CapitalSpring

As we move toward 2025, the restaurant industry finds itself at a pivotal moment. With the aftershocks of the pandemic still remotely influencing economic and operational conditions, the industry is adapting to new realities.&nbsp;<a href="https://www.linkedin.com/in/jim-balis-5879a34?utm_source=1851franchise.com&utm_medium=article&utm_campaign=capitalsprings-perspective-on-the-state-of-the-restaurant-industry-and-2025-predictions-2728362" target="_blank" rel="nofollow">Jim Balis</a>, partner and head of strategic operations for&nbsp;<a href="https://www.capitalspring.com/?utm_source=1851franchise.com&utm_medium=article&utm_campaign=capitalsprings-perspective-on-the-state-of-the-restaurant-industry-and-2025-predictions-2728362" target="_blank" rel="nofollow">CapitalSpring</a> — a leading provider of private equity and debt capital solutions — offers a candid look at the trends, challenges and shifts likely to shape the restaurant landscape in the coming year. His insights underscore the industry’s resilience, the need for strategic realignment and the growing importance of innovation in both operations and team/customer engagement.<h3>A New Era of Closures and Portfolio Realignment</h3>Founders and C-suite are coming to terms with economic conditions, ever changing dynamics such as the move to off-premise, geographic traffic shifts, and&nbsp;<a href="https://1851franchise.com/capitalspring/the-top-strategies-for-restaurateurs-to-combat-ongoing-impacts-of-inflation-2725868">inflation and labor</a> headwinds.&nbsp; Restaurant companies need to be thinking short and long term about how to adapt to and prepare for these changes.&nbsp;&nbsp;For example, if you have underperforming locations that are taking time and dollars to turn around, think about a deadline for closure - some of the quickest hits to ebitda might be closing underperforming restaurants.&nbsp; Look around and you will see many companies are making the decision to accept their losses and close underperforming locations.&nbsp; In fact, as closures become more ubiquitous, it provides a bit of air mitigating potential negative PR that can come from closures.&nbsp;&nbsp;"We are entering a new era, with more restaurants closing or filing for bankruptcy now than we’ve seen outside of the pandemic," said Balis. “I often meet with leaders and advise them to take a hard look at the benefit of closing units that drag down their overall business. You need to be playing the long game here. What does your business look like from an AUV and four-wall margin standpoint without these units? And what happens when you and your team have more time to focus on optimizing successful units? There is not just a limit to financial capital but to human capital as well. As you peel back the layers of the onion, you will probably see that the decision to close a restaurant (or restaurants) becomes clear.”&nbsp;&nbsp;Balis points to recent closures, such as&nbsp;<a href="https://www.costar.com/article/1433547256/wendys-to-shutter-140-locations-as-number-of-us-restaurant-closings-grows?utm_source=1851franchise.com&utm_medium=article&utm_campaign=capitalsprings-perspective-on-the-state-of-the-restaurant-industry-and-2025-predictions-2728362" target="_blank" rel="nofollow">Wendy’s decision to shutter 140 locations</a> and&nbsp;<a href="https://apnews.com/article/dennys-closures-restaurants-68a38e40337f4650425c45069997b875?utm_source=1851franchise.com&utm_medium=article&utm_campaign=capitalsprings-perspective-on-the-state-of-the-restaurant-industry-and-2025-predictions-2728362" target="_blank" rel="nofollow">Denny's decision to do the same</a>, as indicators of a broader trend. "You are going to see restaurant companies continue to cleanse themselves going into 2025” said Balis. The industry, he suggests, is learning that sometimes the most strategic move is to scale down.<h3>Consolidation and Strategic Investments</h3>With growth opportunities evolving, consolidation is likely to intensify within the industry. Balis predicts that strategic investments will shift towards brands with potential for sustainable growth and operational efficiencies. "You are probably going to see strategic investments at earlier stages," he said, especially as banks show less enthusiasm for earlier stage high-growth restaurant companies due to perceived risks. "That is where investors who want to ‘pour gas on the fire’ can come in."&nbsp; <a href="https://1851franchise.com/capitalspring/capitalspring-celebrates-impressive-2023-looks-to-2024-to-build-continued-momentum-2724691">CapitalSpring’s position as a leading investor</a> allows them to capitalize on these opportunities, providing financial and strategic resources to brands poised for growth.In sum, the restaurant industry is entering 2025 with a more cautious, yet focused outlook. As brands reassess their portfolios, refine growth strategies and invest in technology, the future promises a streamlined, resilient industry ready to meet the challenges ahead.<h3>Dining Trends and Changing Consumer Loyalty</h3>Convenience remains king, with drive-thru restaurants increasingly viewed as essential. According to Balis, "We tend to be convenience-focused; anytime there is a survey of consumers asking what they are looking for when they choose a dining option, typically their top answer is convenience." Convenience is obviously location/distance, as well as ease of ordering through digital channels and pick-up. Thinking about the number of clicks to complete an order or dedicated parking/pick-up areas can facilitate the convenience of off-premise. As you think about locating restaurants without drive-thru’s make sure to consider all of the site characteristics relevant to your brand, such as sufficient parking, ease of ingress/egress, visibility, signage, co-tenancy, etc.&nbsp; Each should be weighted differently depending upon your business model. As brands compete for a broader consumer base, they’re also rethinking loyalty programs to drive deeper engagement. “From a company perspective, you are going to see a disruption in loyalty,” Balis said, hinting at a future where loyalty benefits may extend beyond traditional points. “What am I really getting out of my loyalty program? It is likely that your current loyalty program is discounting a consumer that is already highly engaged with your brand — as they have downloaded your app or are looking for that call-to-action text/email.&nbsp; Driving incrementality from lapsed consumers is enormously challenging so think about how to bring that customer back and then how to keep them.&nbsp; Traditional points or spend based loyalty programs will slowly go away and be replaced by more creative offers - such as with other local businesses or events.” &nbsp; Balis predicts a move toward unique experiences and partnerships — perhaps with athletes or other influencers — that enhance the consumer experience and foster a stronger brand connection.&nbsp;&nbsp;Another trend Balis identifies is the increasing presence of diverse ethnic flavors in restaurant offerings. "You are going to see the infusion of a lot more ethnicity on the menu," he said, even in traditional categories like burgers. Limited-time offers (LTOs) will provide consumers with opportunities to try innovative, culture-inspired dishes. This will cater to an audience that values variety and is willing to explore new flavors.<h3>Technological Transformation, Front and Back of House</h3>Technology’s influence on the restaurant industry is&nbsp;<a href="https://1851franchise.com/capitalspring/ai-and-automation-are-making-a-huge-impact-on-the-restaurant-industry-in-2024-2726097">expanding</a>, touching both customer-facing and operational aspects of the business. "The leveraging of technology, the migration to kiosks — like it or not — is definitely happening," Balis said. We will likely see this go a step further with facial recognition for loyalty and payment - making these experiences even more seamless and customized. While kiosks are&nbsp;<a href="https://foodinstitute.com/focus/food-kiosks/?utm_source=1851franchise.com&utm_medium=article&utm_campaign=capitalsprings-perspective-on-the-state-of-the-restaurant-industry-and-2025-predictions-2728362" target="_blank" rel="nofollow">already common</a> in front-of-house operations, Balis sees significant potential for technology to streamline back-of-house processes. "The KDS [kitchen display systems] are going to bring a migration away from text to pictures — instead of seeing verbiage on a KDS screen, you’ll see an actual build-to picture,” he said. “Ultimately, it doesn’t matter what language you speak, you will be able to understand and make the order. This has proven to improve order accuracy significantly.”&nbsp; PerfectCo is one of the few KDS platforms offering this solution. Beyond operational improvements, technology is also becoming a valuable tool for enhancing employee engagement and addressing high turnover rates, which is essential in today’s labor market.<h3>Consolidation and Strategic Investments</h3>With growth opportunities evolving, consolidation is likely to intensify within the industry. Balis predicts that strategic investments will shift towards brands with potential for sustainable growth and operational efficiencies. "You are probably going to see strategic investments at earlier stages," he said, especially as banks show less enthusiasm for earlier stage high-growth restaurant companies due to perceived risks. "That is where investors who want to ‘pour gas on the fire’ can come in."&nbsp; <a href="https://1851franchise.com/capitalspring/capitalspring-celebrates-impressive-2023-looks-to-2024-to-build-continued-momentum-2724691">CapitalSpring’s position as a leading investor</a> allows them to capitalize on these opportunities, providing financial and strategic resources to brands poised for growth.In sum, the restaurant industry is entering 2025 with a more cautious, yet focused outlook. As brands reassess their portfolios, refine growth strategies and invest in technology, the future promises a streamlined, resilient industry ready to meet the challenges ahead.For more information on CapitalSpring, visit:&nbsp;<a href="https://1851franchise.com/capitalspring">https://1851franchise.com/capitalspring</a>.ABOUT CAPITALSPRING:CapitalSpring is a leading institutional investor with deep expertise in food service, multi-location business models and related industries. For over 17 years, we have supported proven management teams with financial, strategic, and operational resources to accelerate growth and realize their businesses' full potential. CapitalSpring offers one-stop solutions for a broad range of investments, including private equity, mezzanine capital and senior lending and has offices in Nashville, Los Angeles, Atlanta, and New York. For more information about CapitalSpring, please visit&nbsp;<a href="http://www.capitalspring.com/?utm_source=1851franchise.com&utm_medium=article&utm_campaign=capitalsprings-perspective-on-the-state-of-the-restaurant-industry-and-2025-predictions-2728362" target="_blank" rel="nofollow">www.capitalspring.com</a>.

The State of the Restaurant Industry in 2025: Trends, Challenges, and Predictions

1851 Franchise

From mass closures to revamped loyalty programs, here are some of the trends that are likely to shape the restaurant landscape in 2025, according to Jim Balis, partner at CapitalSpring.

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