As Restaurants Head Into 2025, More Economic Uncertainty Abounds
Economy should provide tailwinds, but tariffs and deportations could create some real headaches. Things are looking up for restaurant chains heading into 2025. The economy remains surprisingly resilient. Inflation has cooled. There is no alleged recession looming over the horizon. Interest rates are coming down. And there’s some evidence that consumers are beginning to notice, as traffic to fast-food chains appears to be on something of an upswing. That should improve sales and provide for better valuations which, along with a lending community that’s a bit looser with their checkbooks, should make for a better environment for restaurant chain acquisitions. At least in theory. But uncertainty remains. A change in presidential administrations typically brings with it some potential for uncertainty, and this one is particularly dramatic: Incoming President Donald Trump may bring with him eased regulations, which restaurants like, but he could also bring tariffs and a tighter immigration policy, neither of which would be all that positive for restaurants. “Buckle up,” Paul Gruenwald, global chief economist for S&P Global, wrote in an economic outlook for the first quarter of 2025. “Even before taking office, a second Trump administration is already moving the macro-financial needle and raising downside risks for the global economy.” Let’s start with the good. The economy remains generally strong in the U.S. And that’s expected to continue, for the most part. Goldman Sachs put the chances of a recession in the coming year at 14%, which is about normal for any year—and a far cry from the 100% prediction of two years ago, so take that number with a grain of salt. Goldman expects the U.S. economy will grow 2.5% in the coming year, which is better than the 1.9% consensus forecast in its survey of economists. While either number would be lower than the 2.7% growth expected for 2024, it’s still growth. Restaurants are also ending 2024 on a strong note, despite the headlines of closing locations and bankruptcy filings. Restaurants and bars generated $953 billion in sales in the first 10 months of 2024. By contrast, grocery and liquor stores did $824 billion in sales.
How the Surgeon General’s Alcohol Advisory Could Impact Restaurant Sales
Health warning label on alcoholic beverages to include their link to cancer. Last week – and just in time for Dry January – United States Surgeon General Dr. Vivek Murthy issued a new advisory outlining the link between alcohol consumption and increased cancer risk. In the advisory, he noted that alcohol consumption is the third leading preventable cause of cancer in the United States, after tobacco and obesity. The scientific evidence supporting this link, the advisory adds, has been “growing over the past four decades,” however less than half of Americans recognize it as a risk factor for cancer. Murthy recommends steps to increase awareness about the alcohol/cancer connection, including an update to the existing surgeon general’s health warning label on alcoholic beverages, a reassessment of guideline limits, and expanded educational efforts from public health professionals and health care providers. The current warning label on alcoholic beverages states that women who are pregnant should not drink alcohol due to the risk of birth defects and that consumption impairs the ability to drive a car or operate machinery. It also says alcohol “may cause health problems.” With Murthy’s recommendation, that last part would be far less vague, including a warning about cancer risks. Any such change to the current language, which was first added in 1988, would need Congressional approval, so it is early days in this discussion. That doesn’t mean restaurant operators shouldn’t be paying attention, however. Such a barrage of messaging does have the ability to create change. This is perhaps most clearly evidenced by the surgeon general report in 1964 warning of the health hazards of smoking. Since then, the percentage of Americans who smoke has dropped from 42% to about 11% in 2022. If alcohol usage follows that same downward trend, restaurants that sell alcoholic beverages could take a massive hit to their bottom lines. Alcohol-based beverages currently represent about 21% of total sales at full-service restaurants that sell them, according to the National Restaurant Association. That number is even higher at fine dining establishments. At limited-service restaurants that sell alcoholic beverages, they make up 6% of sales. The association does not have a statement about the surgeon general’s advisory at this time…
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Why the Independent Restaurant Industry Has a Chance to Win in 2025
Have price hikes given full-service restaurants a chance to clarify value? These past few years, with no real argument, weighed differently on independents than they did larger chains. Operators weren’t going public, tapping credit lines to boost liquidity, or any of the other levers of scale that come with having 1,000 units versus one. The National Restaurant Association noted earlier the average restaurant had about eight weeks of cash on hand. So, the notion of closing for four, five, six straight months provided a murky road, to put it lightly, during the depths of COVID. It was also why closing, reopening, closing, and repeating that cycle was so daunting considering the cost of inventory, staffing, past-due rent, and other complications that couldn’t be covered by a wider balance sheet. Similarly, it’s difficult, if not foolhardy, to compare dynamics through more recent realities. TouchBistro, in its 2025 State of Restaurants Report, labeled this past year “out of the ordinary” for the independent full-service segment. With inflation high, spending on non-essentials low, and economic uncertainty looming, 2024 was certainly not your average stretch, the company said. Many operators fought to keep food and labor costs under control (more on that here) while also working to serve a customer carrying higher expectations to the table given how much they’re forking up to dine out. However, all this isn’t to spin a negative cloud. Those factors, TouchBistro said, enabled full-service independents to deliver in a fashion that resonated with wary diners. Put differently, it gave them a chance to win from a smaller pool of occasions of discerning customers. Despite back-office struggles, full-serves reported an increase in traffic and profit margins from the year prior. “Indeed, the [full-service] category proved to be a bit of a bright spot,” TouchBistro said, “while many QSR brands—particularly those that built a reputation on value that they could no longer sustain—struggled. Essentially, with price gaps blurred, and customers dining out less often, some prioritized restaurants that offered a full-service dining experience, even if it came with a higher price tag. A tag, as casual chains like Chili’s have had success marketing around, not all that different than what fast casual or even QSR brands are coming in at. If anything, it gave independents a chance to clarify “value” through more avenues…
A Smaller Footprint Isn’t a Limitation
It’s an Invitation to Get Creative. Restaurant industry challenges are pushing operators to be more creative and efficient with many opting for more multifunctional spaces – especially in a fast-casual setting. To learn how these layouts can help maximize efficiency while still providing optimal guest experience, Modern Restaurant Management (MRM) magazine received insights from Aleksandra Kaplan, partner at Swan Dive Design Studio. The Colorado-based interior A&D firm has completed a number of small-scale projects for restaurants including the 400-square-foot Little Owl Coffee, and the 512-square-foot Maria Empanada. Among her design tips: Form Must Follow Function, Go Big in Little Ways, and Design to Grow. For restaurateurs, the message is clear: in 2025, your space is no longer just where food is prepared and served. It’s a crucial business asset that can make or break your competitive edge. We’re seeing a clear trend towards designs that can grow with the business – operators are incorporating signature elements (that are now business tools) that customers will recognize across locations. Quick-service and fast-casual concepts are leading this transformation, developing layouts that can seamlessly shift between dine-in, takeout, delivery, and potentially even catering or retail components. Whether it’s signature architectural features or brand signifiers incorporated into the interiors, the most successful designs create a scalable brand language. Operators are thinking beyond the immediate space, considering how design elements can evolve and become recognizable brand signatures. The principles remain consistent: maximize efficiency, create memorable moments, and build a design language that can grow with the brand. The restaurant industry took one of the hardest hits during the pandemic, and many operators were forced out of business. Those that managed to hold on have faced mounting challenges, with 98 percent citing higher labor costs, 97 percent struggling with higher food costs, and 38 percent reporting they were not profitable last year. These pressures have driven rapid evolution in restaurant design, as spaces must now be more creative, efficient, and multifunctional to maximize profitability amidst rising operating costs and notoriously tight margins…
Soaring Demand for Weight-Loss Drugs Could Change Food Spending
Study shows cuts to grocery spending and spending at restaurants during breakfast and dinner. Demand for weight-loss drugs such as Ozempic could fundamentally change—and ultimately reduce—consumer spending on food at both grocery stores and fast-food restaurants, according to a recent study from the Cornell SC Johnson College of Business and the data firm Numerator. Households with at least one user of GLP-1 drugs, the diabetes medications found to encourage weight loss, reduced their grocery spending by about 6% within six months of starting the drugs. For higher-income households, the spending cut is as much as 9%. The study also examined the impact of spending at fast-food restaurants, finding that households cut spending at them in the morning and evening. Higher-income households with a GLP-1 user cut spending at breakfast. For lower-income households, the cut came at dinner. The magnitude of the changes slowed down 12 months after consumers start using the medications, but spending decreases persist and remain “statistically significant,” according to the study, which examined transaction data from July 2022 through October 2024. The data comes from Numerator, a market-research firm that examines data from 150,000 U.S. households. “Companies that rely heavily on calorie-dense, processed or indulgent foods are likely to face declining demand and need to reassess their product portfolios to remain competitive,” the study’s authors wrote. The results provide the latest and clearest picture of the potential impact of such medications on U.S. food spending. As such medications increase in popularity, companies may need to consider options catering to this group. GLP-1 medications include Ozempic, Wegovy, Zepbound and Mounjaro. They have been used for years to treat Type 2 diabetes and some one in eight Americans have used them at some point, according to the Kaiser Family Foundation. But studies have found that the medications are effective at encouraging weight loss. Numerous celebrities such as Oprah Winfrey, Jim Gaffigan and Kathy Bates have publicly acknowledged using the medications. Some experts are now concerned about overuse…
NYC Restaurants Brace for the Impact of Congestion Pricing
Operators fear a climb in food costs and an erosion of guest traffic. Restaurants in the heart of New York City are bracing for a hike in the cost of food and other supplies, a side effect of the unprecedented effort to lighten midtown traffic by charging distribution trucks and other vehicles for merely entering the area. The expected negatives of what’s known as congestion pricing don’t end there. Because passenger vehicles are charged $9 for entering a large swathe of downtown, restaurant groups have aired fears that consumers will shift their visits to establishments in the outer boroughs or suburbs. Restaurants outside the high-traffic zone could also be affected because cars passing through the designated area enroute to other parts of the Manhattan, the island in the center of the city, are still charged. In addition, industry representatives warn that the $9-per-car fee will dampen attendance at Broadway shows, concerts, holiday celebrations and the host of other activities that feed customers to the city’s robust restaurant trade. Taxis entering the central business district are charging their fares an extra 75 cents per trip. The surcharge for Uber and its on-call competitors is $1.50. The effect on commuters is also a worry to groups like the New York City Hospitality Alliance, an advocate for the city’s restaurants, bars, and nightclubs. Many of the downtown employees who worked at home during the pandemic have yet to resume their daily treks into the city, leaving a smaller customer base for restaurants that depend on office workers for breakfast, lunch and afterwork business. Charging those who drove an additional $9 a day will be a disincentive for the telecommuters to return to their midtown offices, asserts Andrew Rigie, executive director of the Hospitality Alliance. He also cites the burden that will fall on foodservice establishments that use trucks in their catering operations. It’s death by a thousand cuts,” says Rigie. Most of those threats are still what-if’s; congestion pricing went into effect at 12:01 a.m. Sunday, or too recently to be felt full-force by the industry…
Why So Many Legacy Restaurant Brands Are Launching Spinoffs
What is going on? You almost have to wonder what Ray Croc would have thought about an Oat & Honey Moon Latte. Or, if Harland Sanders would have tried Peri Peri Ranch sauce to go with chicken tenders coated in his Original Recipe perfected nearly 85 years ago. Such hypothetical questions seem more relevant than ever as more legacy brands experiment with spinoff concepts. The latest such example was announced this week, with KFC’s launch of Saucy, described as a “flavor-forward dining destination” featuring chicken tenders alongside 11 sauces and 11 curated beverages. There are no striped red and white buckets on sight at the first Saucy in Orlando, Fla. There’s hardly any red at all, in fact; the brand’s primary color palette is pink, providing significant differentiation from its parent company with the exception of a small “by KFC” on the signage. Saucy’s debut comes about a week after sister chain Taco Bell launched a new beverage concept called Live Más Café in San Diego in partnership with its longtime franchisee Diversified Restaurant Group. The café includes specialty drinks like Chillers, Agua Refrescas, coffees, and more, alongside traditional Taco Bell menu items. Unlike Saucy, Live Más Café exists inside a traditional Taco Bell restaurant, but it’s branded autonomously as a “unique experience where fans can enjoy specialty drinks … providing hospitality in a cozy, inviting atmosphere.” McDonald’s took a similar route as Saucy when it launched its specialty beverage concept – CosMc’s – in late 2023. There are now about 10 brick-and-mortar CosMc’s near Chicago and throughout Texas, selling signature offerings like Galactic Boosts, slushes, frappes, and brews. Meanwhile, Pizza Hut just introduced its first-ever drive-thru design and menu, calling it “Hut ‘N Go,” while Perkins recently added a new fast casual model called “Griddle & Go,” and Golden Corral’s spinoff Homeward Kitchen opened last year…
Did You Know?
José Andrés receives the U.S. Presidential Medal of Freedom. The nation’s top civilian honor was awarded to the chef in recognition of his efforts to feed individuals in crisis situations—and for introducing tapas to the American mainstream. Restaurateur and humanitarian José Andrés has been awarded the U.S. Presidential Medal of Freedom; the highest official honor bestowed on civilians in recognition of their efforts to promote American ideals…
Employee Tip
It’s Time to Redefine Restaurant Accountability Culture. When someone mentions “accountability,” do you have a visceral reaction? What about your team—do they see it as a chance to shine or a reason to worry? For many, the mere mention of accountability in meetings or performance reviews feels like a reprimand. A hard line. A reminder to “do your job right.” But what if accountability didn’t feel so harsh and instead inspired pride and ownership? Consider the line cook who notices ticket times steadily creeping up and takes the initiative to communicate with the team and adjust the pace, all without management intervention. That’s real accountability in action, and it will transform your operation…