After a tumultuous year, executives in the restaurant industry are looking forward to 2025 with renewed hope.
“I’m ready to leave 2024 behind us, and I believe 2025 is poised to be a remarkable year,” declared Kate Jaspon, CFO of Inspire Brands, the parent company of Dunkin’, during her address at the Restaurant Finance and Development Conference in Las Vegas this week.
The restaurant sector has faced significant struggles, with bankruptcy filings surging over 50% in 2024 compared to the previous year. Data from Black Box Intelligence reveals that customer traffic to restaurants that have been open for at least a year has decreased year-over-year every month through September. Many of the largest chains in the country, including McDonald’s and Starbucks, have also disappointed investors with declines in same-store sales for at least one quarter.
However, there are emerging signs of recovery that are fostering cautious optimism within the industry.
Sales have begun to improve from the lows experienced this summer. Traffic at fast-food restaurants increased by 2.8% in October compared to the same month last year, according to Revenue Management Solutions. This uptick corroborates anecdotal reports from companies like Restaurant Brands International, which indicated that its same-store sales grew in October.
Additionally, interest rates are finally on the decline. Earlier in November, the Federal Reserve enacted its second consecutive rate cut. For the restaurant industry, lower interest rates mean reduced costs for financing new locations, which could stimulate growth. Previously, higher interest rates had a limited impact on development, as restaurants were still recovering from pandemic-related delays and benefitting from a post-COVID sales surge.
Katie Fogertey, CFO of Shake Shack, noted that despite previous high interest rates, development was not significantly hindered. She anticipates a “big boost” in consumer confidence as rates decrease. “When credit becomes cheaper, people feel more inclined to borrow, even if it doesn’t directly correlate to spending on a $5 burger. It’s all about the psychology,” Fogertey explained.
Shake Shack has reported consistent growth in same-store sales each quarter this year, even as consumer spending has become more cautious.
Restaurant valuations are also showing signs of improvement, raising hopes that the market for initial public offerings (IPOs) may soon recover. Damon Chandik, managing director at Piper Sandler, commented, “We’re currently collaborating with various stakeholders to prepare for potential IPOs. While the window isn’t wide open yet, I believe we could see some restaurant IPOs next year, likely in the first half.”
Since Cava’s IPO in June of last year, no major restaurant company has gone public. Although Cava’s stock has surged over 500% since its debut, its success has not prompted other large private restaurant firms to follow suit, as broader market conditions continue to deter potential candidates. Nearly a year ago, Panera Bread confidentially filed for an IPO, but it has yet to materialize. Inspire Brands, owned by private equity firm Roark Capital, is also considered a strong candidate for a future IPO, with a diverse portfolio that includes Dunkin’, Buffalo Wild Wings, and Baskin-Robbins.
Despite the glimmers of hope, challenges remain. Michelle Hook, CFO of fast-casual chain Portillo’s, cautioned, “We will likely face headwinds next year, both at the macro level and within the industry.” Portillo’s has experienced declining same-store sales for three consecutive quarters and has opted out of the discount strategies employed by competitors like McDonald’s and Chili’s.
The value wars are expected to persist into 2025, exerting pressure on restaurant profits and intensifying competition among chains. For instance, McDonald’s plans to introduce a broader value menu in the first quarter, following the success of its $5 value meal. The threat of bankruptcy remains for some chains, particularly those relying heavily on discounts to attract customers.
While a recession appears unlikely next year, consumers may take longer to recover from the impacts of rising costs than anticipated.
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