Financing

Citing weak industry traffic, Technomic cuts its 2024 restaurant sales forecast

The data firm, a sister company of Restaurant Business, has revised down its sales expectations by 1.5 percentage points. Can a value war bring some of that traffic back?
Burger King
Burger King and other fast-food chains are expected to fight a value war this summer. | Photo: Shutterstock.

How bad has the year started off for restaurants? Bad enough to cost the industry about 1.5% of its sales, at least according to one projection.

Technomic, the data and analytics firm and sister company of Restaurant Business, has revised downward its restaurant sales forecast for the year.

After initially expecting a 5.3% increase in sales for 2024, the firm now expects a 3.8% increase, a downward revision of 1.5 percentage points.

Blame high prices and weak traffic.

“I think restaurants have been taking up pricing and consumers have pushed back,” Technomic Managing Principal Joe Pawlak said. “We just can’t do it anymore. We’re cutting back frequency. We’re also looking at our total spend, and maybe we’re not buying that carbonated soft drink along with our meal.”

Technomic projects that prices will increase 3.7% this year, meaning it now barely expects restaurant sales to keep pace with price hikes.

Even that may not say everything, because the industry has continued to build more new restaurants than it is closing. So even a below-average rate of 1% unit growth would mean a typical restaurant loses nearly 1% of its customers.

Technomic re-examines its forecast quarterly and revisions are not uncommon. But Pawlak said this level of revision is unusual and suggests a change in consumer behavior that was not expected at the beginning of the year.

That shows where the business suddenly finds itself. “We’ve taken it down because our traffic assumptions have gone down,” Pawlak said. Several restaurant chains have reported weak traffic.  

Some chains, like Wingstop, Chipotle and Sweetgreen, are attracting more customers. But most are losing them, a decline that began midway through 2023 and appears to have worsened so far in 2024.

Part of that is weather, as chains like Cava and Portillo’s have noted. But much of the fast-food sector has lost customers to grocery stores, a “trading out” phenomenon first identified by McDonald’s in February.

Walmart in particular has stated that it is getting restaurant customers looking for value. Many are actively lowering prices.

Nearly 80% of Americans now believe fast food to be a “luxury,” according to a Lending Tree survey.

Convenience stores such as EG America are also running value meals with the hope of attracting budget-conscious consumers.

Restaurant chains are already jumping on that bandwagon. Wendy’s has introduced a $3 breakfast bundled meal and Jack in the Box is running value offers at $4. McDonald’s plans a $5 value meal later this month while Burger King expects to respond in kind with another version of its $5 Your Way Meal.

(Check out RB's special report on the oncoming value war.)

Arby’s this week has brought back its 5 for $5 roast beef sandwiches offer, one of the most popular discounts in the chain’s history.

Technomic does expect that value war to bring back some traffic toward the end of 2024. “We think there’s going to be a big push that always brings in traffic,” Pawlak said.

It’s worth noting that, despite the challenges, the industry is still expecting growth this year. It’s rare for restaurants to actually lose sales. And 3.8% growth this year would be similar to industry growth rates between 2016 and 2019, just before the pandemic.

And, despite all the handwringing about fast-food prices, it will be full-service chains that bear the brunt of the current turndown. Technomic expects fast-casual sales to grow 6.4% this year. Quick-service restaurants are expected to grow 4.6%, both of which are firmly above inflationary levels.

Casual-dining chains, on the other hand, are expected to grow sales by 2% while family-dining or “midscale” restaurants are expected to grow 1.6%. Fine dining sales are expected to grow by 3.2%.

In other words, the challenging year will once again shift more sales away from full-service restaurants to limited-service brands.

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