A McDonald's restaurant in El Sobrante, California, on October 23, 2024.
David Paul Morris | Bloomberg | fake images
After a difficult year for the restaurant industry, executives are eager for 2025 to begin.
“I don't know about you, but I'm ready for the 24th to be behind us and I think the 25th is going to be a great year,” said Kate Jaspon, chief financial officer of Inspire Brands, parent of Dunkin', at the Restaurant Finance and Development Conference in Las Vegas this week.
Restaurant bankruptcy filings have soared more than 50% so far in 2024, compared to the same period last year. Traffic to restaurants open at least a year declined year-over-year in every month of 2024 through September, according to data from industry tracker Black Box Intelligence. And many of the country's largest restaurant chains, from McDonald's to starbuckshave disappointed investors with declining same-store sales for at least a quarter.
But green shoots have appeared, fueling lukewarm optimism about the future of the restaurant industry.
Sales are improving from this summer's lows. Traffic to fast food restaurants increased 2.8% in October compared to a year earlier, according to data from Revenue Management Solutions. The company's data confirms anecdotal evidence from companies like the owner of Burger King. International Restaurant Brandswhich said earlier this month that its same-store sales grew in October.
Plus, interest rates are finally falling. In early November, the Federal Reserve approved its second consecutive rate cut. For restaurants, lower interest rates mean it's cheaper to finance new locations, driving growth. Previously, higher interest rates didn't hurt development much because restaurants were still recovering from pandemic delays and taking advantage of the post-Covid sales boom.
Shake Shack storefront with illuminated sign on a busy street, New York, New York, October 22, 2024.
Smith Collection | Gado | Stock Photos | fake images
In a hamburger chain beaten hutHigher interest rates in recent years did not slow development, according to Chief Financial Officer Katie Fogertey. But he expects a “big boost” in consumer confidence as rates fall.
“If credit gets cheaper, people feel like they can borrow more, even though it doesn't make sense that it would necessarily drive them to spend $5 on hamburgers. It's just the psychology behind it,” Fogertey told CNBC.
Shake Shack has reported increased same-store sales every quarter so far this year, even as consumers have been more cautious.
Restaurant valuations are also improving, raising hopes that the IPO market will finally thaw.
“We are working with several different people right now to prepare,” said Damon Chandik, managing director of Piper Sandler at RFDC. “The window is currently not fully open… I think just with the traffic pressure that we've been seeing across the industry, the bar is particularly high.”
He added that he expects to see some restaurant IPOs next year, hopefully in the first half.
A sign marks the location of a Cava restaurant in Chicago, Illinois, on May 28, 2024.
Scott Olson | fake images
No major restaurant company has gone public since the Mediterranean restaurant chain. you dig IPO in June last year. While Cava's stock has risen more than 500% since its debut, its success has not encouraged any other large private restaurant company to take the plunge. Instead, general market conditions have scared away other contenders.
Nearly a year ago, Panera Bread filed confidentially to go public again, but an initial public offering (IPO) has yet to materialize. Inspire Brands, owned by private equity firm Roark Capital, is another likely candidate for a blockbuster IPO in the future. Inspire's portfolio includes Dunkin', Buffalo Wild Wings, Jimmy John's, Sonic, Arby's and Baskin-Robbins.
Still, not everything is optimistic within the industry.
“I think we will still see headwinds next year within the macro and within the industry,” Portillo's Chief Financial Officer Michelle Hook told CNBC.
The fast-casual chain, best known for its Italian beef sandwiches, has reported declining same-store sales for three consecutive quarters. Portillo's has steered clear of some of the discounts offered by others in the restaurant industry, such as McDonald's and Chili's.
Value wars are likely to continue through 2025, putting pressure on restaurant profits and intensifying competition between chains. For example, McDonald's plans to introduce a broader menu in the first quarter, after extending its $5 value meal through the summer and winter. For some restaurants, the looming threat of bankruptcy has not gone away, particularly for chains that are turning to discounts to win back customers.
And while a recession appears unlikely next year, it could take longer than expected for the consumer to recover from years of high costs.
