In 2025, the restaurant industry is at a crossroads. Battered by economic headwinds, shifting consumer behaviors, and rising costs, many chains are realizing that bigger isn't always better.
We chatted with Chris Elliott, CEO of FSC Franchise Co., about how restaurants are adapting to shifting economic conditions.
1. How have economic headwinds impacted restaurant operations, and what strategies are chains (especially those that serve alcohol) using to adapt?
Chris Elliott: Inflation has reduced consumer buying power, which has negatively affected restaurant traffic. Restaurant operators are looking for savings in every line item to maintain margin integrity while they lean into more value offerings to recoup customer traffic. Restaurants that sell beer, wine, and liquor are adding lower-priced house brands and broadening their offerings of non-alcoholic beers and mocktails.
2. Do you believe that scaling down is becoming a more strategic choice for some brands?
The scaling down of established chains is a function of declining unit level economics and strategy primarily in the sense of mitigating losses. Inflation has pushed up the breakeven sales level and stifled traffic. That’s a double whammy. The locations that were “on the bubble” prior to the impact of inflation are closing.
3. What are the key indicators that suggest mass closures will intensify in 2025? Are there specific segments of the industry more at risk?
Sticky inflation, low consumer confidence, and soft customer traffic can lead to more closings in 2025. Every segment is at some risk. QSR and Fast Casual are probably the safest place to be. Casual dining is likely the most vulnerable category.
4. With 2025's tariffs, should operators expect costs to continue to rise? How can they manage these rising costs?
Tariffs are unlikely to impact our industry. Many commodity costs continue to rise (primarily beef) as well as wages, taxes, insurance, rent, and utilities. There will be a lot of looking around for better pricing, changing vendors, retooling menus and yes, menu price increases.
5. How have consumer preferences evolved, and what trends do you predict will gain momentum in 2025?
Consumers will be shopping for value in 2025. The staples never go out of style: burgers, wings, tacos, and pizza, but there is an expectation of unique presentations and bolder flavors. Also, non-alcoholic beers and fancy mocktails.
6. What would you advise restaurant operators to focus on in 2025?
Sounds trite, but the focus should always be on value, quality, service, and innovation.
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