The more you ask operators or analysts to explain the current state of the restaurant industry, the murkier it seems to get. We had an understanding of the Great Recession from 2008 to 2010, as well as (eventually) the COVID-19 pandemic in 2020, but there isn’t really a definition for the current macroenvironment.
Technomic’s director of consumer and industry insights Robert Byrne illustrated this point during a presentation at Nation’s Restaurant News’ recent CREATE conference in Nashville, stating, “things are a little tricky right now … The industry is quite sluggish, in fact.”
What that means, essentially, is the market is underperforming forecasts. Nearly 60% of restaurant companies experienced negative same-store sales in the beginning of the year, for instance, while 51% were negative on a two-year stack. The last time the forecasting model fell this out of sync with actuals was during COVID, so Technomic has moved into a scenario-based model for the duration of 2025.
“Much of the growth, other than a handful of high-profile public companies, is coming from private and smaller chains, but even that growth is terribly limited to a degree,” Byrne said, adding that the second quarter was particularly concerning as chains that have largely been insulated through the past five years, such as Chipotle and Wingstop, turned negative.
“The slowing growth of fast-casual traffic is a red flag for the overall health of consumers,” he said.
Technomic’s monthly chain performance tracker shows that sales, traffic, and check averages flattened out in the third quarter as well.
“Slower check growth just can’t make up for negative traffic,” he said. “Consumers are simply reducing the frequency of their restaurant usage.”
Byrne cautioned that this trend could continue as generational shifts take hold. The giant Baby Boomer demographic is “aging out of foodservice frequency,” for example, while older millennials are entering a new life stage where frequency starts to erode.
If there is a silver lining, it’s that Gen Z consumers are increasing their visits to casual-dining chains such as Chili’s, Applebee’s, Olive Garden, and Texas Roadhouse. About 25% of Gen Z’s restaurant spending now goes toward casual dining, versus 23% last year.
“This is an indication that Gen Z is embracing casual dining, which is fabulous news for the industry overall,” Byrne said. “It also points to a shift in what is going to appeal to Gen Z going forward.”
How did we get here?
There are plenty of factors driving consumers’ pullback, including a “confusing” barrage of news every day. Restaurants have also “inadvertently” provided guests with more reasons to decrease usage and frequency, Byrne said. In each quarter throughout the past two years, about half of restaurant operators have raised their prices. Menu prices continue to inch up still, as evidenced by the September Consumer Price Index report in which food-away-from-home prices rose 3.7% compared to September 2024.
“Consumers feel this,” he said. “The truth is, consumers love restaurants and if they’ve got the money to spend at restaurants, they’re going to do it. However, 62% of consumers believe menu prices will continue to climb in the next six months and that makes a difference in maintaining frequency. Frequency is difficult to maintain given that inflation exists not just in the restaurant space, but all other areas that consumers face.”
Though wages have increased — and finally caught up to the CPI — menu prices continue to outpace those gains.
“As much as wages have increased, they can’t cover food-away-from-home inflation and that’s a major struggle in the business right now,” Byrne said. “We need to see that gap narrow and narrow significantly for substantial foodservice growth. It’s going to take some time.”
Until then, 80% of consumers are concerned about rising prices. That figure is up from 76% at the end of 2024. They’re also anxious about job security, tariffs, the government shutdown, and other factors, Byrne said, which has driven the consumer confidence index below COVID levels.
“Consumers are intuitive. They don’t track measures that go into the broad rating of the economy, but they feel every single one of them,” he said.
Operators are a bit more optimistic
Despite this bearishness, operator sentiment remains somewhat strong and is above the average reading, excluding COVID. Byrne said this is because COVID prepared operators for challenges.
“Even in the worst economy, the restaurant growth rate outperformed other industries,” he said. “Consumers freaking love restaurants.”
The pandemic also created more innovation, which drives growth. The industry, for instance, is on pace to launch more than 40,000 limited-time offers this year, according to Technomic, which is the highest level ever and twice as many LTOs compared to 2022.
“It’s difficult to maintain, but it is constantly giving guests a reason to return and visit,” Byrne said.
That’s not to say operators don’t have concerns, however. The rapid rise in food costs, wages, and tariffs are among their top worries. More than 75% of operators expect costs to continue to increase throughout the next six months and 60% say they will raise prices even further to manage those inputs.
“Sixty-two percent of consumers anticipate higher menu prices. Well, it looks like operators are going to give it to them,” Byrne said.
How to win in this environment
If operators do, indeed, raise prices, then the industry finds itself in a bit of a stagnant cycle — consumer pullback from higher prices coupled with higher prices to protect margins from higher inputs and so forth. Byrne said such an environment presents the need to invest.
“We believe it comes down to the strength of brand,” he said. “Chili’s, Dutch Bros, CAVA, Texas Roadhouse, Taco Bell — those brands are providing us with great examples. It comes down to service, cleanliness, and marketing, in that order. You’ve got to start with operations or you’re just throwing marketing dollars away.”
The four metrics that stand out for the strongest brands right now include brand reputation, brand trust, brand innovation, and new/exciting products.
“It’s essential to build or maintain momentum now, despite what you think lies ahead,” Byrne said. “Sitting this moment out and weathering the storm could have big consequences. Brands that lost momentum in the pandemic are still struggling to catch up.
“There are a lot of challenges, but also a lot of opportunities. Invest in your brand. Be innovative. Stay relevant. Lean into who you are. That is what consumers expect you to do.”
Contact Alicia Kelso at [email protected]
Follow her on TikTok: @aliciakelso
