The state of restaurants is a messy picture. The Wall Street Journal, noting food services accounted for more than 19 percent of all retail leases last year, called it the “unlikely new real-estate darling” thanks to millennials increasing dining-away-from-home spending. According to The National Restaurant Association, the foodservice industry was forecasted to reach $1 trillion in sales in 2024—a number it’s never hit before as it tracks toward adding 200,000 jobs, up to 15.7 million.
And yet, publicly traded brands with positive transactions are outliers. As an industry, per Revenue Management Solutions, quick-service traffic in May declined 2.1 percent, year-over-year—a drop from April when it was down 1.6 percent. Breakfast traffic fell 5.6 percent and lunch 3.5 percent (dinner was positive at 0.6 percent).
In plain terms, there’s no concrete consensus in what appears to be a zero-sum dynamic of sorts. Restaurants are growing on the top-line through price in many cases, but transactions aren’t pacing. Customers appear unwilling to give up dining at restaurants, yet perception is edging more toward luxury than daily habit.
Net sales were positive 1.9 percent in May, according to RMS, with average price up 3 percent year-over-year.
From a Lightspeed survey of 7,500-plus consumers, 51 percent said they would either continue to dine out at the same rate or increase going out in the next six months. However, seven in 10 reported higher meal prices and four in 10 noticed their favorite dishes were shrinking.
With 81 percent of respondents dining out at least once per month, and 38 percent doing so once per week or more, there’s been a race toward value seeking—43 percent said they were hunting for deals with coupons, 39 percent choosing value meals, and 36 percent making the most of happy hour specials.
William Blair, in its 2024 State of the Consumer report, referred to this landscape as the “bifurcation of the consumer.” Or a resilient diner balanced by an increasingly soft one on the lower-income side of the equation.
That latter cohort, the company said, has begun to fall behind after a leveling-up period in the years following the pandemic. They’re being buffeted by a growing number of crosswinds, such as the resumption of student debt repayments, higher interest rates, a lack of affordable housing, and depleted savings. “However, the most pernicious headwind is increasingly the still elevated rate of inflation in the face of decelerating wages and thus fading of real income growth,” William Blair said. Meanwhile, middle- and upper-income guests are holding.
And rocky reactions await with the 2024 presidential election.
According to William Blair, since 1996, retail sales excluding gas and auto have sequentially decelerated by an average of 0.7 percent over five election cycles, compared to the average annual growth rate heading into the presidential election season. The impact is most pronounced in the month of December—the peak of the holiday selling period—with retail sales sequentially decelerating by an average of 1.8 percent, while October and November declined by an average of 0.4 percent, before inflecting slightly positively in January with an average acceleration of 0.4 percent.”
By category, the company added, excluding gas and auto, only e-commerce and grocery maintained growth above the respective trailing-12-month average, with grocery likely attributable to the defensive nature of the space and e-commerce thanks to the long-term secular trend of continued migration online. All other segments decelerated to some capacity, although restaurants (sequentially down 0.4 percent) and general merchandise stores (negative 0.6 percent) were more insulated than most.
Equal of note for restaurants, election cycles historically dampen brands that rely heavily on advertising as they pull back to avoid getting smothered in what promises to be record levels of political ad spend this year, through more channels than ever.
Customer satisfaction on the docket
Following similar trends, this year’s American Customer Satisfaction Index Restaurant and Food Delivery Study uncovered convoluted themes. While satisfaction with fast-food restaurants was up 1 percent to 79 (out of 100), and 4 percent higher for full-serves to 84, households earning less than $75,000 per year noted they were reducing restaurant visits due to rising prices.
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“Both full-service and fast-food restaurant customers are skewing a bit more toward higher income levels and college graduates,” Forrest Morgeson, associate professor of marketing at Michigan State University and director of research emeritus at the ACSI, said in a statement. “Customers are being forced to make decisions between groceries and restaurants, with full-service restaurant inflation about two times that of groceries in the past year and fast food and fast casual restaurants prices up three times the rate of groceries. With customers seemingly viewing dining out a luxury, restaurants that can differentiate themselves in terms of quality and value will have a competitive advantage.”
But there was one stable point—Chick-fil-A topped ACSI’s list, as it has for 10 straight years.
Being privately held, Chick-fil-A is a brand that doesn’t share traffic figures. It seems safe to assume, though, the brand isn’t struggling to generate transactions. The brand in 2023 reached a record $21.6 billion in systemwide sales (up from $18.815 billion and $16.674 billion in the prior two years, respectively). Only three restaurant chains in America eclipsed the $20 billion mark in 2023—McDonald’s ($53.1 billion), Starbucks ($28.7 billion), and Chick-fil-A.
This as Chick-fil-A totaled 2,552 domestic locations year-end to McDonald’s 13,457 and Starbucks 16,346. The main divider was average-unit volume. No restaurant chain in the top-50 grossing brands in the U.S. reported as high as Chick-fil-A’s $7.450 million. Raising Cain’s was next at $5.690 million. Chick-fil-A’s drive-thrus reeled in $9.374 million. And all this despite being open six days a week.
KFC was second in the study, even in light of overall challenges in the U.S. market. KFC’s domestic comps slid 7 percent in Q1. It marked the first negative result since mid-2022, when the brand lapped the launch of its chicken sandwich, though comps were flat in the last two quarters of fiscal 2023. Yum! CEO David Gibbs attributed Q1’s downturn to winter weather in the first part of the quarter and “chicken value promotions” from competitors.
Again, speaking to the wider hurdles, monthly visits at KFC’s domestic stores were trending negative in the low-single-digits heading toward 2024, and the declines accelerated in the first few months of the year, according to data from Placer.ai. Year-over-year traffic fell 7.5 percent in January and 6.2 percent in February before plummeting 12.2 percent in March.
Gibbs said KFC was working behind the curtain to “boldly reset the brand,” details of which are forthcoming. Culver’s, Panera, Arby’s, and Starbucks tied for fourth.
As a category, most trends showed relatively in line year-to-year. Order accuracy, mobile quality, and mobile reliability improved as technology appears to be helping strip friction. In fact, mobile quality exceeded that of full-service chains in the study. Quick-serves also received high benchmarks for staff courtesy and F&B quality (84), although they were outperformed, naturally, by sit-down brands across those measures. “As noted for full-service restaurants, pressure for some consumers to reduce discretionary spending will require restaurants to provide an exceptional customer experience to maintain their loyalty,” the ACSI said. “As with full-service restaurants, fast food respondents for the 2024 study have somewhat higher income levels and college graduation rates compared to the prior year, consistent with reporting that lower-income consumers are eating out less frequently.”
Delivery into the fray
For the first time, ACSI measured the food delivery industry. It clocked in at 73, or significantly lower than full-service restaurants (84) and fast food (79).
As always, delivery perception boiled down to the occasion. Customers who use the channel tend to know what they’re getting into and react accordingly. Are they in a rush, for instance? If so, they’re likely to rank speed over quality and be OK with the cost. People using delivery services out of necessity, however (such as health or not having a vehicle), were frustrated with pricing.
The full-service view
Steak concepts tend to do well on ACSI’s index, and that was the case again as Texas Roadhouse and LongHorn locked at the top. Chili’s (up 4 percent) and IHOP (8 percent) made progress as they lean into value (3 for Me in Chili’s case). Outback, last year’s leader, slid 4 percent.
The chart below shows material movement, with guests appreciating the category’s ability to deliver experience alongside improving value. “Providing an outstanding customer experience will be even more critical for consumers feeling pressured to cut back on discretionary spending. Full-service restaurant respondents for this study have somewhat higher income levels and college graduation rates than in 2023, supporting reporting that lower-income consumers are eating in restaurants less frequently,” the ACSI said.
The ACSI Restaurant and Food Delivery Study 2024 was based on 14,604 completed surveys. Customers were chosen at random and contacted via email between April 2023 and March 2024 for the restaurant industries and between November 2023 and March 2024 for food delivery.
