Fitch Ratings expects a value-oriented environment and flattish to low-single-digit growth in the restaurant space this year. During a 2024 Retail and Restaurant Outlook panel at the annual ICR Conference in Orlando, Fla., Monday morning, senior director Bill Densmore also said restaurants will be more focused on operational enhancements and predicts that much of the growth this year will come from "stronger, healthier brands."
And, bigger brands will have an advantage in this volatile environment, which means they will likely gain even more market share.
“For analytics … This is where scale is a big advantage. Some larger players will gain market share because they have more sophisticated menu and analytics to better understand consumer behavior and use that data to make decisions, enhance decisions, influence customer behavior, drive loyalty,” Densmore said. “That’s been a key to their success and it’s a playbook they’ll continue to leverage.”
Fitch also predicts traffic to be similar this year as it was in 2023 – down about 2%. Notably, Densmore and his peer David Silverman expect consumers to be much more value conscious than they’ve been in the past few years.
“It’s been a surprise how healthy the consumer has remained over the last several years given all the volatility. We’re thinking the tailwinds the consumer has enjoyed are dissipating and there are rising headwinds – rising debt levels, reduced savings, a compound impact of inflation … While we think the consumer fundamentally is healthy, we think they’re softening,” Silverman said. “We will see a greater quest for value.”
Silverman covers the retail sector, but Densmore said those predictions also translate into restaurants.
“Restaurants that are able to outperform others are built on strong perceived value, affordability, execution,” he said. “While the consumer’s been resilient, they are feeling inflation and menu price fatigue. We’ll see increased value-oriented offerings.”
In fact, we already are. We're barely into the second week of the New Year and we’ve seen quite a few such offerings. Consider Taco Bell, which announced Monday a new Cravings Value Menu featuring 10 full-sized menu items for $3 or less. In a statement, Taco Bell CMO Taylor Montgomery said consumers are looking for more ways to save.
"Value has always been at the cornerstone of what we offer at Taco Bell, but we knew heading into this new year we wanted to take it to the next level … We’re committed to expanding on our value offerings through new menu items and digital offerings that deliver quality and abundance," Montgomery said. "We're rolling out entirely new ways to save across our menu and doubling down with exclusive digital offerings so expect more from us this year. We're walking the talk when it comes to value and we're just getting started."
Meanwhile, McDonald’s is running a buy-one-get-one for $1 campaign for its burgers and McCrispy. Applebee’s has brought back its all-you-can-eat boneless wings, riblets and double crunch shrimp offer for $14.99, and sister brand IHOP has brought back its Rooty Tooty Fresh ‘N Fruity Combo for $7.
This is the tip of the iceberg and, notably, it’s not unusual for restaurant brands to roll out more aggressive promotions in January – a historically slow time for the industry as consumers recover from a robust spending period over the holidays. That said, January’s habits could extend even further this year as consumers begin tightening their wallets.
“Brands ought to be prepared to talk about value and promotions in a way they haven’t in the last couple of years,” Silverman said. “We are confident 2024 will be an environment of uncertainty. Companies that perform the best are those that plan with uncertainty in mind.”
Contact Alicia Kelso at [email protected]