As restaurants fought for a smaller pool of consumers who have become more picky about how they spend their money, a challenging year for the sector divided the largest chains into winners and losers.
Jennifer Jennings, a salesperson in Tulsa, Oklahoma, stated, “I’ve been eating out less this year — it tastes just as good, and it’s way cheaper.”
According to the Labor Department’s consumer price index, the cost of eating out has increased 3.6% in the past 12 months as of November. Cooking at home is now more appealing than eating out because grocery prices increased by just 1.6% over that time.
As a result, many customers have reduced their restaurant spending, which has increased competition and slowed sales.
This summer, the value battles flared up again. Chains used social media posts and marketing to attack their competitors. Additionally, eateries increased their inventiveness in the hopes that new menu items would improve slow traffic patterns.
“I believe that the recurring theme in all of this at the moment is that the winning chains aren’t standing still. RJ Hottovy, Placer.ai’s head of analytical research, stated, “They’re doing something innovative, whether that’s new menu items … maybe that’s a marketing innovation … maybe it’s just hyper-emphasizing value.”
According to industry tracker Black Box Intelligence, the year began slowly, with year-over-year traffic dropping in January and February before visits resumed their upward trend in March. However, when customers reduced their budgets, restaurants suffered once again throughout the summer. The trend continued despite several bargain lunches that offered inexpensive burgers and fries.
Bankruptcy filings have increased as traffic has decreased. According to the Debtwire Restructuring Database, 26 pubs and restaurants have filed for Chapter 11 this year, coming very close to double the number that filed during the epidemic in 2020. TGI Fridays and Red Lobster were among the well-known filers this year.
It’s too early to forecast a complete rebound, according to several industry analysts, even though traffic has increased entering the fourth quarter. Most consumers, across all income categories, want to continue spending at limited-service restaurants in the upcoming months, according to a Numerator study of over 2,000 patrons.
However, the chains that are already profitable saw an increase in their profits during the fourth quarter, which has helped them succeed even more.
The restaurant industry’s 2024 winners and losers are as follows:
WINNER: Value This year, as restaurant executives looked to turn around declining sales and win over inflation-weary customers, value emerged as their go-to term.
In late April, McDonald’s issued a warning to the industry, stating that customers had gotten increasingly “discriminating.” Three months later, the company’s second-quarter revenues fell short of projections, and fewer people visited its restaurants in the United States. In response, the burger juggernaut introduced a $5 combination lunch, and several competitors followed suit with their own sales and promotions.
According to Circana statistics, traffic associated with value menu offerings increased by 9% through October when compared to the same period last year.
However, the sector cannot be saved by value meals alone.
According to David Portalatin, senior vice president and industry adviser for food and food service at Circana, the boost from the mergers is insufficient to counteract overall traffic losses.
Furthermore, “value” now encompasses more than just the cost. It also encompasses quality and experience.
“The money number is what counts to low-income consumers. It’s worth something to everyone else. “You’re going to be more selective even if you have money because you’re noticing things are more expensive,” Michael Zuccaro, vice president of corporate finance at Moody’s Ratings, told CNBC.
LOSER: Fast food
Due to consumers cutting back on their expenditures, fast-food establishments have been losing business this year.
Circana data shows that, through October of this year, the number of patrons visiting quick-service restaurants decreased by over 2%, despite the rise of $5 combination meals. Fast food makes up about two-thirds of all restaurant visits, which is terrible news for the business.
Low-income patrons are mostly to blame for the drop in fast-food traffic, according to industry analysts. According to Numerator statistics, almost 25% of McDonald’s and Taco Bell’s patrons are diners with incomes under $40,000.
By forgoing the French fries or going to the restaurant entirely to cook at home, many of those customers have made the decision to spend less money at fast-food establishments.
Hottovy stated, “There is a lot more competition with grocery and other food retailers.” “There is a lot of competition there, especially for consumers with lower to middle incomes.”
Value perception is high for the fast-food companies that are now doing the best, such as Yum Brands’ Taco Bell.
Fast-food establishments usually profit when people tighten their belts during a recession or slump. Higher-income customers switch to fast-food combo meals even as low-income consumers make cuts. This time, however, that hasn’t happened because wealthier customers have adopted a more comprehensive notion of value when choosing where to spend their money. For such eaters, a good, satisfying dinner is more important than a good bargain.
WINNER: Chicken
The fast-food restaurants Wingstop, Raising Cane’s, and Chick-fil-A that did the best in 2024 tended to specialize in chicken.
This year, the price of beef has increased while that of chicken has remained largely unchanged. Another advantage of poultry is that, even when breaded and fried, some customers view it as a healthier alternative to red meat.
Since the 2019 chicken sandwich battles, chicken has been overtaking beef in the market, and eateries have been capitalizing on this change in customer preferences. For instance, McDonald’s just made the Chicken Big Mac a permanent addition to their menu in the United States.
Additionally, upstarts like Raising Cane’s have been gaining traction. According to Barclays, the privately held business, which is well-known for its chicken tenders, has a 7.8% market share, making it the fourth-largest chicken chain in the United States. The rare chicken restaurant that has had trouble connecting with American consumers this year, KFC, may soon be surpassed by the chain.
Yum Brands owns KFC, which has lagged behind in recent years due to increased competition. Market share has been taken by competitors like Popeyes and Chick-fil-A thanks to their popular menu items and customers’ preference for boneless chicken.
LOSER: Burgers
Burgers are losing market share to those chicken businesses. Burger King from Restaurant Brands International, Wendy’s, and McDonald’s all had a poor year.
According to Barclays, McDonald’s has a 48.8% market share and has long controlled the burger industry. However, the firm lost ground earlier this year when its menu pricing turned off low-income customers. But by October, things were improving for the Golden Arches: their more expensive Chicken Big Mac was increasing traffic, and its $5 value meal was regaining consumers.
Then followed a deadly E. Coli epidemic that was connected to the Quarter Pounders’ usage of sliced onions. Sales fell, particularly in the impacted areas, even though the corporation moved swiftly to mitigate the effect. McDonald’s intends to provide $165 million to support franchisees and increase advertising. In addition, the restaurant has revealed a new value menu that will debut in January and temporarily restored its well-liked McRib.
Analysts believe McDonald’s will be able to get past the issue. According to a statement from Gordon Haskett Research Advisors, traffic turned positive in the week ending December 8 for the first time since the epidemic was declared by the Centers for Disease Control and Prevention on October 22.
That is terrible news for competitors Wendy’s and Burger King.
In an effort to attract frugal customers, Burger King, like McDonald’s, introduced a $5 value meal over the summer. Despite a decline in same-store sales in the third quarter, Restaurant Brands CEO Josh Kobza stated that the firm is in far better shape now than it was when the parent company initially introduced Burger King’s U.S. turnaround strategy in September 2022.
Wendy’s has also been having trouble making inroads in the value wars. In an effort to reduce its footprint and improve overall profitability, the firm recently said that it will eliminate 140 underperforming outlets in the fourth quarter.
However, the burger restaurant has benefited from a promotion linked to Spongebob Squarepants’ 25th anniversary. According to a statement from Wolfe Research in October, some locations even sold out of essential components for the “Krabby Patty” dish.
Taco Bell is the winner.
Out of Yum Brands’ three holdings, the Mexican-inspired brand was the only one to post quarterly growth in same-store sales thus far this year. (In fact, KFC and Pizza Hut reported declining same-store sales for three consecutive quarters.)
Taco Bell’s success has been credited by Yum officials to the way that customers view its worth. According to a Numerator poll of over 2,000 customers, it was the most popular limited-service restaurant that diners of all income levels thought was more cost-effective than supermarkets.
Yum has also given Taco Bell credit for their “brand buzz.” Taco Bell’s Mexican pizza is prominently placed on a picnic blanket in actress Selena Gomez’s Instagram photo announcing her recent engagement. The brand’s public relations head stated in a LinkedIn post that Taco Bell did not sponsor the post.
The chain continues to move. In hundreds of locations, it is implementing artificial intelligence algorithms to accept drive-thru orders. Additionally, it debuted the Live Mas Café, a brand-new drink-focused concept, in early December. San Diego is the first site being tested.
Yum intends to showcase Taco Bell with an investor presentation detailing its strategy for the upcoming year in late January, as the brand continues to stand out.
WINNER: Casual fast-food restaurants
Only the fast-casual restaurant category has shown an increase in patronage this year.
This year, Cava’s stock has soared 192%. Every report Wingstop has issued this year shows a more than 20% increase in quarterly same-store sales. Despite online criticism of Chipotle’s serving sizes and the resignation of longstanding CEO Brian Niccol in September, the company’s restaurant traffic continues to increase.
But those chains aren’t the only thing. According to Circana statistics, traffic to the fast-casual restaurant sector increased by 3% through October when compared to the same period last year. Additionally, the category’s dollar sales have climbed by 8%.
According to Portalatin of Circana, “going out rather than staying in costs more money, and fast casual seems to strike the right balance of the value equation.”
Chipotle and other fast-casual restaurants gain from a clientele that is more likely to be well-off. Chipotle officials have previously stated that because its consumers have more money to spend on eating out, they haven’t observed the same traffic reversals as the rest of the business.
Naturally, even in the fast-casual category, there were some losers. As their traffic decreased and expenses increased, chains such as Roti and BurgerFi declared Chapter 11 bankruptcy.
John Bringardner, the CEO of Debtwire, said, “Perhaps they got into trouble because they expanded too quickly and had other problems.”
Brian Niccol was the winner.
When Starbucks announced that he would be taking over as CEO after his predecessor was fired. Following the revelation, Chipotle’s price dropped and Starbucks’ shares surged, resulting in a $27 billion market value swing that demonstrated Wall Street’s faith in Niccol as a leader.
Six years into his employment, Niccol left Chipotle. He guided the company through the pandemic, renovated its stores for the digital era, pushed online ordering, and helped the burrito chain emerge from its foodborne disease issue. Wall Street experts anticipate that Scott Boatwright, his successor, will continue Niccol’s path.
However, Niccol’s hiring at Starbucks will probably result in significant adjustments for the massive coffee company. Following two consecutive quarters of declining same-store sales, the board decided to hire him. Customers had become tired of its exorbitant costs and disorganized, inhospitable establishments, and they weren’t convinced to come back even by sales and the introduction of new drinks.
Niccol has promised to return the business “Back to Starbucks” in his role as CEO. He presented his initial ideas for restructuring the U.S. firm in late October, ranging from minor adjustments like reintroducing Sharpies to much more substantial measures like reducing its wide range of beverages.
Wall Street is enthusiastic about his promises as 2025 approaches. According to Piper Sandler, Starbucks is the greatest restaurant it covers. Along with Wingstop, it was also deemed a high selection by BTIG.
LOSER: informal eating
Circana data through October shows a 2% year-to-date decline in traffic to casual eating establishments.
The drop in attendance this year comes after years of declining demand for casual dining franchises. Since the Great Recession, they have found it difficult to compete with fast-casual restaurants that provide better cuisine at lower costs and with more convenience.
Additionally, some customers are choosing small independent restaurants over casual dining corporations.
This year’s largest losses in the sector were TGI Fridays and Red Lobster, both of which declared Chapter 11 bankruptcy. After declaring bankruptcy in May, Red Lobster has subsequently emerged from the situation with a new owner, management, and turnaround plan.
“Some filtering out is evident. of those ideas that are a bit worn out, a bit strained,” Portalatin of Circana stated.
Applebee’s, a restaurant chain owned by Dine Brands, is another casual dining establishment that is having trouble attracting customers.
However, there are still some outliers in the category, such as Olive Garden, Chili’s, and Texas Roadhouse. The segment’s indicators have increased due to its relative outperformance, concealing the deeper decline of certain chains. (On Thursday, Darden Restaurants, the parent company of Olive Garden, releases its most recent quarterly results.)
WINNER: Chili’s
Brinker International’s Chili’s was one exception to the general lackluster performance of casual dining establishments. Gen Z guests made reservations for a table at the chain that was more often associated with families.
Thanks to clever advertising and TikTok viral bargains, the bar and grill’s comeback finally took off this year. Chili’s reported a 14.1% rise in same-store revenue in its most recent quarter, driven by a 6.5% increase in traffic.
Value-conscious shoppers were drawn to the chain’s $10.99 “3 for Me” package. Additionally, Chili’s promoted the deal by criticizing the costs of its competitors in the fast-food industry. Additionally, its Triple Dipper combo—which consists of three appetizers—took off on TikTok, resulting in a more than 70% increase in menu item sales in the most recent quarter as compared to the previous year. During the company’s most recent earnings call on October 30, Brinker CEO Kevin Hochman stated that the Triple Dipper currently makes up 11% of the chain’s revenue.
Chili’s popularity has led many imitations. Chili’s and rival Applebee’s recently got into a heated argument over Chili’s $9.99 value meal. The Never Ending Pasta Bowl campaign was also brought back by Olive Garden.
WINNER OR LOSER? 2025 dining establishments
At the Restaurant Finance and Development Conference in Las Vegas in mid-November, restaurant executives expressed optimism regarding 2025.
That opinion was shared by Portalin of Circana, who forecast that inflation will continue to decline in the upcoming year, providing much-needed stability to pricing and the sector as a whole.
“Consider everything that consumers have experienced in the past year, including natural disasters, international conflicts, and the divisive national election,” he added. “We believe that customer traffic will increase in 2025 if we can put all of that behind us and preserve some of these fundamentals around labor and income.”
However, not everyone in the business is so certain that restaurants will start to rebound in 2025.
According to Hottovy of Placer.ai, “I think we’re going to continue the same mindset that we’re leaving 2024 with, this value-oriented, deal-driven consumer.”
The restaurant industry is also expected to have modest sales increase, according to Moody’s prediction, but businesses will be vying for market share, according to Zuccaro. To put it another way, the value wars will not stop and could possibly get more intense.
