2025 State of the Foodservice Industry

A turning point may lie ahead, suggest analysts, with easing inflation, a brighter consumer outlook and ‘lingering resilience’ among operators.

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After spending much of the past three years getting singed by a hot labor market and slogging through stickier-than-expected inflation, restaurant operators are cautiously, modestly optimistic heading into 2025, industry analysts say.

“What we have right now is a sense of, ‘We’re still in an upward climb, but at least we’re climbing,’” says Victor Fernandez, vice president of insights at restaurant research firm Black Box Intelligence. “Having conversations with restaurant operators and restaurant leaders right now, everyone’s thinking 2025 will be better.”

Hudson Riehle, senior vice president of research for the National Restaurant Association, says, “In many ways 2025 will be an extension of 2024, with real growth but overall moderation.” Despite challenges like food and labor inflation, fluctuating demand, and recruitment and retention of staff, he says the industry will remain “an engine for the U.S. economy.”

A stew of data is contributing to operators’ more-hopeful outlook. First, inflation moderated in the second half of 2024, with consumer price increases hovering right around the Fed’s target of 2.5%—including a 2.4% year-over-year increase (the smallest since February 2021) in September, a 2.6% increase in October and a 2.7% increase in November, according to the Bureau of Labor Statistics.

Inflation at restaurants and other foodservice outlets, though still higher than overall CPI, has eased, too: Restaurant prices were up 3.8% year-over-year in October, ticking down from 3.9% in September and coming in below the USDA’s full-year 2024 outlook of 4.1% inflation for food away from home.

The USDA, moreover, expects the softening to continue in 2025. “Food prices are expected to increase more slowly than the historical average rate of growth” in the year ahead, the USDA wrote in its October Food Price Outlook. Food-away-from-home prices are expected to increase 3.1% in 2025, with the gap between expected inflation rates for grocery prices and restaurant prices narrowing in restaurants’ favor.

Screenshot 2025 01 14 at 9.29.47 AMFinally—and importantly—consumers aren’t feeling as glum as they were earlier in 2024. The University of Michigan’s closely watched monthly Survey of Consumers found consumer sentiment was up 3.1% month-over-month in December, with a jump of 6.2% year-over-year. December was the fifth consecutive month in which it rose—reaching its highest value since April 2024.

“Broadly speaking, consumers believe that the economy has improved considerably as inflation has slowed, but they do not feel that they are thriving; sentiment is currently about midway between the all-time low reached in June 2022 and pre-pandemic readings,” wrote Survey of Consumers Director Joanne Hsu in the December report. “Year-ahead inflation expectations rose from 2.6% last month to 2.8% this month, the first month-over-month increase since May, but within the 2.3-3.0% range seen in the two years pre-pandemic. Long-run inflation expectations edged down from 3.2% last month to 3.0% (in December), modestly elevated relative to the range of readings seen in the two years pre-pandemic.”

An improved consumer outlook is a boon for restaurants, says Black Box Intelligence’s Fernandez, because demand for restaurants is still there; consumers just want to feel confident that they’re making worthwhile choices when they treat themselves to a restaurant occasion (whether on-premise or off).

“The whole conversation a year ago was, are we going into recession or not in 2024? The fact that it was a slowdown, not a recession, was a plus, and we’ll take it.”—Victor Fernandez, Black Box Intelligence

“We’re going to continue to go to restaurants as much as we can,” Fernandez says. Yes, consumers are still feeling the pain of double-digit food-price increases, whether at the grocery store or at restaurants, relative to prices in 2020. But to some degree, they’re adjusting to a new normal, he indicates. “The whole conversation a year ago was, are we going into recession or not in 2024? The fact that it was a slowdown, not a recession, was a plus, and we’ll take it.”

Recent data from the National Restaurant Association may support the idea. The association’s Restaurant Performance Index, a monthly composite index that tracks the health of the restaurant industry, improved for the third consecutive month in October, returning to expansion territory. Restaurants also reported a net increase in same-store sales for the first time since December 2023.  Further, restaurants and bars added approximately 3,700 new jobs in October 2024, according to the Bureau of Labor Statistics, continuing a trend of what Chad Moutray, the association’s vice president of research and knowledge, had in September called the “lingering resilience” of the restaurant industry in a cooling job market.

VALUE VARIABLES

Further, there are pockets of growth across the industry, with hard-won gains eked out by segments and restaurants that are meeting consumers’ multifaceted value expectations.

Traffic in fast-casuals, for example, climbed 4% in the third quarter of 2024, notes David Portalatin, senior vice president and food industry advisor at global consumer research firm Circana (formerly the NPD Group). “Consumers generally perceive fast-casuals to have healthier options, fresher choices and generally better quality,” Portalatin says. And when consumers are looking to save money and/or time by choosing a limited-service restaurant vs. a full-service one, fast-casual concepts continue to hold appeal as striking a satisfactory balance between cost and food quality—two consistently important components in their value equation.

“On-premises traffic hasn’t returned to pre-pandemic levels, adding additional pressures to business margins,” says Riehle. “The good news is that pent-up demand remains high and consumers continue to prioritize restaurants in their spending decisions, which bodes well for the industry even if households pull back in other areas.”

On the full-service side, where traffic on the whole has slumped for more than a year, concepts that doubled down on providing an enjoyable dining experience also saw growth in 2024.

David Henkes, senior principal and head of strategic partnerships at foodservice research firm and consultancy Technomic, points to Chili’s as an example. Traffic at Chili’s rose 6.5% year-over-year in the company’s first fiscal quarter of 2025, which ended in September, parent company Brinker Int’l. reported in October, and same-store sales jumped 14.1%.

“Chili’s is doing phenomenally well where its peer full-service bar-and-grill-type concepts are struggling,” Henkes says. “The only real difference” for the Dallas-based chain, he says, “is that they’ve been a little more relevant to their consumers and done a better job communicating their value.”

“Any operator where their only strategy is low-price and not menu innovation or enhancing the experience, that’s a losing proposition.” —David Henkes, Technomic

The chain’s performance was boosted by the launch of the Big Smasher Burger, priced at $10.99 with a side of fries, unlimited nonalcoholic beverages, and chips and salsa, and marketed as a more-appealing alternative to increasingly pricey fast-food combo meals. In response to rising traffic at its restaurants, says Brinker CEO and President Kevin Hochman in a press release, “we quickly accelerated investments in labor and the facilities to ensure a great experience.”

The Cheesecake Factory, similarly saw “continued strong outperformance in comparable sales and traffic” as compared to the broader casual dining industry, says Chairman and CEO David Overton in the brand’s Q3 earnings report. Notably, The Cheesecake Factory also saw record-high guest satisfaction scores for both on-premise and off-premise dining occasions as comp sales rose 1.6%, the chain reported. “There are lots of opportunities for growth around the operator landscape, and value is an element of all of those,” says Technomic’s Henkes. Consumers who are engaging with restaurants less often than they may have pre-pandemic and pre-inflation spikes “want to make sure those (fewer) occasions are the best they can be,” he says.

“Consumers, when they’re out on that occasion, while they might be price-conscious, when they select a venue, it’s not strictly based on price,” Henkes continues. “First and foremost, I’m going there because the food looks great, and I know I’m going to have a great experience.”

In Black Box Intelligence’s latest research on consumer value perceptions, Fernandez notes that more than a third of consumer reviews of full-service restaurants don’t mention price at all. The share was even higher for reviews of limited-service restaurants—45% made no mention of price.

“(Consumers) talk about the attitude of the staff, the taste of the food and the consistency of the experience,” he says.

Henkes echoes the sentiment. “Any operator where their only strategy is low-price and not menu innovation or enhancing the experience, that’s a losing proposition,” he says.


OperatorOutlooksTeaserFor 2025 perspectives from operators including Qdoba, Barberitos, Scooter’s Coffee and Dine Brands Global, click here.


DESIGNING FOR SUCCESS

Consumers’ nuanced value equation has important implications for restaurant operators when it comes to restaurant design and back-of-house optimization heading into 2025, Henkes, Fernandez and Portalatin all say.

“The guest has told us through their dollars and orders that they want to have a larger percentage of their restaurant experiences go through off-premise channels,” says Fernandez. “So when it comes to the design of the restaurant, do you have a special section for processing and delivering on digital orders? Do you need to have a dining room that is as big as you would have had previously?” Operators looking to open new units may opt for locations in smaller shopping centers with room for only a handful of dining tables, he says, but ample room in the back-of-house “for a kitchen that’s able to crank out those off-premise orders.”

The challenge of executing efficiently and effectively on both on- and off-premise orders while giving customers in both channels an enjoyable experience contributed to Starbucks’ traffic woes in early 2024, Henkes offers.

“As their business has gone more to the app and digital, that has created a lot of challenges for baristas, and it’s taken them out of greeting and interacting with the consumer,” Henkes says. “I think it’s to some degree a warning for a lot of other chains that are drifting heavily into the digital channel, which is that your operations need to complement the ordering process—probably a little more thought needs to be put into how orders get executed back-of-house.”

Having separate makelines for digital vs. in-store orders, allowing front-of-house staff to really focus on hospitality, he says, can be an important part of ensuring that customers who spend the most time actually in the restaurant don’t walk out with a bad taste in their mouth, so to speak.

Analysts agree automation technologies and AI will continue to see their presence and uses expand in the restaurant space and beyond.

Automation technologies and AI will continue to see their presence and uses expand in the restaurant space—as in virtually everywhere else, analysts further agree. Circana research found that traffic to restaurants where consumers can order through a kiosk was up slightly year-over-year in the third quarter of 2024, Portalatin says, and the use of kiosks in limited-service concepts likely will grow as operators remain motivated to keep labor expenses in check and ensure that their staff is able to execute on orders effectively.

“In the post-pandemic world, you’re dealing with a difficulty in getting a high-performing, motivated labor force,” says Portalatin. While front- and back-of-house technologies won’t replace a restaurant’s workforce, they will be a vital tool in helping restaurants optimize their operations, he and Technomic’s Henkes say.

“It’s not pushing labor out, but it’s about making labor more effective,” Henkes says. Whether the tool in question is an in-store ordering kiosk or a bot taking a drive-thru order, “it’s not like we’re eliminating two employees, but we’ve made them more effective in their roles,” he continues. “You still need to have a human backup, but now workers can be deployed to higher-value tasks. Now maybe your ROI is that you get more front-of-house staff interacting with customers and maybe generating more traffic” thanks to an improved guest experience.

With consumer sentiment finally edging upward in the closing months of 2024, and with many restaurant operators eyeing a new presidential administration as moving “toward an environment conducive to less regulation, potentially lower cost rates and less talk around federal minimum-wage increases,” Fernandez says, 2025 could present more opportunities for investment in advanced technologies and equipment, in training, and in unit growth. And investment across multiple facets of the business will be essential to evolving alongside consumers’ expectations, he suggests.

Circana’s Portalatin says 2024 has brought to the forefront the idea that the “service” part of foodservice still matters a great deal to consumers, who crave a restaurant experience that stands out for more than decent food or palatable prices.

“It comes down to convenience, quality and the differentiated experience,” he says. “Those are the things that allow people to win in the foodservice space.”

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