After lingering menu-price inflation helped drive sales gains in the high single digits at the nation’s largest restaurant chains in 2023, the industry appears to be settling into a more typical pattern of growth this year.
The chains in the Top 500 report recorded a 7.8% increase in sales in 2023, including a 9% gain for the Top 10 chains. This growth outpaced the 7.1% average menu-price inflation for the industry overall, but sales were also boosted by unit-count growth of 1.8%, the biggest increase since 2016. The Top 500 chains added more than 4,100 restaurants during the year, led by Starbucks, Jersey Mike’s Subs, and Crumbl, followed by other fast-casual, chicken, and coffee operators.
The sales and unit growth masked plenty of weaknesses among the Top 500 chains, as 118 operators saw their sales decline last year, and some segments, particularly midscale and casual-dining operators, posted sales that failed to keep pace with inflation.
“I think we’re kind of back to pre-COVID trends, where traffic growth is tough to come by in the industry,” said Andy Barish, an analyst at Jefferies.
Full-service restaurants in particular struggled to drive traffic, which some operators attributed to weaker spending among lower-income consumers in particular in an environment of higher overall inflation across a range of products and services.
“The lower income consumer does appear to be pulling back,” said Rick Cardenas, president and CEO of Darden Restaurants, in a recent earnings call with analysts, although he noted that Darden continued to gain share despite “some underlying softness” in recent months.
A recent report from traffic analytics company Placer.ai supported his observations about traffic challenges. The report showed that while quick-service and fast-casual restaurants experienced year-over-year increases in visits in every quarter last year, visits declined for full-service chains in the second and third quarters and were essentially flat in the fourth quarter.
The pressure on lower-end consumers appears to be lingering in 2024, Barish said, despite some weakening of inflationary pressures. That is leading operators to conduct more price-oriented promotions, he said, which could help minimize traffic declines even if it puts pressure on the average ticket.
“We've definitely gone back to a more promotional environment, where the customer can manage the check by taking advantage of some of these promotions and discounts,” he said.
Technomic is forecasting sales growth of 6.8% among the Top 500 in 2024, targeting total sales of $453 billion.
Barish said he expected a more typical performance from the industry in 2024, with same-store sales growth in the low single digits and traffic flat to slightly negative overall.
All data courtesy Technomic Ignite Company data. Looking for more data? Click here to access the complete Technomic Top 500.
