Restaurant executives eagerly anticipate 2025, hoping to put an end to slow traffic and the wave of bankruptcies.

• Restaurant executives are eager to leave 2024 behind and begin the new year.
• This year, the number of restaurant bankruptcy filings increased, there was a decrease in traffic, and same-store sales did not meet expectations.
• Executives are optimistic that next year will be different due to the emergence of green shoots, such as improving sales.

Executives eagerly anticipate the beginning of 2025, which promises to be a relief after a challenging year for the restaurant industry.

Kate Jaspon, CFO of Dunkin' parent Inspire Brands, stated at the Restaurant Finance and Development Conference in Las Vegas this week that she is ready for '24 to be over and believes '25 will be a fantastic year.

In 2024, restaurant bankruptcy filings have increased by more than 50% compared to the previous year. Additionally, traffic to restaurants that have been open for at least a year decreased year over year in every month through September, according to data from Black Box Intelligence. Furthermore, many of the largest restaurant chains in the US, including Chili's Grill & Bar and Applebee's, have reported same-store sales declines for at least one quarter, disappointing investors.

The restaurant industry is showing signs of hope, with the emergence of green shoots.

Revenue Management Solutions reports that traffic to fast-food restaurants increased by 2.8% in October compared to the previous year. This rise in traffic is supported by anecdotal evidence from companies such as Burger King owner, which announced that its same-store sales grew in October.

The Federal Reserve approved its second consecutive rate cut in November, which means lower interest rates for restaurants. This allows them to finance new locations at a cheaper cost, fueling growth. However, previously, higher interest rates didn't significantly impact development because restaurants were still recovering from pandemic delays and experiencing a post-Covid sales boom.

Despite higher interest rates in recent years, the burger chain's development did not slow down, according to CFO Katie Fogertey. However, she anticipates a "big increase" in consumer confidence as rates decrease.

Fogertey explained to CNBC that when credit becomes cheaper, people tend to feel like they can borrow more, even though it doesn't make logical sense that it would necessarily lead to a $5 burger spend. It's all about human psychology.

Despite consumers being more cautious, Shake Shack has reported increasing same-store sales every quarter this year.

The market for initial public offerings may thaw as restaurant valuations improve.

"Piper Sandler managing director Damon Chandik at RFDC stated that they are collaborating with various individuals to prepare for the future. However, the current window of opportunity is narrow. He believes that the high traffic pressure across the industry has set a particularly high bar."

He stated that he anticipates the emergence of some restaurant IPOs in the first half of the next year.

No major restaurant company has gone public since the IPO of a Mediterranean restaurant chain in June of the previous year. Although Cava's stock has increased by more than 500% since its debut, its success has not motivated any other large private restaurant companies to follow suit. Instead, the broader market conditions have deterred other potential candidates.

An IPO for Panera Bread, which confidentially filed to go public again nearly a year ago, has not yet come to fruition. Inspire Brands, owned by private equity firm Roark Capital, is another potential candidate for a blockbuster IPO in the future. Inspire's portfolio includes Dunkin', Buffalo Wild Wings, Jimmy John's, Sonic, Arby's, and Baskin-Robbins.

Still, it's not all optimism within the industry.

CFO Michelle Hook stated on CNBC that she believes there will be headwinds in both the macro and industry sectors next year.

Portillo's, renowned for its Italian beef sandwiches, has reported three consecutive quarters of declining same-store sales, in contrast to other fast-casual chains that have resorted to discounts, such as McDonald's and Chili's.

The value wars are expected to persist until 2025, putting pressure on restaurants' earnings and increasing competition among chains. For instance, McDonald's plans to reveal a more extensive value menu in the first quarter, following its $5 value meal promotion throughout the summer and winter. Some restaurants are still at risk of bankruptcy, particularly those that rely heavily on discounts to attract customers.

Although a recession seems unlikely in the near future, consumers may take longer to recover from years of high expenses than expected.