2024 Restaurant Industry Overview: Trends, Growth, and Top Franchises

In the first part of August, 1851 Franchise is rolling out a series of articles spotlighting the leading restaurant franchises across different categories. This series is designed to offer in-depth information, assisting prospective franchisees in making well-informed decisions about where to invest and identifying the industry sectors with significant growth potential.

As we enter the latter half of 2024, the restaurant industry stands at a pivotal juncture, characterized by remarkable growth and significant challenges. This year's sales are forecasted to exceed $1.1 trillion, marking a new milestone for an industry that will employ over 15.7 million people by the end of the year.

The National Restaurant Association's 2024 State of the Restaurant Industry Report provides a comprehensive overview, highlighting key trends and statistics that paint a vibrant — albeit complex — picture of the industry. Here are some of the primary takeaways.

Positive Sales Outlook Amid Challenges

Nearly 8 in 10 restaurant operators predict their sales will increase or hold steady compared to 2023 levels. This optimism is tempered by the reality of ongoing challenges. Elevated food and labor costs, supply chain disruptions and the need for more employees continue to strain profitability. For example, 77% of operators said their restaurant experienced supply delays or shortages of key food or beverage items in 2023,. Despite these hurdles, the industry remains resilient, adapting through strategic changes and technological investments.

Real Estate Challenges and Smaller Footprints

The current real estate market for restaurants is marked by high demand and low availability, leading to increased competition and higher rental costs. With approximately 35 million square feet of new retail space developed across the U.S., the competition for prime locations has intensified. Securing prime real estate for new locations has become increasingly difficult due to limited availability of ideal sites, high rental costs and fierce competition among brands. The commercial vacancy rate in cities like Houston is only 4%, driving up occupancy costs beyond pre-pandemic levels. Higher interest rates also contribute to inflation, raising the costs of construction materials and labor, further complicating the financial landscape for securing new properties.

In response, many franchisors are rethinking their operational strategies, focusing on minimizing the physical footprint required for each location. According to JLL, 68% of restaurant deals in the first quarter of 2024 were for spaces under 2,500 square feet, highlighting a trend towards smaller footprints due to technological efficiencies.

Leveraging Technology to Maximize Space Efficiency

One key approach to overcoming real estate challenges is integrating advanced technology solutions into operations to optimize space usage and enhance efficiency both in the front-of-house (FOH) and back-of-house (BOH). Here’s a deeper dive into how restaurant operators can leverage technology:

Kiosks and Self-Service Stations: Implementing kiosks reduces the need for large dining areas by speeding up service and minimizing customer wait times. Taco Bell's “Go Mobile” prototype is an example, with an average store size of 1,325 square feet.
Delivery and Pick-Up Areas: Designated zones for online orders can significantly reduce the space needed for traditional dine-in services. McDonald's CosMc’s spinoff and Burger King's suspended kitchen design exemplify how to optimize space for quick turnarounds.
Drive-Thrus: Incorporating multiple drive-thru lanes with digital menu boards and mobile app ordering allows operators to serve more customers without extensive indoor seating. Brands like Sweetgreen, Chick-fil-A and Shake Shack are leading this trend.
Artificial Intelligence (AI) and Automation: AI-driven systems can optimize kitchen layouts and workflows, reducing the space required for food preparation. Automation in order processing, inventory management and scheduling can streamline operations, making it feasible to operate in smaller locations without compromising service quality. Yum! Brands leverages an AI-powered ordering module that informs managers of how much product to order weekly, for example.

Technological Integration and Consumer Preferences

Consumers, particularly younger generations, are increasingly integrating technology into their dining experiences. In 2023, nearly half of the operators made technology investments to enhance customer experiences, and this trend is expected to grow, with 60% planning further tech investments in 2024. The focus areas include making ordering and payment processes easier and faster, which consumers have identified as key areas where technology can improve their dining experiences. McDonald’s, for example, leverages easy ordering and payment ID technology to streamline transactions by recognizing customers at the display screen.

Employment Trends and Labor Market

The restaurant industry is set to add 200,000 jobs in 2024, bringing total employment to 15.7 million. However, staffing remains a critical issue, with 45% of operators reporting insufficient staff to meet customer demand. The use of gig workers and technology to fill staffing gaps is also becoming more common.

Consumer Behavior and Off-Premises Dining

A majority of millennials and Gen Z adults consider takeout an essential part of their lifestyle. This trend is driving restaurants to expand their off-premises offerings, including delivery, carry-out and drive-thru services. Nearly 31% of operators expect off-premises sales to increase in 2024.

The Role of Loyalty Programs

Loyalty programs are proving to be a valuable tool in driving repeat business. More than half of all consumers participate in a loyalty or reward program, with millennials leading the way. These programs not only incentivize repeat visits but also encourage consumers to choose restaurants where they can earn rewards, even if less convenient.

Introducing Our Series on the Top Restaurant Franchises of 2024

To navigate this dynamic landscape, potential franchisees need reliable insights and analysis. Throughout the first half of August, 1851 Franchise will publish a series of articles highlighting the top restaurant franchises in various categories. This series aims to provide comprehensive information to help prospective franchisees make informed decisions about which franchises to invest in and understand the areas of the industry poised for growth.

Our upcoming articles will cover the following topics:

Each article will delve into the specific strengths, opportunities, and market positions of the leading franchises within each category, offering valuable insights for anyone considering a venture into the restaurant franchise space.

Stay tuned to 1851 Franchise as we explore the vibrant and ever-evolving restaurant industry, providing the knowledge and resources needed to succeed in this dynamic market.

The Restaurant Industry in 2024: A State of the Industry Overview