Sequential improvement continued through November and some operators expect a resurgent and stable year ahead
For plenty of restaurant brands across all segments, the end of 2024 can’t come soon enough. The year was mired in challenges, many driven by consumers fed up with stubbornly high menu prices. Traffic – a critical metric for brand health – fell off a cliff earlier this year, leaving companies no choice but to go to war on margin-squeezing value offerings.
But, as we heard throughout third quarter earnings calls, there has been sequential improvement throughout the industry as we barrel toward the end of the year. Traffic in October turned positive in the quick-service segment for the first time all year, according to Revenue Management Solutions, and continued in the black throughout November – up 1.3%.
Is this trend enough to create optimism heading into 2025? It depends on your definition of positivity, but it’s probably fair to call the current – and near-term – environment “mixed.” For instance, net sales were also up in November by 4.9%, though they were driven in large part by average price increases (up 2.6%), RMS data shows. Price increases are what got us into this mess in the first place.
Indeed, RMS’ Jana Zshieschang notes that three out of four consumers believe restaurant prices are higher than in recent years, and those high prices are the primary reason they are cutting back on restaurant spending. Despite nominal traffic gains, RMS’ Q4 consumer survey shows that respondents are now dining out less across all categories – with fast casual and full service being hit the hardest. Thirty percent of respondents dined at QSRs less – but 42% reported going less to fast casual, and 46% reported going less to full-service restaurants.
Further, data released this week from the U.S. Census Bureau shows that restaurants continued to take market share versus grocery/supermarket stores, with 56.3% in November. While that is positive, and the percentage is just 10 basis points below the all-time monthly gain for the industry, according to Kalinowski Equity Research, the year-over-year increase marked the lowest rise in share for the restaurant industry since February 2021. President and chief executive officer Mark Kalinowski adds that any additional market share gains by the restaurant industry in 2025 will be much smaller than those in previous years.
In other words, spending at restaurants has slowed, while same-store sales growth is expected to be the lowest of any non-pandemic-impacted year since 2016.
Still, this is largely a glass-half-full industry, so let’s zoom in on the “sequential improvement” and what it could mean for the year ahead.
During a recent interview, Pacific Management Consulting Group founding principal John Gordon said, “If red is bad and green is good, I’m somewhere slightly green about 2025. I think the industry has gone through tremendous travails. We’ve already been through our red years.”
And, in an interview with CNBC, Savory Brands co-founder and partner Andrew Smith said, “We feel confident going into 2025 that it’s going to be a resurgence year, a stabilization year.”
“Tough times pass. We’re starting to see traffic finally come back so we feel like the American consumer is tired of waiting and they’re excited to come back into restaurants,” he said.
Importantly, Smith adds that consumers are starting to worry less about price and more about operational execution factors such as speed and accuracy.
“That’s an indication to me that it’s not hitting their wallet as much. It’s about them moving on with their life, which I think we all want to do,” he said. “We’re feeling like this is the year to get back to business and get into offensive mode and not playing in defensive mode.”
Contact Alicia Kelso at [email protected]
