Restaurant Industry’s Rollercoaster: Economic Shocks, Consumer Trends, and the 2025 Outlook

Global, national, and regional events make for restaurant share and profitability ups and down periods-typically a few years after a national recession or cataclysmic event. 1990-1991, 2001-2002 (September 11 effect, 2008-2009 (Great Recession), 2020-2021 (Pandemic) and 2022 (Pandemic consumer changes), are the primary change points. To this we should add the 2023-2024 period (global cost inflation, and related pricing panic) through which we are still struggling.

And there will be others coming: the impact of tariffs on costs;  immigration enforcement affecting the labor market for some sectors. Along with large wildfires, flooding, and weather.

Quarter 4 Momentum: No Big Turns Seen.

We were all mislead with the restaurants comps increase noted in  November 2024: it was not a lasting trend. December was stagnant for most brands, and January-February trends and outlooks reported by the bulk of the QSR majors brands noted January weakness. Many brands said Q1 would be the lowest point of the year[1] and noted hope for the second half. For example, Restaurant Brands Inc.,  are pointing to easing compares in 2025. In my view, that is just an optical improvement and does not really indicate real progress.

Most of the  fast casual group has not fully reported yet;  Chipotle, while still positive, noted traffic tuned down 2% in January. Dutch Bros reported strong results. [2]  We have CAVA and Shake Shack to go.

In the casual dining group, Darden has reported favorably (Longhorn has become a powerful brand), and Chili’s (EAT) has powered its way into the small top performers group. The One Group (STKS), BJ’s (BJRI) and Bloomin Brands (BLMN) have yet to report, but I expect none to be breakouts or strong.

The Gordon Haskett research firm (hat tip: Jeff Farmer) has built an outstanding weekly sales and tracking capability. Weekly sales and traffic data for over 45 brands are available. Without revealing proprietary detail, it confirms the brand standouts and trends noted above.

Earnings Calls “Company Speak”

Speaking of earnings, I have compiled a list of earnings call patterns that are used at times by restaurant companies that cannot answer questions.  It is a form of “company speak” that can be confusing.

· “Expectations achieved our internal projections.” Implications: This really doesn’t answer the question as to what happened or what worked. Of course, We don’t know the internal projections base and how or if it lines up with the guidance.  

·  “ We expect the comps to ease next year/next half” Implications: the comps from last year will fall even flat current performance will make for an optical improvement.

·  “We measure only the customer “take rate”—also known as PMIX incidence. Implications: the company is using the take rate as a measure of success. It is not—is a measure of customer interest but does not speak to incremental sales or profit.

·  “We contractually are not allowed to reveal franchisee sales/profit performance.” Implications: the company is not tracking the data or wishes not to disclose for some reason.  The issue is of course a franchisor can’t reveal individual franchisee sales/profits, but reporting the system or polled group is fine. As a comeback, the analyst or investor can ask for the performance of its company units, which are a part of the official statements calculations, but which some companies do not disclose in detail.

These patterns of response can confuse experienced analysts or investors. That is why active funds management, using restaurant industry experts and analysts is necessary.  

For both operating and financial investors,  given the dynamics involved in the hyper-competitive consumer discretionary space, one cannot rely on first impressions or a brand you like (for operators investors) or index funds for financial investors. If you pick the wrong brand, it often will take great time and money to get out of it. You need industry advisors and experts.

2024 Election and Aftermath Outlook: ‘Its Complex’

Everywhere I have been since this fall, including webinars, 2024 Restaurant Finance and Development Conference and the 2025 ICR Conference, some mention of the election and its possible business outcome has been made. The comments have ranged from relief that the nation has this matter cleanly resolved to hope that there will be lower business taxes, more IPOs, and M&A transactions as an outcome.

One bit of feedback in hand is that the franchise restaurant M&A sector is now dead—a number of franchisees pulled their networks from sale right after the election. There is little for sale. Hat tip: Rick Ormsby/Unbridled Capital. Perhaps franchisees were hoping for sales and profit improvements in 2025. There is now business sentiment that there is more uncertainty now due to tariffs implemented and planned, and concurrent price increases consumers will have to pay. 

Unfortunately, US consumer sentiment worsened in the January 2025 University of Michigan survey. The confidence survey index suffered a 460 basis points decline to 67.8% from last months, still 11.8% lower than prior year. This was picked up Black Box and the National Restaurant 2025 outlook, via their generally very small positive SSS and slightly negative traffic 2025 forecasts.

Much more to watch.

[1]   Notably, McDonald’s did not discuss January sales at all in its recent Q4 earnings call.

[2]   We are not sure why the press refers to BROS as a fast casual brand.