [in 2025],” Bloomberg Intelligence’s Michael Halen wrote in a recent note.
Of course, lower-income consumers make up a big chunk of restaurant spending beyond the Shake Shacks and Chipotles, and we heard similar concerns shared by several executives in recent months.
During his company’s third quarter earnings call, for instance, Papa Johns chief financial officer Ravi Thanawala said the company expects challenging sales to continue into 2025. McDonald’s CEO Chris Kempczinski told attendees at a Boston College Chief Executives Club event in October that his company expects 2025 to remain pressured, especially from lower-income consumers.
Accordingly, the value environment is expected to continue in the near-term, at least into the first half of the year. As it continues, Mark Rose, senior director of market strategy for TransUnion’s travel and hospitality business, expects to see more barbell pricing and brands leveraging their loyalty programs to protect margins.
“Recovery from 2024 is likely to vary by operator,” he said. “Those brands that instill value in their menus and effectively communicate that value to consumers will outperform operators that do not.”
The continuation of value will likely lead to less growth in the margins versus topline sales, Henkes adds.
“We’ll still have our fair share of challenges in 2025. They’ll be easier, but they’re not going away,” he said. “Operators who relentlessly focus on cost control and the bottom line will continue to win.”
Both Davis and Hottovy share that belief, noting that more operators are taking a step back from new store expansion and focusing instead of four-wall profitability through the in-store experience, the menu, and more.
“Now is a prime opportunity for operators to home in on their businesses and set themselves up for success by getting their back of house and finances in order,” Davis said. “With solid operations and a knowledgeable finance team, restaurants can focus on what truly matters: great food and great service.”
The fundamentals are especially important amid a promotional environment, Hottovy adds.
“Some concepts that are chasing value or tech have taken their eye off the ball in terms of the basics,” he said. “In [Placer.ai’s] top 12 chains in terms of visits per location growth, not a single one has played the value war. The common thread is that they’re just doing well from an execution standpoint.”
2024 was a record year for restaurant bankruptcies, and they increased by more than 50% versus 2023. According to Ragini Bhalla, head of brand and spokesperson for Creditsafe, rising inflation and cost of living, customers spending less, higher labor costs, and a COVID hangover are a few of the factors that have driven this trend. As for 2025?
“I don’t have a magic ball, but there are a few ways restaurants can future-proof their businesses,” Bhalla said. “One of the best ways is to know their finances in and out. Cash flow forecasting should be done and restaurants should be monitoring their cash flow regularly. Nothing should come as a surprise. Restaurants should also plan for the unexpected; for example, if they work with larger brands and don’t get paid on time, that will affect their cash flow.”
Having clearer forecasting capabilities is part of a broader trend into having more insight into the overall business. Mark Rose, senior director of market strategy for TransUnion’s travel and hospitality business, said such data should be leveraged to understand which menu options deliver attractive margins with the existing supply chain. He expects this activity to pick up in the New Year as the value competition continues.
“Also, in addition to building loyalty programs, operators are increasingly savvy about making data-driven decisions around their store portfolio, for example, closing poor-performing locations and opening new ones with convenience features such as drive-up windows. In 2025, we’ll see more operators lean into rich customer data to make even better decisions,” Rose said.
While the value environment is expected to continue well into 2025, more brands will be trying to differentiate amid the noise. According to Hope Neiman, chief marketing officer of Tillster, that means a sharper focus on the overall experience.
“Value meals are boring. Virtually every brand is offering some sort of monetary discount to show value, but consumers know that regardless of deals and coupon codes, eating out is more expensive than it used to be,” she said. “It’s now about proving the value of spending that money — creating comfortable, lively atmospheres that make dining out a fun and enjoyable experience.”
A new survey from OpenTable finds that 54% of Americans plan to dine out more in 2025 than they did in 2024. This is led by younger generations: 71% of Gen Z and 68% of Millennials plan to dine more at restaurants in 2025.
Not only are consumers expected to dine more in 2025, but they’re also expected to spend more. That is, at least, according to Bloomberg Intelligence’s Michael Halen and Amir Islam.
“Economic data continues to signal weak spending by low-income households, but showed modest improvement in the last few months; credit-card debt and auto-loan delinquencies rose at a slower pace, credit-card delinquencies fell and consumer sentiment was better,” they wrote in a report. “We believe rising asset prices — including stocks, crypto and housing — will boost middle- and high-income spending.”
