McDonald’s, Starbucks aim to improve

After a tough year for the restaurant industry, executives can’t wait for 2025 to start.

“I don’t know about you guys, but I’m ready for ’24 to be behind us, and I think ’25 is going to be a great year,” Kate Jaspon, CFO of Dunkin’ parent Inspire Brands, said at the Restaurant Finance and Development Conference in Las Vegas this week.

Restaurant bankruptcy filings have soared more than 50% so far in 2024, compared with the year-ago period. Traffic to restaurants open at least a year declined year over year in every month of 2024 through September, according to data from industry tracker Black Box Intelligence. And many of the nation’s largest restaurant chains, from McDonald’s to Starbucks, have disappointed investors with same-store sales declines for at least one quarter.

But green shoots have appeared, fueling tepid optimism for the future of the restaurant industry.

Sales are improving from this summer’s lows. Traffic to fast-food restaurants rose 2.8% in October compared with a year ago, according to data from Revenue Management Solutions. The firm’s data confirms anecdotal evidence from companies like Burger King owner Restaurant Brands International, which said earlier this month that its same-store sales grew in October.

Plus, interest rates are finally falling. Earlier in November, the Federal Reserve approved its second consecutive rate cut. For restaurants, lower interest rates mean that it’s cheaper to finance new locations, fueling growth. Previously, higher interest rates didn’t hurt development much because restaurants were still catching up from pandemic delays and riding the high of the post-Covid sales boom.

At burger chain Shake Shack, higher interest rates in the last few years did not slow down development, according to CFO Katie Fogertey. But she’s expecting a “big boost” in consumer confidence as rates fall.

“If credit becomes cheaper, people feel like they can borrow more, even though it doesn’t make sense that it would necessarily drive a $5 burger spend. It’s just the psychology behind it,” Fogertey told CNBC.

Shake Shack has reported increasing same-store sales every quarter so far this year, even as consumers have been more cautious.

Restaurant valuations are also improving, prompting hope that the market for initial public offerings will finally defrost.

“We’re working with a number of different folks right now on getting ready,” said Piper Sandler managing director Damon Chandik at RFDC. “The window currently is not wide open … I think that just with the traffic pressure that we’ve been seeing across the industry, the bar is particularly high.”

He added that he expects to see some restaurant IPOs next year, hopefully in the first half.