This week, the Consumer Price Index report comes out. Forecasters and economists suggest we’ll see inflation increase slightly, from 0.2% in October to 0.3% in November, translating to 2.7% in the 12 months ending in November. This marks a setback in the Fed’s continuing battle with inflation and getting it down to a 2% annual rate.
Because decelerating inflation has stalled, it’s uncertain if the Fed will cut its benchmark interest rate, which influences the borrowing costs of numerous loans. Some suggest an interest rate cut of 25 basis points due to softer labor markets. Others believe 2025 rate cuts will occur at every other meeting.
So, what does this mean for the restaurant industry?
Unless you lean toward throwing the dice, uncertainty is usually never good for the economy. It delays spending, reduces investments, and can result in volatile markets. Conversely, interest rate cuts make it easier for businesses to borrow money for expansion plans.
Consumers who borrow loans to pay down higher interest rates end up with more disposable income. This income is a key factor in determining restaurant sales as people eat out more frequently, no longer prioritizing essential expenses over discretionary spending.
The good news is that whatever income people have for the “unnecessaries” tends to go to eating out. Many consumers consider this a necessary part of their everyday lives.
American’s Dining Habits
U.S. Foods 2024 American Dining Habits revealed that today, diners prefer dining at restaurants, enjoying the atmosphere and socializing. In 2023, only 43% said they preferred dining out. In 2024, that number rose to 55%. Today’s experiential culture is driving this increasing desire to enjoy everything going out to eat offers, from the aesthetics to the presentation, service, and overall experience.
For younger generations, dining out is an essential part of their weekly routine. A survey by Sevenrooms found that the majority of Gen X and Baby Boomers, about 51%, eat out 1 – 2 times a month, on average. By comparison, 38% of Millennials eat out more than five times a month, and 45% of Gen Zers enjoy dinner out 3 – 4 times each month.
The other important consideration is giving consumers what they want, which increasingly means healthier, more sustainable choices and food and beverages they rarely make at home. According to Restaurant365, more restaurants than ever are adjusting their ingredients, opting for more nutritious options. When restaurant operators were asked about customer preferences for 2025, 27% anticipated a higher demand for healthier and special menu items, while 7% saw an increasing demand for eco-friendly alternatives.
Sustainability is a top trend that will affect returning customers in the year ahead. Two areas to consider are eco-friendly packaging and sourcing your ingredients locally.
Actions to Take During Inflationary Periods
Restaurant operators and investors can take several actions to de-escalate risk while increasing profits. One industry segment that tends to weather storms exceptionally well is eatertainment, also known as social entertainment concepts.
Why do these concepts thrive during uncertain times?
The answer lies in their adaptability and offerings. When consumer spending retreats, they can adapt their pricing and menu in gaming as well as food and beverage. And, as travel diminishes, people look for entertainment close to home. Almost nothing is more entertaining than enjoying global cuisine and signature craft beverages while taking down your buddies and family members in social competition.
For those without access to 25,000 square-feet venues for the ultimate in gaming, several activities can enhance your guests’ experience in your current setting. The Sevenrooms’ survey found the top experiential dining income generators were special seafood dinners or brunches, endless pour packages, and Christmas Day and Easter feasts.
Future Financial Activity
Current forecasts suggest an increase in bank lending activity in 2025. Globally, S&P Global suggests cautious optimism, believing banks will slowly but surely increase lending.
Restaurants are also expected to take a cautious but optimistic outlook on their expansion plans. By pivoting to suburban locations, they’re leveraging the hybrid workforce and recovering from reliance on urban settings and the lunch crowd that mainly consisted of workers.
At EMERGING, our team consists of restaurant industry and real estate experts along with data scientists. Together, we help restaurants and entertainment concepts chart a course to successful expansion. To learn more about our process and services, contact EMERGING.
