Things are looking up for restaurant chains heading into 2025. The economy remains surprisingly resilient. Inflation has cooled. There is no alleged recession looming over the horizon. Interest rates are coming down. And there’s some evidence that consumers are beginning to notice, as traffic to fast-food chains appears to be on something of an upswing.
That should improve sales and provide for better valuations which, along with a lending community that’s a bit looser with their checkbooks, should make for a better environment for restaurant chain acquisitions.
At least in theory. But uncertainty remains. A change in presidential administrations typically brings with it some potential for uncertainty, and this one is particularly dramatic: Incoming President Donald Trump may bring with him eased regulations, which restaurants like, but he could also bring tariffs and a tighter immigration policy, neither of which would be all that positive for restaurants.
“Buckle up,” Paul Gruenwald, global chief economist for S&P Global, wrote in an economic outlook for the first quarter of 2025. “Even before taking office, a second Trump administration is already moving the macro-financial needle and raising downside risks for the global economy.”
Let’s start with the good. The economy remains generally strong in the U.S. And that’s expected to continue, for the most part.
Goldman Sachs put the chances of a recession in the coming year at 14%, which is about normal for any year—and a far cry from the 100% prediction of two years ago, so take that number with a grain of salt. Goldman expects the U.S. economy will grow 2.5% in the coming year, which is better than the 1.9% consensus forecast in its survey of economists.
While either number would be lower than the 2.7% growth expected for 2024, it’s still growth.
Restaurants are also ending 2024 on a strong note, despite the headlines of closing locations and bankruptcy filings.
Restaurants and bars generated $953 billion in sales in the first 10 months of 2024. By contrast, grocery and liquor stores did $824 billion in sales. Restaurants now account for 54% of consumers’ food spending. And it’s up 5% compared with the same period a year ago, compared with a 2.2% increase at grocers and liquor stores. Restaurants, in short, generate stronger sales and they’re growing at a faster rate than grocers.
The traffic challenges that fast-food chains struggled with earlier in 2024 have eased. Quick-service traffic increased 1.3% in November, according to data from Revenue Management Solutions, echoing comments from company executives on recent earnings calls.
All that is showing up in company valuations. Restaurant stocks through Aug. 31 declined 12% on average. They are up slightly as of early this week. Stocks are an imperfect measure of performance. But they are a good gauge of sentiment among investors, both public and private.
Investors have generally put more money into stocks since the election, believing that a second Trump presidency will be better for corporate profits. But in the case of the restaurant industry, the improvement also reflects generally better sentiment.
Meanwhile, interest rates are coming down as concern about inflation subsides. Lower interest rates should lower borrowing costs, which should provide some WD40 to what had been a stuck acquisitions market.
That may already be happening: TREW Capital Management, an investor that bought the debt of BurgerFi International at a discount and took the company over in bankruptcy, was able to find buyer for both BurgerFi and its sister chain Anthony’s Coal-Fired Pizza.
“The number of transactions is going to accelerate as we move through 2025,” Josh Benn, global head of the investment banking practice with Kroll, said at the Restaurant Finance & Development Conference in November.
As such, the industry enters 2025 in a far better place than it was entering 2024, with improving sales, inflation in check and easing interest rates.
But alas, the wildcard. “Trump’s policy proposals, at face value, could result in higher inflation in the near term and lower growth in the medium to long term,” S&P’s Gruenwald wrote.
One such proposal is a 25% tariff on Canadian and Mexican imports and a 10% tariff on Chinese imports.
That would likely increase prices, particularly for certain items, and might ultimately damage the economy over time.
They’d likely have less of an impact on restaurants than they would on other industries, but it could make items like avocados or French wine more expensive.
Maybe a bigger issue could be immigration. Restaurants historically rely on immigrants to fill entry-level jobs. More than one in five employees is an immigrant, according to the National Restaurant Association.
Trump has said he plans to deport millions of illegal immigrants on his first day in office. A broad crackdown on immigration, legal and otherwise, could dramatically reduce the availability of labor in an industry still recovering from the post-pandemic labor shortage.
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