The U.S. restaurant industry has demonstrated resilience in 2024 despite macroeconomic and geopolitical instability—2024 U.S. restaurant sales are projected to reach a record $1.1 trillion. While the two to three interest rate cuts projected by many economists in early 2024 did not materialize, consumers remained even more discerning across all income levels. Against the backdrop of declining grocery costs and consumers spending more time at home, much of the restaurant industry experienced trade down/away.
Challenges for restaurant operators persist, including rising labor and food costs, inconsistent customer traffic and increased competition. Forty percent of U.S. operators have invested in technology to maximize kitchen productivity and reduce labor costs, with nearly 75% noting that their restaurants are more efficient and productive post-pandemic. These investments are necessary due to the impacts of new legislation such as California’s Food Accountability and Standards Recovery Act (FAST Act), which took effect on April 1, 2024, mandating a $20 per hour minimum wage for fast-food workers, among other provisions. Less than a month after the legislation took effect, larger brands such as Wendy’s, Chipotle and Starbucks raised their menu prices by 8.0%, 7.5%, and 7.0%, respectively, to combat increased labor costs. On top of this, elimination of the tip credit in states like Minnesota and Illinois has impacted full-service operators as tipped employees must receive the state minimum wage, further increasing the cost of labor.
After a dearth of M&A activity in 2H 2022 and most of 2023, deal volume began to increase toward the end of 2023 and into the first half of 2024; however, the market remains highly bifurcated. There are many well-performing, exciting brands that command premium valuations while others have simply languished or succumbed to unsustainable capital structures, resulting in a wave of bankruptcy filings, which will likely persist through 2025. Strategic buyers, flush with ample cash and credit, continue to have an eye toward growth while financial sponsors actively seek to deploy $2.5 trillion of capital overhang. Since CAVA’s blockbuster public offering in 2023, IPO activity for U.S. restaurant brands was muted in 2024, and may continue into 2025 until sector dynamics moderate and there is increased overall optimism on the economy—however, M&A continues to forge ahead with over 100 transactions announced or closed through September 30, 2024.
As of the date of this report, the median Last Twelve Months (LTM) Enterprise Value (EV)/EBITDA multiple for public equities across the U.S. restaurant sector was 17.5x. The S&P Restaurant Index has increased 20.4% in the last 12 months, performing below the S&P 500 by 12.7%.
This report aims to synthesize the spectrum of macro and sector-specific data into meaningful trends and insights, focusing on key themes, issues and go-forward opportunities. We hope you continue to find this report (and future editions) to be a useful source of information.
