Restaurant Industry Faces Challenging Year, Separating Winners and Losers #

Consumers Become More Selective with Dining Out Spending #

The restaurant industry experienced a rocky year as eateries competed for a smaller pool of customers who have grown more discerning about their spending. Many consumers cut back on restaurant visits, leading to slower sales and increased competition among chains.

Prices for food away from home rose 3.6% over 12 months, while grocery prices climbed just 1.6%, making cooking at home more attractive. This led to declining year-over-year traffic in the early months before visits picked up again in March. However, eateries struggled again over the summer as consumers tightened their belts.

In response, many chains reignited value wars, took aim at rivals in marketing, and ramped up innovation with new menu items to boost sluggish traffic trends. The chains finding success were those innovating with menu items, marketing, or emphasizing value.

Bankruptcy Filings Soar as Traffic Falls #

As traffic declined, bankruptcy filings in the industry soared. Twenty-six bars and restaurants filed for Chapter 11 this year, nearly tripling 2020’s total during the pandemic. Major chains like Red Lobster and TGI Fridays were among those filing for bankruptcy.

Value Becomes Key Focus for Chains #

Value became a primary focus for restaurant CEOs seeking to reverse falling sales and appeal to inflation-weary consumers. Many chains rolled out discounted combo meals and deals. Traffic tied to value menu deals climbed 9% through October compared to the previous year.

However, “value” has come to mean more than just price for many consumers. It also includes the experience and quality of the meal. While low-income consumers focus on dollar amounts, others are more selective about overall value.

Fast Food Struggles with Traffic Declines #

Despite the proliferation of value meals, traffic to quick-service restaurants fell almost 2% through October. This decline is largely attributed to low-income customers cutting back on fast food visits.

The fast-food chains performing best, like Taco Bell, have high value perception. Chicken-focused chains like Chick-fil-A, Raising Cane’s and Wingstop also saw success, benefiting from stable chicken prices and perceptions of being a healthier option.

Casual Dining Faces Challenges #

Traffic to casual-dining restaurants fell 2% year-to-date through October. The segment has struggled to compete since the Great Recession, with fast-casual options offering high-quality food at cheaper prices with greater convenience.

Some major casual dining chains like Red Lobster and TGI Fridays filed for bankruptcy. However, outliers like Texas Roadhouse, Chili’s, and Olive Garden performed relatively well.

Looking Ahead to 2025 #

Industry opinions are mixed on the outlook for 2025. Some executives and analysts are optimistic that declining inflation will bring stability to prices and the overall industry. Others predict the value-oriented, deal-driven consumer mindset will continue, with companies fighting for market share in an environment of modest sales growth.

Regardless of the broader outlook, it’s clear that value wars and innovation will remain crucial as restaurants compete for increasingly selective consumers in the coming year.