The Top 4 Challenges Facing Restaurants in 2024

From rising costs to changing customer preferences to compensation changes, the challenges facing the restaurant industry are numerous. The recent Coresight Research report, “Market Outlook: US Food Away From Home,” indicates that while inflation is dropping for both “food at home” and “food away from home” categories, the restaurant industry is expected to face many additional challenges in 2024 and beyond.

Challenge 1: Menu Price Inflation

According to Coresight Research analyst Sujeet Naik, one of the biggest challenges facing the industry includes menu price inflation.

Within the broader U.S. food sector, food-away-from-home (FAFH) costs have been slower to decelerate than food-at-home (FAH) costs.

“FAH inflation outpaced FAFH inflation from October 2021 to February 2023, according to the Bureau of Labor Statistics (BLS), but this reversed in March 2023,” Naik says. “Although inflation for both FAH and FAFH have moderated, FAFH inflation remains notably higher compared to grocery stores. With this unfavorable pricing gap, restaurants need to be careful of increasing menu prices, as this increases the risk of outsized traffic declines with more consumers choosing FAH.”

According to the Coresight Research survey conducted on February 26, 2024, an overwhelming majority (92%) of respondents who dined out in the two weeks prior to the survey observed menu price increases. This indicates a widespread perception among consumers that dining out has become more expensive.

From the same consumer survey, of respondents who noticed menu price increases, a majority (57.7%) indicated they have changed or expect to change their dining-out habits by cooking more meals at home.

menu pricing
Inflation continues in the food away from home sector. (Photo: youngvet, iStock / Getty Images Plus)

“This poses a significant challenge for restaurants, as home-cooked meals directly substitute demand for dining establishments, translating to reduced revenues and declines in customer traffic as demand shifts to grocery stores for ingredients,” Naik says.

The gap between FAFH and FAH remains significant, and Coresight Research’s survey found that the majority of diners have already shifted or plan to shift to cooking more meals at home due to menu price inflation. This means restaurants should approach price increases judiciously in 2024.

“If consumers’ budgets are further stretched, there may be a significant decline in restaurant traffic. Amid more cautious spending, we expect many diners to trade down to less expensive restaurants or order value-focused meals,” Naik says.

Low-income consumers may reduce the frequency of their visits or orders, so restaurants will need to be strategic with menu pricing – striking a balance of maintaining profitability without alienating customers and losing business to lower-priced competitors or grocery retailers.

“With limited room for price increases further, increases in foot traffic (and thus unit sales) will be more key to support sales growth in 2024,” Naik says. “We expect restaurants to prioritize driving foot traffic this year through operational improvements, value offerings, menu innovation, loyalty programs, and marketing initiatives.”

Challenge 2: Declining Customer Traffic

Another challenge facing the industry is declining customer traffic. As Naik points out, most operators in the top 10 restaurants by revenue experienced significant year-over-year declines in customer traffic in the latter half of 2023, with a further pronounced drop in January 2024, according to

“This downturn can be likely due to consumers curtailing their restaurant expenditures by reducing visit frequency or opting for more cost-effective alternatives, such as preparing more meals at home,” Naik says.

In their recent earnings calls, Naik says that many restaurant companies stated that they were taking a more conservative approach to menu price increases in 2024, which Coresight Research believes will lead to a decline in average check growth.

“As a result, a slowdown in price increases could lead to a reduced impact on sales growth, putting greater pressure on traffic to sustain sales momentum,” Naik said. “It is, therefore, imperative for restaurants to prioritize strategies aimed at arresting the traffic decline and stimulating growth in visit frequency.”

Challenge 3: Wage Inflation (due to AB 1228)

In September 2023, AB 1228 was signed into law in California, setting new standards for fast-food chains in the state, with a focus on minimum wage increases and employment regulations specific to the fast-food industry. From April 1, 2024, the legislation will apply to quick-service and fast-casual restaurant chains with more than 60 locations across the U.S.

“Many restaurant chains recently commented in their earnings calls that they would increase their prices in California to mitigate headwinds from the implementation of AB 1228,” Naik says. “Fast-food restaurant brands with greater exposure to California, such as Jack in the Box, will face significant wage inflation headwinds due to AB 1228.”

There are concerns that this type of legislation could expand to other states, as labor organizations supporting the bill have indicated plans to work toward similar legislation across the U.S..

“We expect restaurants to address the impact of AB 1228 through price increases but also actively explore other measures to counterbalance wage inflation, such as automating certain tasks to increase productivity and potentially eliminate some jobs altogether,” Naik says.

“We also expect that in California, AB 1228 may benefit full-service restaurants, since the price increases that we expect QSR chains to implement in response to the increased minimum wage could narrow, to some degree, the existing price gap between them and full-service establishments,” Naik says. “This reduced price differential, coupled with the inherently differentiated value proposition of full-service restaurants (emphasizing experience, ambiance and table service), could elevate the perceived value of dining at full-service restaurants for consumers.”

Challenge 4: Consumer Use of GLP-1 Drugs

The increasing adoption of Ozempic and other drugs in the GLP-1 class can have significant knock-on impacts across the wider food industry.

As Naik explains, the decreased appetite associated with GLP-1 medications may lead to smaller portion sizes. These drugs lead to a 20 to 30% reduction in calorie consumption among users (on average), according to a survey conducted by Morgan Stanley in September 2023. This could affect restaurant revenues, as customers may order less food, resulting in lower average check sizes.

Drugs like Ozempic could affect restaurant revenues. (Photo: aprott, iStock / Getty Images Plus)

“Consumers taking GLP-1 drugs are likely to be more health-conscious and may seek restaurants offering nutritious, low-calorie and low-fat options,” Naik says. “This could drive increased demand for menu items that cater to these dietary preferences, such as salads, lean protein sources and dishes with minimal fats or sugar content. Restaurants may need to expand their healthy menu selections and provide more detailed nutritional information to attract and retain customers.”

The growth in the uptake of these drugs is a net negative for the food space more broadly, although the likely scale of adoption is still unclear. Naik sees casual and fine dining as relatively insulated, with lower frequency visits and occasions that are often more celebratory in nature.

“QSRs may be more at risk given higher visit frequency and food that is generally seen as less healthy, though we still see the risk as limited,” Naik says. “The target audience for these drugs could be different than the average QSR diner. GLP-1 drugs are expensive (typically costing more than $1,000 for a month’s supply), and many private insurers and state Medicaid programs do not cover the treatments for weight; QSR customers often skew lower- to middle-income and may not therefore form part of the drugs’ target audience.”


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