Adapting the Restaurant Industry for 2025
The restaurant industry is facing a complex landscape as it moves into 2025, with inflation, changing consumer behaviors, and technological advancements shaping its future. According to Bloomberg analyst Michael Halen, restaurants that provide everyday value are likely to outperform those relying on discounts. Chains like McDonald's, Denny's, and Chipotle have demonstrated success by offering consistent value rather than aggressive discounting, which can train customers to only visit with coupons in hand.
Fast casual restaurants, once thought to be bulletproof, are experiencing challenges. Despite the success of chains like Chipotle and Cava, the sector has seen bankruptcies and closures. Halen suggests this may be due to oversaturation after years of aggressive growth and investment in the category. Additionally, the lack of drive-thrus hurt many fast casual chains during the pandemic, prompting some like Shake Shack to invest in drive-thru capabilities.
Technology is playing an increasingly important role in the industry. Restaurants are investing in kitchen automation, mobile ordering apps, and even exploring drone deliveries to improve efficiency and reduce labor costs. Chipotle, for instance, is investing $100 million in innovative startups and developing technologies like robot avocado peelers and automated make lines for delivery orders. However, implementing new technologies can be challenging for franchise-based systems, as franchisees need to be convinced of the investment's value.
The industry is also grappling with changing consumer behaviors in response to economic pressures. A survey cited in the podcast found that 74% of people concerned about the economy cut back on restaurant spending first. Consumers are employing various strategies to save money, including skipping courses and alcohol, taking advantage of promotions, and opting for takeout over delivery to avoid fees. These trends are putting pressure on restaurant sales, particularly in categories like casual dining.
Looking ahead to 2025, Halen anticipates a mixed outlook. While easier year-over-year sales comparisons may provide some relief, concerns persist about low-income consumers who continue to face financial pressures. Higher asset prices may benefit upper-middle and high-income consumers, potentially boosting fine dining and chains that can attract this demographic. However, ongoing inflation and high credit card interest rates are expected to continue impacting lower-income consumers negatively.
As the industry navigates these challenges, some chains are finding success by improving their core offerings and marketing efforts. Brinker International, for example, has seen strong performance by enhancing its food quality, operations, and marketing strategies. This approach may serve as a template for other casual dining chains looking to outperform in a competitive market. While the overall environment remains challenging, restaurants that can adapt to changing consumer preferences, leverage technology effectively, and provide consistent value are likely to fare better in the evolving landscape.
Guest: Michael Halen
