Expect the foodservice industry to take a small step forward next year, due to operating conditions and consumers’ ability to spend likely being eerily similar to 2024.

Editor’s note: Yogi Berra’s contributions to baseball are well documented, but he is almost equally well known for his commentary on life in general. Maybe it was the New York Yankees returning to the World Series for the first time in 15 years this past fall, but for whatever reason Berra’s uniquely witty insights and quips were top of mind for the editor while writing this piece and served as the inspiration for the story’s subheads.

“It’s like déjà vu all over again.”

Those were the words of baseball Hall of Famer Yogi Berra after watching Mickey Mantle and Roger Maris hit back-to-back home runs as they pursued Babe Ruth’s single-season home run record back in 1961. Baseball’s most famous philosopher could just as easily have been projecting the economic climate for the foodservice industry as it heads into 2025.

“In many ways 2025 will be an extension of 2024, with real growth but overall moderation occurring,” says Hudson Riehle, senior vice president for the National Restaurant Association’s (NRA’s) Research and Knowledge Group. “The 2024 sales environment was positive overall for the industry, but there were strong geographic and demographic variations. The operating environment is so varied.”

Datassential projects that consumer spending at restaurants and other eating and drinking places will total $895 billion in 2024, up from $855.3 billion in 2023. For 2025, consumer spend will increase to $921.7 billion, per Datassential, which released this information during a September webcast. It’s worth noting that Datassential’s forecast includes prepared food and nonalcoholic beverages. The National Restaurant Association’s forecast, which includes alcoholic beverages, calls for industry sales to reach $1.1 trillion in 2024.

Those projected totals and growth rates from Datassential, though, are nominal, meaning they don’t factor out inflation. In real terms, Datassential projects consumers’ foodservice spending will increase by a total of $8.7 billion in 2025 or roughly 1%. For 2024, Datassential projects real growth will come in at $7.4 billion, which is down from 2023’s real growth rate of $9.3 billion.

There’s no way to sugarcoat the operating environment in 2024: “It was a rough road for commercial foodservice,” notes David Portalatin, senior vice president and food industry advisor for Circana. “There are operators who are winning, but overall, it’s a challenging marketplace.”

While the industry fights tooth and nail for growth, though, the U.S. economy remains strong according to many traditional macroeconomic indicators. For example, gross domestic product increased 3.0% and 2.8% in real terms in the second and third quarters of 2024, per the U.S. Bureau of Economic Analysis. In both cases, these results exceeded what many economists had projected. Plus, the U.S. Federal Reserve has promised to cut interest rates, and the labor market remains solid. What gives?

“Consumer sentiment has not been aligned with some of the economic fundamentals, like lower unemployment. We have to let some of the disruption from the past few years continue to work its way out of the system,” Portalatin says. “Historically, when disposable personal income is growing and unemployment is low, that generally means good demand for restaurants. Something different has happened. It’s that inflationary bubble that we’ve had to swallow. But that will get better.”

Then there’s the uncertainty that accompanies an election year. “There’s no doubt this weighs on consumers to some degree,” Portalatin adds.

As a result, overall consumer traffic at commercial restaurants declined 2.6% year over year through August of 2024, per Circana. As customer traffic declined, restaurant prices increased 3.8% for the 12-month period ending in October, which is 2.7% greater than grocery store prices, per the U.S. Bureau of Labor Statistics.

Expect inflation to ease but to remain “elevated,” Riehle adds. “In terms of gross domestic product, we are looking at a 2.7% annualized increase for 2024, but for next year it will be 1.9% increase. If you look at income growth, which is one of the most important macroeconomic indicators for restaurant sales growth, it will be at 1.8% in 2025 compared to 3.0% for 2024.”

When asked where they have cut spending, 51% of consumers cited restaurant meals and dining out, per Datassential. In contrast, only 38% said they cut back on grocery shopping, and 38% said they cut back on entertainment.

“It’s really the cumulative effects of inflation that is the headwind,” Portalatin notes. “The average check at a commercial restaurant has been growing by close to 5% year over year. And over the past five years it’s closer to 30%. A lot of consumers have reached their capacity to spend. The hardest ones hit are the middle- and lower-income consumers. The upper income are the ones still eating out.”

Some will chalk up the challenges the industry faces to the cyclical nature of the U.S. economy. “The U.S. is already 55 months into the expansion after the pandemic-fueled recession in March and April of 2020,” Riehle says. “If you look at the general expansion period of the U.S. economy, it’s generally five years or so. But when you get to the latter part of those expansion periods, the growth slows. The ripple effect of the pandemic continues to be felt.”

If the World Were Perfect, It Wouldn’t Be.

Not surprisingly, when asked to list their top challenges, 27% of operators said increasing sales volume was number one, per data from the NRA. The economy was second, with 24% of operators citing that as their top concern.

One key to generating more sales is increasing foot traffic, which no longer has the predictable, cyclical nature of the pre-pandemic era. “If you look at many of these city center areas, there can be substantial variations by day or even by week,” Riehle notes. “Tuesday is the strongest day, and Friday is the weakest day. But there can be huge variations on the other days. In the end, there’s a much larger volatility than a typical restaurant operator is used to addressing. Those fluctuations highlight the even greater importance of flexibility of operations. That includes the front and back of the house as well as how marketing and promotion is done.”

Yet, the industry has some reason for optimism when it comes to foot traffic in restaurants. “Circana calls for 1% growth in consumer traffic in 2025,” Portalatin says. “We will get election season in our rearview mirror and then let some of those fundamentals take over. And then we will return to more modest traffic.”

It’s also worth noting that only 17% of the operators participating in the NRA study cited labor as their top concern. This had been a center-of-the-plate issue for many operators in recent years. “It indicates an easing in the ability to recruit labor,” Riehle adds. “But the economic environment is not as good as it was a year ago.”

Restaurant industry employment stood at a record-high 15.7 million people as of September, Riehle notes. This is indicative of a couple of key factors. First, the industry has become more flexible when it comes to scheduling workers. Some operators now take a “just in time” approach to scheduling, and that flexibility can make restaurants an appealing employment option for many. Second, operators are doing a better job of embracing technology in their businesses. This includes leaning more towards kiosk and app ordering as well as various forms of back-of-the-house automation. All of this helps improve employee productivity and satisfaction, which can lead to lower turnover. “Operators are not cutting jobs due to the use of technology. In many ways, employees are being redeployed in restaurants,” Riehle says.

Labor, though, will remain a key factor in helping restaurants raise revenues for the foreseeable future. On average, it takes 12.1 employees for a restaurant to generate $1 million in sales, per data from the NRA. In contrast, clothing stores only require 3.7 employees and hardware stores 2.8 employees to reach the same revenue levels. “That is substantially above other retail industries. The restaurant has always been extremely labor intensive,” Riehle notes.

Despite challenges, the restaurant industry’s resilience remains on full display. “The industry continues to advance,” Riehle says.

The Future Ain’t What It Used to Be.

Understanding a company’s core customer base has always been an important ingredient in any operator’s success. For the longest time that meant catering to Baby Boomers — but that’s no longer the case.

When looking at the U.S. population by generation, Millennials (aged 28-43 years old) represent the largest demographic at 72.2 million people, per data from the U.S. Census Bureau shared by the NRA. Gen Z (12 to 27 years old) is next at 69.6 million, followed by Boomers (60 to 78 years old) at 68.6 million and Gen X (44 to 59 years old) at 65.4 million.

Baby Boomers continue to transition into the next phases of their lives, which impacts how they use foodservice. At the same time, generations like Y and Z are entering new chapters of their lives that will shape the way they use restaurants too.

“Restaurant behavior can largely be explained on a life-stage curve,” Portalatin says. “Generation Z is on the upswing in terms of a usage curve. Despite what’s going on in the economy, they will likely have more restaurant occasions next year. They use restaurants differently. For example, they really value fast-casual.”

Moving forward, having a handle on the demographic makeup of which customers use a specific foodservice operation will be even more important.

“Demographics are destiny. The pandemic changed the industry permanently. And part of that change revolves around how people use restaurants,” Riehle says. “It is a permanent shift. Certain operators have been quick to align with their core demographics. You have a very fundamental change in demographics impacting how people will spend. When we talk to operators, we emphasize how important it is to have a business plan and that plan include the target demographics they intend to serve.”

You Can Observe a Lot by Watching.

In addition to generational shifts, it’s important to understand who is actually spending in restaurants. To that end, households with an annual income of $70,000 or more account for 73% of restaurant spending, per U.S. Bureau of Labor Statistics data provided by the NRA. “If you ask all adults if they are eating on-site at restaurants as much as they would like, 42% would say they are not. And when you look at lower-income households, that level is much higher. So that value offering becomes more critical to maintain traffic.”

Operators will also need to understand their customer preferences and expectations around off-premises sales. In fact, off-premises accounts for 74% of all restaurant traffic, up 13% from pre-pandemic levels, per data from the NRA. “As a result, on-site restaurant traffic remains down. The off-premises traffic across all three meal periods remains up,” Riehle notes.

Chain operators continue to take notice of consumers’ cravings for the convenience of off-premises dining by developing new and innovative formats. This August Chick-fil-A took the wraps off a two-story drive-thru concept that features a kitchen on the second floor and a conveyor belt that delivers orders to team members on the first floor. The kitchen is twice as big as a traditional location, the company notes. This unit also includes what Chick-fil-A calls “Mobile Thru” lanes for guests who order ahead using its app as well as a pair of traditional drive-thru lanes. Earlier this year, Chick-fil-A opened a Mobile Pickup store in New York City.

And that’s not all for Chick-fil-A’s digital dance. Late last month the chain was set to launch the Chick-fil-A Play App, a digital playground featuring family-friendly content, including animated shows, podcasts, games, interactive stories and more.

“In the moment, we are seeing a slight increase in on-premises traffic in restaurants year over year. QSRs are up 1% year over year over the past six months. But to put it in context, on-premises traffic at QSRs is 32% less than it was in 2019. We are not going back,” says Portalatin, who notes that delivery orders are up too.

When You Come to a Fork in the Road, Take It.

“This is an environment where customer traffic is down year over year, but digital orders are up,” Portalatin notes. This may leave chains wondering which path to follow.

In the case of family dining chain Denny’s, the answer may be in following both the on-premises and off-premises paths. At the conclusion of its third fiscal quarter, Denny’s reported its virtual brands now account for 20% of sales. Leveraging virtual brands allows Denny’s to not only increase business during its slower shoulder periods but also to deepen its relationship with digital customers.

Looking to better embrace the off-premises business, many operators continue to update the size and layouts of their prototype designs. “Not only has the pad space shrunk but the space allowed to off premises has grown,” Riehle notes. “Some operators are building or emulating what were once considered fast-casual operations.”

One such example is Perkins Griddle & Go, a fast-casual concept developed by the casual-dining chain Perkins American Food Co. (The company is more widely known as Perkins but recently changed its name.) The 1,500-square-foot restaurant seats 65 guests and features a “streamlined design and an elevated cafe experience, all within a compact footprint,” per a Perkins release. “The smaller footprint model allows us to drive brand growth and to reach guests where they are by expanding into premier real estate including colleges, casinos, c-stores, and more,” says Toni Ronayne, president of Perkins American Food Co., in that same release.

Turning to table service restaurants, growth will be a little harder to come by in 2025, but there will be growth. Datassential forecasts a 0.5% increase in sales among fine-dining restaurants for 2025. Its projections also call for a 0.3% increase in casual-dining revenues, while midscale operations will see a 0.5% decline in sales.

With projected growth being real but sparse in most full-service segments, operators will need to be in tune with their core customers and create experiences they value. “There is still pent-up demand for these more experiential occasions,” Portalatin adds. “These are not the occasions we have every week or our daily eating experience. But there’s still an appetite for those experiences.”

Overall, however, the recipe for success in casual dining remains constant. “Quality, service, experience. You execute well in the store, and you meet the overall value equation for the consumer. That’s the truth in both good and bad economies,” Portalatin says. “There are examples of casual-dining operators growing their traffic in a meaningful way right now.”

One example of a casual-dining chain continuing to perform well despite the challenging headwinds is Texas Roadhouse. For its third fiscal quarter of 2024, the chain reported overall sales grew 13.5% year on year to $1.27 billion. The more telltale metric of same-store sales grew by 8.5% for the third quarter, which is consistent with the previous reporting period.

“There are plenty of bright spots in foodservice,” Portalatin notes.

One such bright spot is the fast-casual segment, as was the case during the challenging economic period of 2008-2009. For 2025, Datassential projects fast-casual sales will increase 1.6%, which is greater than the 1.0% growth rate for quick-service restaurants. “Even though the consumer is under pressure, when they do opt for foodservice, elements of the value equation such as quality and experience do carry some weight,” Portalatin says.

Another reason for overall industry optimism is that “we are building new restaurants. And what’s interesting is the types of new restaurants we are building,” Portalatin says. A closer look at the chains adding the most units, shows a few common threads. “They are focused on treats, beverages and healthier eating,” Portalatin notes.

Cava represents one example of a fast-casual concept that offers more healthful menu options and is enjoying a growth spurt. The fast-growing, Mediterranean-inspired fast-casual concept opened 18 restaurants and generated average unit volumes of $2.7 million during its second fiscal quarter, which ended in July, per a company release. During that reporting period, the company reported average unit volumes of $2.7 million and same-store sales growth of 14.4%. And the mainstream media is starting to notice Cava’s success. The chain landed on USA Today’s list of the “ten best restaurants for quick, healthy food.”

Beverage-focused concepts represent another bright spot for the industry. Chains capitalizing on consumers' unquenchable thirst for beverages include “dirty soda” concept Swig, iced tea concept HTeaO and drive-up coffee company Scooter’s. As of September, Swig reported having more than 80 locations in eight states. By the end of 2024, Swig plans to have operations in five additional states.

Earlier this year, HTeaO grew to more than 100 units, with each offering a menu of premium tea, water, and coffee products. Early in 2023, to help fuel its growth, HTeaO received an investment from two Dallas-based private equity firms.

And in June, Scooter’s Coffee opened its 800th location systemwide. This milestone unit is in Louisville, but the chain has locations in more than 30 states.

“There’s been so much beverage innovation,” Portalatin says. “Consumers are looking to beverages for a variety of reasons, including treats and functional aspects like creative forms of energy and hydration. There’s a lot of drive-thru and off-premises with these concepts. It’s a smaller footprint, and it’s on the go.”

Operators are starting to enhance their focus on back-of-the-house productivity too. “We see growth in anything that can take a little labor out of the system without compromising quality,” Portalatin notes. “That’s an indicator that they would be open to any kind of BOH tech that would make them more efficient.”

Along those lines, 25% of operators are looking for ways to use robots, Riehle notes. “That has to do with labor and varying availability.” But most are doing so with an understanding that “consumers don’t want to be served by robots.”

Sweetgreen remains a leader in embracing back-of-the-house automation, due in large part to its Infinite Kitchen platform. This is an automated makeline that uses a conveyor belt to move bowls while adding ingredients along the way. Units using the Infinite Kitchen reportedly have higher ticket averages and lower employee turnover compared to other Sweetgreen locations. The chain is also using kiosk ordering and an app. Overall, Sweetgreen anticipates roughly 50% of its locations will be fully automated within five years, per various published reports.

Chipotle also continues to expand its tests of back-of-the-house automation in its stores. In September the company began testing the Autocado in California locations. The Autocado is a cobot that cuts, cores, and peels avocados. Chipotle is also field testing its Augmented Makeline. Also a cobot of sorts, the Augmented Makeline uses automated technology to build bowls and salads while Chipotle employees operate the top makeline to make burritos, tacos, quesadillas, and kid’s meals. The chain reports that approximately 65% of all Chipotle digital orders are bowls or salads, so the company believes its Augmented Makeline can “improve employee efficiency and digital order accuracy, ensuring a more consistent experience for digital guests,” per a release.

Another chain embracing multiple revenue streams with an updated design is Taco Cabana. In June of this year, the chain unveiled its TC 3.0 prototype at a location in Spring, Texas. This unit measures 2,451 square feet, including a 375-square-foot patio. Other features of the location include merging drive-thru lanes, a walk-up area and an inside dining area. Guests entering the restaurant even get a look at staff making tortillas. This design allows the chain to cater to customers who prefer the convenience of off-premises dining as well as those who prefer an on-site dining experience.

“The greater integration of technology remains a priority for many operators, including those in quick-service and fast-casual segments. Other segments, like healthcare and corporate dining, are getting into the act. This represents another side effect of the COVID-19 pandemic. It made consumers much more comfortable in using technology,” Riehle says. “The off-premises traffic will continue to drive the usage of technology. On-site traffic levels have yet to return to the way it was pre-pandemic.”

I Want to Thank You for Making This Day Necessary.

As much as our daily lives may have moved on from the pandemic, the restaurant industry continues to feel the effects of COVID-19 in many ways. For the coming year, the net results are continued moderate growth rates and a renewed or even more intense focus on consumer preferences. Along those lines, any player posting significant growth in the coming year, is likely doing it at someone else’s expense. In other words, while the overall industry will experience growth in real terms, performance will remain uneven.

The good news is that the restaurant industry remains a force within the U.S. economy, generating $3.5 trillion in impact each year, per the National Restaurant Association. And that’s due to the simple fact that people still have to eat and have not lost their appetites for the convenience and memory-making experiences that the industry provides on a daily basis.