Much of 2024 felt like getting bounced from one watershed, volatile moment to another. Can you a survive the summer dive? How will the customer respond post-election? Will inflation ease or will a flurry of value deals continue to recruit weary diners back?
But does 2025 promise a reprieve? BTIG analyst Peter Saleh doesn’t expect it will, at least not early on. He feels the restaurant industry is headed for a New Year that feels like how this one closed, with modestly positive sales and a highly promotional environment intended to regain the traffic losses felt so sharply in the wake of multiple years of price hikes.
“In many ways, the restaurant industry faced a reckoning this year,” Saleh said, “as the pandemic recovery faded and inflationary pressures brought sales trends back down to earth.”
According to Black Box, sales have run slightly negative for the year (0.4 percent) and, as covered throughout 2024, there’s been a rash of bankruptcies, from Red Lobster to BurgerFi to TGI Fridays, Tijuana Flats, Eegee’s, and a host of franchise groups, small, sizable, and regional concepts through all DMAs.
There’s been sales improvement of late, mostly bouncing off a very challenged summer (see graph below). In one example, Red Robin CEO G.J. Hart told investors in August the casual burger chain enjoyed a strong July Fourth and was comping marginally positive over the opening six weeks of Q2. Then, “things sort of fell apart there for a while in the industry,” he said on an earnings call. Same-store sales flipped negative 1.9 percent over the next six weeks and Red Robin exited with negative comps of 0.8 percent.
Why did this suddenly slope? Traffic throughout the summer earnings season was elusive as chains spoke about a discretionary customer limiting visits and pushing back on higher prices. Revenue Management Solutions data showed quick-service traffic down 2.5 percent in July.
Yet as noted, sales trends recovered to moderately positive in recent months. Saleh projects that trend to endure into the first half of 2025 as the consumer environment remains largely the same. The outset of 2025, he added, could be stronger, as January and February lap weather disruption last year. Like any year-over-year driven result, though, the spike will be more of a short-lived phenomenon than a signal of a robust stretch ahead.
Also factoring into what Red Robin and others reported, the promotional environment has been intense for well over half a year at this point, Saleh said. It’s defied typical seasonality and shown zero signs of let up. Clearly, restaurants still have work to do to recapture traffic and attention.
McDonald’s, always a first Domino, will launch its McValue menu on January 7, featuring an extension of the $5 Meal deal and a variety of Buy One, Get One for $1 items at breakfast, lunch, and dinner. All of it will be housed in one place on the menu.
Joe Erlinger, McDonald’s USA president, said the structure was developed with franchisees and intended to offer flexibility for customers who aren’t just a singular “value” group any longer.
And this was the manifestation of a concept hinted in October around a “more holistic U.S. value platform.” McDonald’s looked at international offers in Germany and France and evolved toward a branded platform. The $5 Meal Deal helped McDonald’s gain share with lower-income guests for the first time in more than a year, but it needed a wider view.
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Saleh said the restaurant industry, historically, promotes value from December through February as consumers spend on the holidays and look to curb in other areas. “Given the constant drumbeat of value from quick-service behemoths like McDonald’s, we expect the rest of the industry to follow suit,” Saleh said, “double down on value through at least Q1 2025, but likely through the summer.”
If you go back to when McDonald’s really began pounding this point, the traffic concern hadn’t reached critical mass. The reason being top-line expansion on price was blanketing a loss in guest counts. McDonald’s experienced same-store sales growth of more than 30 percent from 2019 to 2024.
In Q4 2023, McDonald’s comps lifted 4.3 percent, a result driven by average check expansion with pricing in the high-single digits—implying traffic was negative low-to-mid single digits.
CEO Chris Kempczinski was asked on that recap where the jostle for market share was headed: “… the battleground is certainly with that low-income consumer,” he said.
McDonald’s felt added pressure with the $45,000-and-under cohort. That had become a common theme across fast food. Yet what began to soften was the other side of the dynamic. McDonald’s, like many chains, benefited from the top cascading down amid inflation. Higher-income consumers traded out of other categories and the same was true of middle-income. Eventually, it brought diners into McDonald’s who might not have shown up when pricing wasn’t so broadly sensitive.
As hikes sustained, though, and macro conditions continued, restaurants started to fight for fewer consumers in a pool of guests that were “certainly visiting less frequently,” CFO Ian Borden said in April.
It led to a “street-fighting mentality,” he added, to win absent of the context around McDonald’s. “And as I think we’ve talked a lot today about our position—our system is positioned with the strength and capability,” he said. “There’s no reason why we shouldn’t have the most compelling value and affordability positioning from the focus of a consumer.”
A restaurant guest more discriminating with every dollar spent, Kempczinski said, led to flat to declining Q1 2024 industry traffic in the U.S., Australia, Canada, Germany, Japan, and the UK. Frequency dropped across almost all major markets, which let McDonald’s know guests were “looking for reliable everyday value now more than ever,” he said.
And so, talk of ways to leverage the company’s marketing engine to advertise a national platform instead of “doing it 50 different ways with local value” began to headline.
McDonald’s 5 Meal Deal arrived in late June. It had its positives and less positives, especially with how some diners bundled it with digital deals, but the overall theme was a lasting aim, and what took this conversation from a limited run into a major 2025 trend.
Saleh said value should persist across the industry until either lower-income guests return in mass, or inflation reemerges. At this point, however, he expects very modest (low-single digit) commodity inflation and mid-single digit labor inflation in 2025. If either of those accelerated materially, value messaging and price points would need to adjust higher.
Saleh is hopeful quick-serves can return to more normalized pricing and promotional calendars built around premium and innovative items rather than deep discounts. “But [I] don’t see a path to that more profitable scenario until at least the second half of 2025,” he said.
The coming tech (automation on the mind)
Given labor shortages (hardly a new trend), consistent mid-single digit inflation (that part is an add-on), and the continued evolution of available solutions, Saleh feels restaurants are getting more serious about automation. It’s a curiosity-turned-concept spin that could jump the investment and rollout of labor-saving tech this coming year.
While automation has long conjured images of mechanical kitchens and robots flipping burgers, Saleh said, the reality is perhaps less glamorous, but no less impactful. Tech today and into 2025 will focus on task items like simplifying time-consuming, repetitive duties such as slicing vegetables, cooking proteins, managing schedules, and taking orders.
One visible case being Chipotle, which has five different efforts in various stages of development, all with an eye toward automation and reduced labor hours. Saleh said to expect 2025 to include an expanded rollout of the dual-sided grill that cuts cook times by nearly 70 percent, allowing for faster throughput at high-volume locations, yet also potentially fewer labor hours, namely when prepping to open the restaurant.
Chipotle started by piloting in 10 units last year and said food was coming out with the same sear and char, in addition to all the speed improvements.
The brand also announced plans to fully deploy a new produce slicer by summer and shared in September the “Autocado” and “Augmented Makeline” were in live restaurant tests. More on that here.
Chipotle’s former CEO, Brian Niccol, is sure to be busy on this front at Starbucks, too. Another significant kitchen automation Saleh projects rolling out aggressively in 2025 is the java giant’s “Siren System.” While hardly a recent revelation (it was introduced in September 2022 by founder Howard Schultz), the project has felt fractured at times. It’s been billed too complex, expensive, and disruptive to retrofit. So you’ve seen variations, like “Siren Craft” processes—elements in service and execution but not the full kitchen update—and, simply, a larger need from Starbucks to reexamine what problems it was trying to solve. Niccol said in October the brand figured that final part out: four-minute throughput.
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Using the timer as a guideline, there’s flexibility in how much, or how little, of Siren can go in, store-to-store, when trying to satisfy that goal, which includes process improvements and kitchen layout and equipment upgrades that feature everything from cutting the need for workers to open refrigerators while making cold drinks to options like a custom ice dispenser, faster blenders, and a milk-dispensing system. The setup also slices the time to make a Frappuccino in half.
Niccol wants the organization to rotate toward unlocking speed at less than four minutes. If the unit requires a full Siren Craft system to get there, it will put one in. If it just needs some pieces? That’s OK, too. Perhaps the restaurant only requires better staffing and deployment? However you view what it takes to get to four minutes, you can expect Starbucks to target the solution in 2025.
Saleh believes Siren is the key and, in turn, implementation across its system should begin in earnest. If true, Siren would lift throughput, increase the barista experience, and create labor efficiencies.
Taco Bell is another brand Saleh sees automation stepping to the forefront. Here, it’s the ongoing deployment of drive-thru voice AI. The Yum! Brands’ chain first shared progress publicly in July. At the time, Taco Bell offered the tech in more than 100 units across 13 states, tasking it with enhancing back-of-house operations for employees and improving the ordering experience for guests. In November, CFO Chris Turner provided another update, noting Taco Bell had processed more than two million successful orders and was featuring the system, supported by digital menuboards and Yum!’s proprietary Poseidon POS system, in roughly 300 U.S. locations.
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At that, Taco Bell had become the largest quick-service voice AI brand in the world.
The brand was also in the process of using its connected ecosystem to allow users to identify themselves at the drive-thru and kiosk. That powered personalization through ordering and enabled guests to earn and redeem rewards. It spread to 160 stores in Q3 and showed a clear increase in sign-ups and daily loyalty transactions, without an impact to speed of service, Turner said. (On a different note, Taco Bell was the fastest drive-thru in the country for the fourth consecutive year in QSR’s 2024 Drive-Thru Report).
Given the connection with digital menuboards (they’re required enablers of each tech piece), Taco Bell accelerated deployment to more than 6,000 restaurants. Digital menuboards will be a “Taco Bell brand standard” in 2025, Turner said, along with Yum!’s aforementioned proprietary POS.
So it’s starting to connect. And speaking again on the voice AI itself, Turner added, customer response has been positive and employees appreciate the extra pair of hands. It’s scaled faster than originally pictured thanks to how well operators and franchisees received it.
Don’t expect that to slow in 2025, Saleh said. “Taco Bell appears to be further along than any other company on this much-discussed and tested technology, noting several others [McDonald’s most prominently] have tried but couldn’t get the accuracy or economics right,” he added. “We believe that wide scale success at Taco Bell with this technology would lead other brands to be more aggressive in pursuing similar solutions in 2025.”
Labor and why Wingstop and Starbucks will gain ground in 2025 (in different ways)
Saleh sees no positive scenarios for wages or availability in 2025. He expects the labor environment to remain tight with rates climbing in the mid-single digits. Short of a recession and increase in unemployment—unlikely in Saleh’s view—it’s difficult to envision any restaurant landscape in which wages are flat and/or labor is abundant.
“Restaurants are struggling to achieve and remain fully staffed in the current environment, so we think the largest variable to watch is any significant change or action on immigration policy,” he said. “While large, publicly traded restaurant operators are employing documented workers, we think independent restaurants are more likely to use undocumented labor. If the ambitions from the new administration prove to be true, with mass deportations of the nearly 11 million undocumented immigrants and a sealed border [1.75 million migrants annually], we believe hourly wages will rise substantially more than expected, outpacing the 4–5 percent base case contemplated for 2025.”
With these factors in mind—labor, traffic, and more—Saleh is giving concepts unreliant on deep discounts a headstart in 2025. Having a good self-help story won’t hurt, either.
And that brings Saleh to Starbucks and Wingstop. The former, undoubtedly, has its work cut out after the company’s worst financial reports outside of the pandemic (traffic declined 10 percent in Q4) in brand history.
Saleh pictures 2025 as a transition and investment year for Starbucks, evident by management suspending guidance to end the year. There are also hints of slowed development, reset operations—everything from the return of the brewed coffee and condiment bar (year-end 2025) to Sharpies scribbling names on cups like the old days—in an effort to improve speed and service and bring back the coffeehouse vibes. Saleh estimates hot brewed coffee as a mid-to-high single-digit percent of sales at Starbucks, a figure that’s slid as cold and espresso beverages skyrocketed in popularity to north of 70 percent of sales.
And the Siren system put on the backburner under previous leadership? Expect that to change in a hurry, like mentioned before.
While this appears a major change for a modest sales mix, Saleh said of hot coffee, the condiment bars combined with Siren should address nearly 70 percent of Starbucks’ beverage sales mix. Naturally, such a tandem would have a material impact on throughput.
Saleh said progress against initiatives in 2025 will set the stage for outsized same-store sales and earnings growth in 2026 and beyond. That potential should bode well for shares as we head through the year.
Additionally, Saleh projects a sales benefit from Starbucks’ decision to shift promotional spend toward advertising. Previously, the brand focused narrowly on rewards members, Niccol said. Starbucks, soon after his arrival, kicked off a coffee-centric campaign that told a premium story. In turn, it reduced the frequency of discount-driven offers that proved, as Q4 traffic showed, ineffective in driving visits. They also diluted Starbucks’ DNA and overburdened employees, which detracted from a consistent customer experience.
Niccol said the way Starbucks gets to “value” will be through straightforward pricing, timely service, and a more enjoyable café experience. And its newly launched campaign focused on talking to all customers—not just rewards users—and elevated Starbucks through broad-reach media like linear TV.
“Anecdotally, we are already seeing greater brand visibility with the new advertising campaign and expect the hiring of Tressie Lieberman as global chief brand officer [she came over from Yahoo and was formerly with Chipotle] to have a material impact on the Starbucks advertising strategy in 2025,” Saleh said. “We also stress that this is the first time in Starbucks history that it is being led by a CEO with restaurant operating experience. We believe the wealth of knowledge that Mr. Niccol and the new team at Starbucks bring will be transformative and set the stage for the next leg.”
As for Wingstop, this is a prediction from a very different side of the token. There’s no rebound on deck; it’s more about stacking growth on top of industry-defying growth. The fast casual’s U.S. same-store sales lifted 20.9 percent in Q3, driven primarily by transactions. On a two-year basis, its domestic comps hiked 36.2 percent.
Saleh said he expects Wingstop to outperform in 2025 as well on the heels of faster unit development, visibility on margins, and its “ever-so-subtle” entrance into the value wars. This could be a record development year following a substantial increase in global unit potential over the summer to 10,000 from 7,000 previously, as well as the high-mark reached in Q3.
The chain debuted 106 net new restaurants. More than 70 different franchisees opened a restaurant in 2024, covering 28 states and 10 countries. Also, it’s important to spotlight 95 percent of openings came from existing franchisees.
New units in 2024 are earning more than $1.6 million in annualized AUV—almost $1 million more than in 2015 when Wingstop went public. Development is going so well Wingstop upped its 2024 guidance to between 320 to 330 net new stores, an increase from 285 to 300 net new stores.
The brand finished Q3 with 2,120 U.S. and 338 international restaurants. The long-term goal is 6,000-plus domestic and 4,000-plus international outlets (the 10,000 total Saleh referenced).
“We don’t think it was a coincidence that global unit potential increased by over 40 percent following two quarters of improved margin visibility for franchisees as the company’s supply chain initiatives finally came to fruition,” Saleh said.
An item, however, he feels is going relatively unappreciated is Wingstop’s recent price point focused advertisements. Instead of just brand building, the chain promoted a $16.99 Boneless Meal bundle, which proved rather successful in 2022, Saleh said. The call to action could reignite same-store sales growth as the industry enters its most promotional time of the year.
Back in 2022, when the Boneless Meal Bundle was last promoted, Saleh explained, it mixed about 7 percent of sales. He said it could do even better this go-around considering the industry-wide focus on value and the fact Wingstop has significantly more media dollars at the ready.
Since Wingstop’s Q3 report, investor interest in supply chain and margin surfaced often, Saleh said. While the brand hasn’t divulged exacts, it moves the Wingstop system away from the spot market and closer to contracted/negotiated purchases with suppliers. That will reduce the volatility of wing costs. A closer look at USDA bone-in wing prices compared to the company’s cost of sales demonstrates the picture management has conveyed to investors—that efforts to provide a consistent mid-30s cost of sales started to show up in results.
The takeaway: Wingstop has, at last, decoupled its wing costs from the spot market and is capturing 400–600 basis points of benefit on food costs.
Wingstop touts a whole-bird sourcing strategy that allows it to fix chicken costs by enterting into grain-based hedging contracts rather than relying on the jumbo bone-in wing market (spot market prices for bone-in wings spiked 145 percent year-over-year, according to a Benchmark research note).
Either way, there’s not much to suggest Wingstop’s top 10 global brand ambitions are overstated. It feels more a matter of time than projection. The chain, even with its recent success, is still working against a double-digit gap in brand awareness versus more mature QSRs, CEO Michael Skipworth said.
“The demand for growth is extremely strong from our brand partner community,” he noted in October.
