Competition for customers will be fierce. | Photo: Shutterstock
2025 will be a better year for restaurants than 2024.
That was the general consensus among attendees at this week’s ICR conference, an annual event for investors, analysts and media hosted by the communications firm.
Consumers seem to be feeling better, other economic indicators are trending up and a contentious presidential election is behind us. Interest rates are expected to fall, which could spur deal-making. And, despite the wildfires in Los Angeles and a looming polar vortex, there was hope that last year’s punishing winter won’t repeat itself.
“The vibe at this conference is way more positive than it was a year ago,” said Rich Hull, CEO of tech supplier Miso Robotics.
The mood was buoyed by some promising early results from the fourth quarter published during the event. Same-store sales were positive at Shake Shack (4.8%), Red Robin (3.8%), Denny’s (1.1%), Noodles and Company (0.8%) and First Watch (0.3%) to finish out the year.
Still, the optimism came with a healthy dose of anxiety. While some brands noted a more confident consumer, others urged that people are still treading lightly after years of price hikes. Andy Wiederhorn, chairman of Fat Brands, said that while he is expecting same-store sales to improve this year, he is worried about inflation. “I don’t feel like the customer has more room for price,” he said.
That means restaurants will be fighting over traffic again in 2025.
A thawing consumer?
Several brands noted that customers are beginning to return after pulling away from restaurants last year, which should help sales and traffic in 2025.
“We’ve seen the consumer largely recover and we’re in a largely normalized environment,” said Jimmy Uba, CEO of Kura Sushi USA, through a translator. The conveyor-belt sushi chain expects to see positive same-store sales this year.
At Darden Restaurants, owner of Olive Garden and other full-service concepts, consumers earning $50,000 to $100,000 a year are visiting more often, said CEO Rick Cardenas, which is a good sign for casual dining. Those earning more than $150,000, however, have not bounced back.
“Yes, consumers are starting to get a little bit better,” Cardenas said. “But we want to see a little bit more to really say, ‘They’re back.’”
Restaurants spent the past several years raising menu prices to help offset historic increases in food and labor costs. That hurt traffic as customers became more choosy about where they dined out. And menu prices continue to rise, up 3.6% year over year in December, according to the Bureau of Labor Statistics.
“The consumer is very price-sensitive still,” said Logan Powell, CEO of Puttshack, the mini-golf chain. “People are very particular about what they want.”
But they may have some reasons to start dining more. Inflation is generally slowing and the gap between grocery and restaurant prices is getting smaller. Employment has been surprisingly strong, which is easing household debt and freeing up some disposable income.
“People have jobs, they’re making more money … and they’ve got their debt under control,” said Potbelly CEO Bob Wright. “Those are pretty important and significant indicators of stability.”
The end of a contentious election cycle may also be giving customers a sense of relief, regardless of their political views. “All of the craziness of the election just ended,” Cardenas said. “Whichever way it ended, consumer confidence is probably going to get a little bit better.”
Traffic control
That does not mean restaurants will sit back and watch sales roll in. With aggressive price hikes out of the question, they will have to compete fiercely for customers. Last year, the battle was largely fought through value, leading to a flood of discounts and meal deals. This year, restaurants see a need to be more strategic.
“I think we’ll still have to do our hard work to gain our share,” said Wright of Potbelly. “But I don’t see the aggressive, drastic price point reductions, really competitors trying to buy traffic with unprofitable promotions and things.”
The sandwich chain was one of several brands to highlight its loyalty program as a potential difference maker. It’s particularly enthused about using data collected through the program to develop more targeted marketing to bring people in.
Daytime-dining chain First Watch is also focusing on personalized marketing as a way to drive traffic this year. It has been investing in technology and data analysis and began testing the new strategy last year. “What we learned from that is informing our plan for 2025,” said CEO Chris Tomasso.
Expect to see more new menu items and other draws that give customers new reasons to visit as well. Olive Garden has had success reviving old menu favorites, including two—Steak Gorgonzola and Stuffed Chicken Marsala—that have a higher price point. And Red Robin’s triple-decker Gold Medal Burger has also been popular, despite the $20 price tag, said CMO Kevin Mayer.
Puttshack, meanwhile, is hoping a new game will help drive repeat business, Powell said. The Challenge Hole is a free-standing putting bay that customers can rent for 90 minutes, allowing them to eat, drink and play a variety of games in one location as opposed to moving through a nine-hole course.
More strategic pricing
Of course, restaurants are still thinking about price, too. The question, however, is no longer about how low they can go, but rather how to create value at different price points. At El Pollo Loco, CEO Liz Williams said customers have responded to the $5 Pollo Bowl and Taco Tuesday promotions launched last year to compete in the industry value wars. But Williams said, “We realized, though, that value has to be throughout the menu.”
The fast-casual grilled-chicken chain is promoting salads in the $10 to $12 range, which compare favorably to $15-plus salads offered by fast-casual and casual-dining competitors. And the chain is looking to add new menu items in the $7 to $9 price point that has been a sweet spot for the brand’s customers.
At Cracker Barrel, a barbell pricing strategy offers customers low-priced entry points such as breakfast starting at $7.99, balanced with premium items such as New York strip. It allows the family-dining chain to promote value while also boosting check averages, said CFO Craig Pommells.
The intense jockeying for customers could produce another year of winners and losers. But that’s not necessarily a bad thing. “Competition keeps the pencil sharp,” said Barry McGowan, CEO of Fogo de Chao.
The restaurant veteran has been through a few economic downturns in his nearly 40-year career. During an interview at this week’s conference, his mood was upbeat. While some might say the industry is in a turbulent spot, he chose a different term.
“We’re going through a renaissance,” he said, citing restaurants’ adaptation to new economic realities and a bumper crop of upstart brands like Cava that are changing the landscape. “We’re now all leaning into, ‘It’s worth it to dine out again.’”
Restaurant Business Executive Editor Lisa Jennings contributed to this story.
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