Restaurant Financing

2023 was marked by several high-profile bankruptcies among restaurant brands and franchisees. That trend bled into the start of 2024, when a multi-unit Popeyes’ operator filed for Chapter 11 protections.

But does this mean restaurant bankruptcies will pile up in 2024?

Chris Desiderio, counsel in Nixon Peabody’s corporate restructuring and bankruptcy group, doesn’t think so. He said recent headline-grabbing filings aren’t representative of a broader move toward bankruptcy, like the trend in retail throughout recent years.

“They've been fairly isolated cases, rather than the industry norm,” Desiderio said in March 2024. Many firms have been able to solve issues, like temporary covenant defaults caused by sales shortfalls, without resorting to the Chapter 11 process, he said.

Desiderio said cost increases may pose a risk. But this risk is unevenly distributed across segments because some diner demographics are more reluctant to accept pricier menus than others.

“Fast casual has the most price-sensitive customer base. So significant shifting of costs will have the highest impact [in that segment],” Desiderio said.

For our first Ask the Expert column, we discussed the issues driving, and constraining, restaurant bankruptcies and how franchisees and franchisors can handle these pressures.

RESTAURANT DIVE: What will 2024 and the first couple quarters of 2025 look like when it comes to franchisee and restaurant bankruptcies and restructuring?

CHRIS DESIDERIO: I think it will remain slow. We're seeing the beginnings of commercial real estate workouts, which obviously will impact what the landlords are doing and the pressure landlords are putting on their lessees.

A lot will depend on return-to-office trends and whether, after the summer of 2024, we have more progress than we did at the end of 2023.

Labor costs have seemed to stabilize for right now, but if the minimum wage increases significantly at any point, that is probably one of the largest overhead costs for an operating franchise, particularly in the restaurant industry. So that'll have to get addressed.

I don't see a tremendous rush to lenders exercising remedies to push in defaults this year.

What sort of conditions do you think would push lenders to take that action?

DESIDERIO: Increased interest rates and the unwillingness of landlords to negotiate.

The biggest things that drive anyone into insolvency or restructuring are liquidity concerns. Folks have been managing around liquidity concerns through negotiations, but to the extent that labor, rent and cost of money go up significantly, [that could impact liquidity]. Those three are the most major concerns.

How should franchisees who are facing cost pressures, but not acute price shocks, approach the next year?

DESIDERIO: Planning and forecasting are incredibly important. Everyone has a tendency to forecast, the problem is you should be tracking your variance from that forecast, which I think franchisees often forget to do. And figure out if you are tracking higher or lower than what you were projecting, and if that is a short-term blip, or if it is a longer-term pattern.

Thinking about restructuring strategies while you still have sufficient cash on hand is important. Folks have a tendency to wait until they're not going to make payroll, or miss a tax payment, to seek restructuring advice. 

It’s a healthy thing to be doing all along. We don't only see our doctors when we have an emergency situation. We have our annual physicals. Reassessing your financial wherewithal on a regular basis is a good thing.

Waiting too long to seek that advice can jeopardize the ability for someone like Nixon Peabody to help. If contracts have terminated, you can't necessarily revive them in bankruptcy. If lines of credit disappear, or IP rights are terminated, they can be very difficult to get back, which leaves very little of a restructuring route. Early interventions are very important.

What can heavily franchised brands, particularly those whose franchisees might face cashflow issues due to traffic declines, do about these issues?

DESIDERIO: The first thing is to ensure that you're maintaining your quality standards, regardless of financial situation. A bad franchisee can do significant and irreparable harm to a larger chain.

It's important to make sure that those standards are maintained regardless of the situation. To the extent a franchisor needs to do some form of interim management help, or provide a lifeline in order to ensure that, I think that's money well spent.

I think franchisors need to make determinations as to whether it's a short-term storm, or a long-term one. There needs to be a calculus of whether it's worth it to continue to invest in struggling franchisees or to potentially shut off rights.

A number of chains are undertaking expensive renovation programs at a time when money is increasingly expensive. Do the benefits of boosted sales from renovated units outweigh the costs of development?

DESIDERIO: We've all seen rebrands that leave consumers confused. And other times a rebrand can reinvigorate a restaurant company and bring something back from the dead. It is a case-by-case scenario. 

Anything that looks tired is going to lose cachet in the market. But there needs to be a realistic evaluation of risk against rewards. Is the renovation going to triple your business? Or is it really a 10% increase?

Those are the factors that hopefully franchisors are considering before they're imposing them on their franchisee base.

How do risks differ between highly fragmented and highly concentrated franchising systems?

DESIDERIO: A smaller franchisee will usually have less experience. They have a lower cost of entry. They may not have experience in management, or with cash flow and projections.

Their ability to access capital is lower. They may not have as much credit available. The value of the collateral they can offer to a lender is less. And you don't realize some economies of scale.

But the risk is lower in that if one or two fails, it's much easier to replace a one-unit or two-unit owner than it is a 100-unit owner.

For a larger franchisee, access to capital is greater, and the experience will be better. You don't just start with 100 units — most of those people have built their way from one or two units.

But franchisors are putting a lot of credit and a lot of their business in someone else's hands [when working with large, multi-unit franchisees]. You have certain controls in place, as a franchisor, to monitor business. But ultimately, if a big franchisee collapses and they represent 10% of your system, it will have a significant financial impact.

What are lenders saying about this business environment?

DESIDERIO: There's still a lot of capital available. Although not as cheap as we've been used to for the last decade, historically speaking it's still fairly cheap and fairly accessible.

I don't know if we'll see as much investment in central cities. But city centers, even at their slowest, still offer more foot traffic than a rural area.

What do out-of-court resolutions to defaults look like? What are the means by which these problems are solved?

DESIDERIO: If you have a struggling franchisee, it could be a franchisor taking them back as a company store; it could be providing some line of credit in order to get them back on their feet, or additional support by helping management right the ship.

Keeping franchisors out of bankruptcy is more lender driven. That depends on whether or not lenders are willing to take the IP and operations on the portfolio and whether they think they can receive more value that way than perhaps by just extending loans or modifying covenants in order to carry defaults for some period of time. 

What's going on in commercial real estate? How is weakness in commercial real estate likely to impact struggling franchisees? Are landlords becoming more aggressive with rents, or do commercial tenants have greater leverage now?

DESIDERIO: We're kind of seeing the first phase of this, where the loan to value ratios are significantly out of whack. Commercial real estate could be as low as 50% of the value of what it was when the debt was originally issued. 

On top of that, tenancy rates are low. With balloon payments potentially coming due, it puts pressure on landlords.

It becomes a chicken and egg scenario: Do we lower rent in order to attract tenants and get those vacancy numbers reversed? Or do we hold on for the market to turn around so we can get higher rents?

Landlords for existing tenants have been fairly amenable to negotiations, because keeping a paying tenant in is meaningful. But there continues to be tension because they're trying to keep themselves out of default under their own loan documents. There's only so much leeway they could possibly have.

With traffic down across much of the restaurant industry and many chains struggling with same-store sales growth, 2024 was a big year for activist investors. In their minds, brands like Starbucks, Potbelly, The Cheesecake Factory, Red Robin, Portillo’s and Cracker Barrel have room for improvement and better ways to boost shareholder value.

Restaurants certainly aren’t a new target for such investors. In 2013, activist investors pressured Darden to sell Red Lobster to a private equity firm. A few years ago, Red Robin underwent a year-long battle with an investor that led to a shift in its board. 

“Activists have always loved retail, and as a subset of retail they’ve always loved restaurant chains or publicly traded casual dining or fast food chains,” Keith Gottfried, CEO of Gottfried Shareholder Advisory, which helps corporations fend off activist investors. “It’s hard to think of a major restaurant chain that has not had its encounter with an activist.”

From an activist standpoint, restaurants are easier to understand compared to complicated technology companies, and activists feel like there are more levers to pull to extract shareholder value compared to other sectors, he said. 

Activists also love publicity and media attention and are unlikely to go after no-name companies. 

“If you go after any of the chains that are relatively well known, you’re going to get a lot of media coverage,” he said, pointing to the likes of Cracker Barrel and Potbelly.

Why restaurants are tempting targets

With the move toward delivery, pickup and omnichannel, the restaurant industry has shifted more toward a model that prizes efficiency over size, Gottfried said. Growing off-premise channels have been a great way to create revenue streams and boost shareholder value, he said, without incurring major real estate expenses. 

Engaged Capital, for example, is pushing Portillo’s to shift toward smaller stores and possibly transition away from owning its buildings. Portillo’s is already working on smaller, more efficient restaurants, and in 2024 opened its first Restaurant of the Future, which is just over half the size of its legacy 11,000-square-foot restaurant. 

At the same time, activists are watching declines in dine-in traffic at many casual restaurants, and are pushing for lower physical footprints as a way to boost margins, he said. Several chains, including Denny’s and Wendy’s, are already working on closing underperforming stores as a way to improve the health of the overall system.

Investors are also pressuring brands to move toward asset-light business models, which shift much of the financial and operational risk to the franchisee level. Potbelly, for example, has been refranchising many of its locations. 

What activist investor activity looked like in 2024

This year, activists launched several frontal assaults on CEOs that put increased pressure on these leaders to turn around chains in a short amount of time. That happened to Starbucks’ former CEO Laxman Narasimhan, who was forced out of his post after a few quarters at the helm. 

While not all CEO ousters are connected to activist investors, many CEOs have left the helm of chains like Dave & Buster’s, Bloomin’ and BJ’s Restaurants this year after stretches of same-store sales declines.

“It creates a villain for [activists] to target even though that’s not necessarily fair,” Gottfried said. 

Activists often pressure boards to sell the company as another way to create shareholder value. That move was successful for the activists who pushed Darden to sell Red Lobster, for example. With more private equity firms willing to purchase restaurants, there could be more opportunities for activists to push for sales next year.

How to fend off activist investors

Boards should try and get ahead of an activist investor and see if there is a reason why they would be a target, like having excess cash or a non-core brand, Gottfried said. 

The Cheesecake Factory, for example, was under pressure by activist investors in October to spin off North Italia and two other brands. But the casual chain said it stood by its current portfolio, especially as these concepts are growing. 

Companies should evaluate structural vulnerabilities as well, including identifying ways that an activist could call a special meeting of shareholders, or gain access to the board, Gottfried said. The company should also make sure they have qualified board members with experience mentoring and overseeing management.

“What are the things that an activist would come to them [regarding]? Think and develop a thesis around how to unlock shareholder value and get ahead of that,” Gottfried said. “Analyze, get ahead of it, and if some of those ideas make sense, then preemptively explore them. And if they don’t make sense, get that message out to shareholders.” 

Communication is key to preempting or warding off challenges, he said.

“Get that dialog going with investors so that you don’t have an institutional investor out there that feels frustrated that the company isn’t paying attention to these obvious paths to unlock shareholder value.” 

Public restaurant companies that aren’t the darling of the industry and don’t have the best stock performance should monitor how other chains have handled activist campaigns. 

“Any chain that is not controlled by a dominant holder, where there’s an ability of an activist to get a credible stake ... can be a target,” he said. 

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Inventory management is one of the most critical aspects of running a successful restaurant. With rising food costs and ongoing supply chain challenges, restaurants must implement efficient inventory practices to control costs, reduce waste and maximize profitability. A well-structured inventory system not only saves money but also enhances operations and improves decision-making.

The Cost of Inefficient Inventory Management

According to the National Restaurant Association, restaurants waste between 4% and 10% of their food purchases. This waste stems from overstocking, spoilage, theft and miscalculated portions. In fact, 53% of restaurants do not track food waste, leading to lost revenue and higher operating costs. As food prices continue to rise, tracking inventory becomes essential to maintaining profitability.

Key Strategies for Effective Inventory Management

1. Set Regular Inventory Checks

Performing inventory checks at consistent intervals helps prevent waste and ensure accurate stock levels. Consider:

• Daily Checks: For perishable and high-cost items like dairy, meat and seafood.
• Weekly Checks: For non-perishable and bulk items to catch vendor errors and track trends.
• Hybrid Approach: If weekly counts are too time-consuming, focus on your top 10-20 key ingredients.

2. Prioritize Key Inventory Items

Not all ingredients require the same level of scrutiny. Focus on:

• High-COGS Items: Ingredients that make up a large portion of your food costs.
• High-Risk Items: Perishables that spoil quickly, such as dairy and raw proteins.
• High-Variance Items: Products with unpredictable ordering patterns.
• Tracking these items allows you to quickly identify waste, theft, or ordering inconsistencies.

3. Implement Shelf-to-Sheet Counting

This process ensures that inventory on the shelf matches recorded stock levels. Digital inventory software can simplify this by providing custom templates that visually map storage locations, making counting faster and more accurate.

4. Limit Staff Handling Inventory

To ensure consistency, assign inventory tracking to shift leads or managers. Limiting access reduces errors, simplifies training and minimizes potential theft.

5. Use Mobile & Automated Inventory Solutions

Modern inventory management software allows multiple employees to perform counts simultaneously via mobile apps. Digital solutions provide real-time updates and streamline the process, reducing the reliance on error-prone spreadsheets.

Optimizing Inventory with Technology

Set Accurate PAR Levels

Periodic Automatic Replacement (PAR) ensures that stock levels are maintained at optimal levels. Using historical sales data, restaurants can automate ordering processes, preventing overstocking and shortages.

Use FIFO (First-In, First-Out) for Freshness

Using older stock first prevents spoilage and minimizes food waste. FIFO is particularly useful for perishable items, ensuring that products don’t expire before they are used.

Leverage Purchase Order EDI Integration

Gone are the days of paper invoices cluttering the back office. Electronic Data Interchange (EDI) allows for digital invoices, reducing errors and improving financial tracking.

Review Inventory Data Regularly

Inventory software provides insights into trends such as:

• Zero Quantity Items: Identifying missing or stolen items.
• High-Cost Items: Ensuring accurate counts for the most expensive ingredients.
• Price Fluctuations: Tracking cost changes to better negotiate with vendors.

The Bottom Line

Efficient inventory management directly impacts a restaurant’s bottom line. By adopting modern technology and best practices, restaurants can reduce waste, optimize purchasing and improve overall financial health. Solutions like Restaurant365 integrate inventory, accounting and operations into a single platform, helping restaurant operators scale efficiently.

Want to see how technology can transform your inventory management? Download the guide today!

On Thursday, Twin Peaks officially became its own public company after Fat Brands spun off Twin Hospitality Group. The sports bar chain has a lot to look forward to following its debut on Nasdaq — from a plan to open nearly a dozen stores annually to an effort to boost its average unit volumes by over $1 million.

“We’re on our way to a billion [dollars] in sales,” Joe Hummel, Twin Peaks CEO, told Restaurant Dive during the ICR Conference earlier this month. “Our goal over the next three to five years is hitting a billion in sales.” 

Twin Peaks is targeting an average unit volume of $6.5 million, according to a January filing with the Securities and Exchange Commission. Last year, annualized average unit volume reached $5.1 million and systemwide sales exceeded $425 million. These results follow years of steady growth — the chain posted $342.7 million in systemwide sales in 2019 before growing to $583.4 million in 2023. 

When Fat Brands bought Twin Peaks for $300 million in 2021, the brand only had about 80 units open. Fast forward three years, and it now has 115 restaurants and a 100-unit development pipeline that would nearly double its store count. The company also plans to convert half of Smokey Bones’ 60 locations into Twin Peaks restaurants in the near future.

Hummel attributed the chain’s high AUVs to its scratch kitchen, menu diversity and alcohol mix. Twin Peaks’ kitchen has several different types of equipment, such as a chargrill, flat top cooker, smokers, convection ovens and stove tops, allowing it to offer a wide range of menu items, Hummel said. 

Twin Peaks also provides unique alcohol offerings, like 29-degree beer, which is so cold that it contains ice crystals when served. 

“We sell so much beer — more than your average sports bar — because of that,” Hummel said.

Hummel also tied Twin Peaks’ streamlined service model to positive guest experiences. The chain’s all-woman waitstaff are focused on the guests and not on supporting work, like cutting fruit or rolling silverware, as is typical at other establishments. Twin Peaks has other staff to complete those tasks, he said. 

Twin Peaks is outperforming the casual industry in customer intent-to-return, according to Black Box Intelligence data shared in the chain’s SEC filing. BBI noted that 95% of Twin Peaks patrons planned to come again, compared to 74% of diners for the overall casual segment in 2023. Twin Peaks’ guest demographics include millennials and Gen X, with a mix of 75% men and 25% women, Hummel said. 

The chain relies on Black Box Intelligence to understand traffic and other data and to monitor the performance of each store. Every quarter, management reviews scorecards to see how the system is performing compared to the industry and targeted competitors. Twin Peaks will also review turnover numbers and competitive pay for each market to ensure that staff are receiving a competitive wage to help improve retention, Hummel said. 

“We believe that Twin Peaks’ strong traffic trends and favorable customer perception are critical drivers of its sales growth and demonstrate the strength and potential of the Twin Peaks concept,” the company said in the SEC filing. “Furthermore, we believe that the Twin Peaks concept is uniquely resistant to economic headwinds given the breadth of its menu items and range of price points, combined with its focus on providing an immersive sports viewing experience.”

Creating an epic sports watching experience

Each Twin Speaks restaurant offers prime sports watching with 75 to 80 TVs, about a dozen satellite dishes and every major sports package. To prepare for big sporting events, Twin Peaks management studies the calendar to gauge what games are coming up and if they overlap, and to determine shift changes to avoid staffing challenges, Hummel said. Game days could also include specials on alcohol or certain game day favorites, he said. 

Twin Peaks restaurants over-prepare for the expected volume in the kitchen and at the bar to ensure they don’t have to stop the line and redo prep work, he said.

Operators lean on kitchen display systems to monitor ticket times. Staff also make sure the door is properly monitored and to keep up a steady flow of guests into the dining room to avoid a rush that buries the back-of-house staff, Hummel said. 

Waiting guests are offered beer tubs in a sectioned-off, quick service area so they don’t have to try and work their way to the bar, as well. 

“[Sporting events] are like the open invitation to impress everybody to come back on a regular day,” Hummel said. 

Building up its real estate pipeline

Twin Peaks has ambitious goals to bring its sports bar to 650 locations, and currently has a pipeline of 100 commitments. The brand has built up its franchise base to about 20 partners, and a majority of its future units are commitments from existing franchisees, Hummel said. For fiscal years 2024 to 2028, the company plans to open 10 to 12 units each year, per its SEC filing. 

The chain prefers to work with experienced operators, and many of its existing franchisees have other restaurants. However, Twin Peaks prefers that franchisees have a leader on staff, like a director of operations, solely devoted to their Twin Peaks business, Hummel said. 

Even with its current franchise pipeline, Twin Peaks is planning to open three to four company-owned stores each year. It plans to convert 30 out of 60 Smokey Bones restaurants, 10 of which will remain company-owned. These units are mainly in Florida, including a Lakeland, Florida location that opened last year. Twin Peaks currently has a franchise/company-owned mix of 70% to 30%, but is working toward a 75% to 25% split, Hummel said. 

The company is also very involved in the real estate and development process for its franchisees. 

Twin Peaks uses eSite as its real estate platform, which it feeds customer demographic information to gauge where future restaurants could do well. The chain prefers residential communities with good daytime populations, heavy traffic and sites with good parking and entrances. Desirable locations see 35,000 to 50,000 cars passing by daily, Hummel said. 

Twin Peaks also prefers to be alongside retail neighbors like Costco, Academy Sports and hotels. Hotels are particularly beneficial because they come with an additional built-in population outside of normal demographics, Hummel said. 

The brand has undergone a mix of second-generation conversions and ground-up development. Out of its 115 stores, 90 so far have been conversions, including former Macaroni Grills, TGI Fridays, Golden Corrals and Ryan Steakhouses. Second generation spaces take about nine months to build compared to 18 months for ground-up restaurants, Hummel said. 

To support franchisees during this development process, Twin Peaks engages in monthly calls with its operator partners to discuss real estate planning. The company runs all franchisee models through eSite, visits and approves the sites and helps with floor plans and vetting general contractors and architects in addition to its Twin Peaks’ existing architect partners. 

The design teams are onsite every six weeks to review the process, and franchisees send weekly status reports with pictures and dates so that management is able to analyze if a franchisee is on schedule. 

“Our number one criteria is to find the best site,” Hummel said. “If there’s something on that site, how do we either tear it down and do a prototype or take what we have and retrofit it? It’s kind of cool because every lodge is a little different, but they have all the same elements.”

Correction: A previous version of this article incorrectly listed Joe Hummel’s job title. He is the CEO of Twin Peaks. 

Maple Park Capital Partners has bought a majority stake in Rita’s Italian Ice & Frozen Custard, the companies said in a press release. The financial terms of the transaction were not disclosed. 

The deal will support Rita’s growth and expansion with its franchise partnerships, Linda Chadwick, Rita’s CEO, said in the release. 

Rita’s has over 575 locations across 30 states and is expanding into new regions in the U.S. including Texas and Michigan. The chain said in October that its unit growth was up 5.9% with continued momentum into the fourth quarter of 2024.

Rita’s rapid expansion likely made it an ideal buy for Maple Park, which invests in “service-oriented businesses within the experiential economy,” according to the press release. 

The chain is growing in the Midwest, with new units open in Ohio and Indiana last year. It offers a flexible store design with options to add a drive-thru. Stores are typically in smaller locations and feature walk-up windows. 

Rita's generated about $182 million in system sales in 2023, according to Restaurant Business’s sister company Technomic. Average unit volumes were about $340,000 for that year.  

The company offers a rotating selection of more than 80 flavors in addition to a menu of frozen custard, gelati, concretes, frozen coffee, Rita’s Blenders and milkshakes. Last year, it offered seasonal flavors such as Pumpkin Frozen Coffee, Kool-Aid Tropical Punch Ice and Sour Patch Kids Watermelon Ice. 

Private equity firms have ramped up investment in the restaurant sector as economic conditions have improved. For example, Blackstone bought a majority stake in Jersey Mike’s late last year months after it bought Tropical Smoothie Cafe in April for an estimated $2 billion.

Sun Holdings has acquired substantially all of Uncle Julio’s assets through affiliate Next Restaurants, the company said in a press release. The purchase was made through a foreclosure auction on Dec. 19. Terms of the bid were not disclosed

The acquisition comes over six months after Sun Holdings reportedly bought Uncle Julio’s debt at a discount on the secondary market. 

Sun Holdings said the buyout is part of a strategy to grow its market share in the Mexican dining segment. Last year, the multi-brand franchisee also acquired Freebirds World Burritos. In 2019, it acquired Taco Bueno.

Sun Holdings now has a diverse portfolio of Mexican brands spanning QSR, fast casual and casual dining concepts. Uncle Julio’s was previously owned by L Catterton, which acquired the chain in 2017. The chain grew relatively slowly since that deal. In 2017, Uncle Julio’s had 29 restaurants and ended 2023 with roughly 37, according to Restaurant Business. Uncle Julio’s, which also operates a virtual brand called Savage Burrito, has high average unit volumes of over $6 million, Restaurant Business reported.

“This acquisition reflects our ongoing commitment to identifying opportunities where we can combine operational excellence with strategic growth to deliver value to customers and stakeholders alike,” a Sun Holdings spokesperson said in the press release. 

The company said its “extensive resources, operational excellence, and industry-leading capabilities will position Uncle Julio’s for long-term success.” The casual chain will benefit from a shared supply chain, in addition to Sun Holdings’ marketing power and ability to scale operations.

Sun Holdings, which is also a Burger King franchisee, has a portfolio of over 1,800 locations across the U.S. that include multiple foodservice and retail brands. It has built up much of its portfolio in the last five years through acquisitions, including the purchase of Applebee’s and IHOP locations in 2021 and 2020, respectively. In 2022, the company entered into a major refranchising agreement with Papa Johns 

The restaurant M&A environment has started to heat up in recent months, with Jersey Mike’s selling a majority stake to Blackstone in November. Craveworthy bulked up its multi-brand platform through the buyout of emerging pizza chain Fresh Brothers that same month. Earlier this year, private equity firm Maple Park Capital Partners bought a majority stake in Rita’s Italian Ice. 

Fitch Ratings expects a low single-digit increase in food-away-from-home spending in 2025, said Jose Luis Rivas, senior director, North America Corporates at Fitch, during the ICR Conference last week. 

The agency expects traffic to remain relatively flat or decline slightly “due to the cumulative effect of inflation as well as the expectations for a cooling labor market,” Rivas said. Average check growth will remain in line with inflation, which Rivas said was similar to projections shared during brand presentations at the event. 

Companies improved their menu mixes and invested in technology like artificial intelligence to support their operations in 2025, Rivas said.

Last year, restaurants endured a myriad of challenges, including a 20% increase in bankruptcy filings due to legacy debt and/or costly leases, Rivas said. Unit economics were impacted by food inflation and labor costs, higher menu prices and lower traffic in addition to lower consumer spending, Rivas said. Restaurants responded by slowing their growth plans and/or closing locations, streamlining menus and operations and offering various discounts. 

Many of these challenges are expected to persist in 2025. The unemployment rate will likely increase to the mid-4% range, slightly above the 4.1% noted at the end of last year, Rivas said. Consumers will still pull back on discretionary spending and become more cautious and selective when they decide to dine out, which aligns with what other experts have predicted about consumer behavior. Real wages will remain stable, or slightly positive, but will not be enough to boost disposable income, he added. 

Fitch expects the QSR segment to perform better than full-service restaurants given these conditions. 

“Companies that excel on customer service, that are able to deliver a strong value proposition, are more likely to drive traffic to their stores,” Rivas said.

Revenue Management Services already noted a slight uptick in traffic across the QSR segment last quarter, with spikes in October and November with the continuation in value offerings. 

Many chains already updated their menus with low-cost options in January, including the launch of McDonald’s McValue platform, additions to Del Taco’s RealDeal$ menu and a $5 and $9 price points for Taco Bell’s Luxe Cravings Boxes. Other chains like Portillo’s, Shake Shack, Church’s Texas Chicken and Darden are leaning into technology investments to improve operations.