Through History, Restaurants are Still Versatile

We are now living through the five year anniversary of the Pandemic. Five years ago, the sales base was near zero except for take-out and drive thru operations, we had to lay off most of our employees, and some brands and restaurant holding companies were scrambling to preserve cash and shore up lines of credit. There were immense complications from that, but US restaurant conditions improved, rather quickly.

This should give some comfort that we will get through the current consumer confidence declines and cost risks. Mostly, tariff and uncertainty driven, I don’t sense these problems will be here years from now.

Still, it makes sense to be organizationally and culturally adaptable, with management systems fine-tuned, and to deal with the price perception problems we engendered. Management of the P&L and rising buildout/CAPEX costs have to be well thought out.

Example of Brand Corporate Systems Collapse

As a real life example to the note just above, the importance of corporate management systems, here are extracts from this brand’s earnings call that document going off the rails:

·       “Prior management made significant and ill-advised changes to marketing, F&B operations, remodels and games investments that negatively affected the operations.”

·       “ We went from 90% plus TV [spending mix]  to essentially zero.”

·       “[We] also overwhelmed our customers and operators with way too many and overlapping/conflicting promotions.”

·       “ [We] were overwhelming our operators with promotions and making changes to menu, service style, pricing labor configuration and remodel activity. We reduced or eliminated training and we not properly engaging with our operators.”

·       “On menu, we eliminated popular ticket alternatives and over promoted lower ticket sharables, which lead to a trade down.”

·       “On remodels, we didn’t properly test our alternatives, didn’t listed to operators, and we spent beyond budget on many stores.” Later: “ we were spending an awful lot of money on stores that didn’t need remodeling.”

·       “…we were spending money on opportunities that had no ROI.”  

·       “On games investment, prior leadership deemphasized new games and development…we had not introduced an observable number of new games in over two years.”   [1]

 Clearly, this was an organizational failure at many levels. What is remarkable to me is that the usual checks and balances—the Board, dashboard metrics, new project, and marketing ROI analysis—were disabled or failed.   

Restaurant Industry February Results were Significantly Worse, while March and April to date were listless.   

From an extremely good data source, looking at week by week traffic numbers versus prior year, despite the January weather, January was a bit positive. February momentum was downhill for practically all brands except Chili’s. March traffic was slightly lower but sequentially improved. April to date is settling at  slightly below zero. [2]

From a timing standpoint, these numbers are closely correlated to the initial decline in consumer confidence that was reported in late January. That is when media talk about tariffs and inflation began.[3]  The confidence index has only gotten worse since. 

Fast casuals have had stronger brand results for the last two years. QSRs except Taco Bell have been soft. Most of the casual/fine segment other than Longhorn, Chili’s, and BJ’s were soft. CAVA, Dutch Bros, Texas Roadhouse, and Shake Shack remained in the high growth category.        

What Actions Are Working?

One tactic is that is working: LTOs and meaningful new products.  Positive traffic bumps have been seen lately at McDonald’s (Minecraft Movie Deal/Collectables); Popeyes (Pickle Menu including pickle glaze sandwiches, wings, and lemonade); Applebee’s (New Sizzlin Platters) Dominos (Stuffed Pizza); and Olive Garden (Buy One Take One for $6 Offer). Are these margins accretive? I hope so, but it is an improvement from endless price only messaging. QSR price only messaging is not working; the QSR burger segment has been particularly soft.  2024 proves if everyone is doing it, a brand’s message falls flat.

Of course, some restaurant watchers will opine that too many LTOs confuse staff and customers and make for an overall worse experience. I’d note the way to avoid this—none of which is rocket science-- is (1) low volume, low profit contribution items can be removed at the same time, thereby offsetting menu bloat (2) marketing calendars need not be all new product oriented;  some can be LTOs, others can be a new sales platform or new brand context features.   

Another strategy talked about forever has been to slim down marketing expense and plow those savings into better food, better formulation, flavors, and portions. Longhorn has executed this strategy, and Chili’s worked similar menu improvements. Going from big marketing, big TV, and GRP[4] to lower takes time and coordination—unlike that brand collapse noted earlier. 

[1]   Dave and Buster’s April 2025 Earnings Call.

[2]   Hat Tip: Gordon Haskett, Traffic Tracker, April 2025.

[3]   University of Michigan Consumer Confidence Index, among others. 

[4]   Gross Ratings Points, an advertising metric of reach and frequency.