7 big restaurant questions heading into 2019

Papa John’s, McDonald’s, sales challenges, M&A, franchisee revolts and delivery will be big issues next year, says RB’s The Bottom Line.
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I have questions.

The restaurant industry is in a constant state of evolution, driven by fickle consumers and a highly competitive environment.

But that change came pretty quickly in 2018 and shows no sign of abating. That leaves us curious about a lot of different things heading into the new year—many of which could have a significant impact on the country’s restaurants.

Here are some big questions we’re asking.

Will there be any publicly traded chains left?

We can’t quite recall a year so active for restaurant mergers and acquisitions—particularly for go-private deals.

Buffalo Wild Wings, Bravo Brio Restaurant Group, Fogo de Chao, Zoes Kitchen, Sonic Corp., and Bojangles' all either went private or are about to. Four other chains are looking for buyers: Papa Murphy’s Pizza, Papa John’s, Del Frisco’s Restaurant Group and Jack in the Box.

Any chain short of McDonald’s and Starbucks could be sold next year, and it doesn’t even have to be on the market.

Will JAB finally buy Dunkin'?

The European investment firm JAB Holding Co. has been buying up anything having even remotely to do with coffee since it emerged as a buyer in 2012 with its acquisition of Peet’s Coffee. People have speculated ever since that it could take private Dunkin’ Brands to solidify its competitive position.

My guess is no, that if it was going to happen it would have happened by now. And restaurant analyst Mark Kalinowski has indicated he hears JAB could be targeting a different market—pizza. But JAB certainly has the ability to swallow Dunkin', and until the firm stops buying people will keep asking.

What will happen with Papa John’s?

The biggest story of 2018 was the Papa John’s mess—you know, John Schnatter blaming NFL player protests for weak sales, then using a racial slur during a conference call intended to help improve his image, then the chain firing him as its spokesman, then the chain being put up for sale.

At one point, buyers seemed to be lining up for the chain. Then they backed off. Then Schnatter got back in the picture. Who will buy Papa John’s? Will anybody buy the chain or will the company have to fix things out in public?

Will the McDonald’s strategy start paying off?

Arguably no restaurant chain in the U.S. is doing more right now to change its stores and its image than the biggest one. But so far all of those efforts—delivery, new value strategies, new chicken products, fresh beef, kiosks at restaurants, curbside service—have yet to pay off in the form of more traffic.

Franchisees have staged an unprecedented uprising. Pressure is on management to start showing results—and, if they don’t, more changes at the company could come later in 2019.

Will sales finally start growing?

The chain restaurant industry has struggled with broad-based traffic challenges for three years now and there’s no real end to the slump in sight. Consumers are changing, shifting their restaurant allegiances, eating more takeout and dining at smaller concepts and independents more often.

What’s more, the economy is clearly past peak and the risk of recession grows all the time. All of this means we’re probably in for another year of weakness. Or maybe not.

Will delivery finally move the sales needle?

The single biggest industry trend in the past two years has been delivery—or, perhaps it’s been takeout, with delivery a major part of it. So far, it seems, that service has been to the benefit of smaller concepts at the expense of major chains.

We have seen little evidence that chains adding delivery do much to generate sales and traffic growth, even if we believe it’s important for them to do so given urban consumers’ clear demand for the service.

At some point, however, we wonder if chains will begin de-emphasizing the service if it doesn’t translate into sales growth.

Will the franchise revolt spread?

Papa John’s might have been the biggest story of 2018, but I believe the most significant story was the growth in franchisee revolts—Subway, Tim Hortons, Papa John’s, McDonald’s and Jack in the Box all experienced them.

Others could follow. More than a few franchisees, for instance, are paying attention to the issue at McDonald’s. If sales continue to be a challenge, labor costs continue to rise and franchisors continue to push demands on operators to make expensive changes, other systems could see similar uprisings.

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