Fitch Ratings, a credit rating agency, recently lowered its outlook for U.S. restaurants in 2025 from Neutral to Deteriorating.
Why?
The reasons are numerous, ranging from reduced discretionary spending to increased inflationary pressures. As a result, they anticipate reduced traffic and a decline in food-away-from-home expenditures.
Other reasons for their negative outlook include mass deportations that impact the labor market and lead to higher wages, as well as tariffs that threaten the stability of supply chains. Raising menu prices to keep up with inflation and labor costs may affect the inflation-weary consumer, prompting them to visit grocery stores and steer clear of dining out. The agency believes highly leveraged operators are most at risk.
A Different Viewpoint: Black Box Intelligence
Black Box Intelligence’s April Restaurant Trends review revealed a slightly different picture, with same-store sales growth at 1.1%. This is the second consecutive month with positive sales growth, marking the strongest increase since January’s 2.5%.
They also noted that fast casual and quick service were the only segments to fall into negative sales, while casual dining outperformed other segments by a significant margin. Yet, while capturing a substantial market share, they also noted that less than a third of the casual dining chains they tracked achieved positive same-store sales growth.
And while they saw industry demand increasing, they also said that operators should expect some difficult year-over-year hurdles and economic pressures. BBI’s data also revealed that restaurants in areas with the lowest household income had negative same-store sales and the softest traffic growth, suggesting the lowest income brackets are cutting back.
Labor Trends
The report also indicates that employee retention has, for the most part, been improving, with reduced turnover rates, particularly among non-management staff. Their recent data suggest management turnover rates are also declining, a segment that has seen challenges. And, while full-service managers’ turnover rates remain high, they are at the lowest levels seen in years. This is particularly beneficial given the relationship between performance, management retention, and guest sentiment.
What Restaurants Can Do
According to BBI, “Brands must remain agile by balancing value perception, operational execution, and guest experience. Additionally, they should continue to monitor shifting sentiment and spending patterns closely. Success will come to brands that adapt to the evolving demands.”
Fitch Ratings listed several restaurant companies they felt could weather the current economic headwinds. These include Darden Restaurant Inc., Raising Cane’s Restaurants LLC, and Sizzling Platter LLC.
The reasons for their positive market outlook include expertise in supply chain management, sourcing food and packaging locally instead of internationally, and the advantage of scale.
While these brands outscale most, there are some lessons learned. Negotiating with suppliers and optimizing menus are essential in today’s environment. According to Fast Casual and Troy Hopper, CEO of Hot Palette America, several ways to manage the supply chain include developing a relationship with suppliers and directly inquiring about what fellow restaurant operators are purchasing. Additionally, use your negotiating power and let distributors know you’re performing an annual review. He also recommends using rebates and controlling rebate schemes.
Support with Supply Chain Management
At Emerging Concepts, we collaborate with leading restaurant and entertainment concepts, delivering innovative business strategies in supply chain management, finance, labor, real estate, and data science. Consolidated Concepts, our supply chain arm, delivers category specialists and negotiation expertise to multi-unit restaurants.
By leveraging over $10 billion in annual purchasing power, we reduce your operation’s costs and enhance profitability. Our programs include rebate and spend management, price verification, and contract management. Schedule a demo to learn more about Consolidated Concepts and how they’re supporting the industry during this challenging time.