As consumers return to pre-COVID habits, sit-down chains are competing to become the go-to for special occasions.
“Consumers still need to make tough choices regarding their budget [in 2025],” Citi analyst Jon Tower told Yahoo Finance. Occasions like date nights or birthdays are something diners will budget for, giving casual dining restaurants a leg up over fast food players, per Tower.
But the industry is fragmented, and customers visit less often than they do for fast food. Brinker International’s (EAT) Chili’s, Darden’s (DRI) Olive Garden, and Texas Roadhouse (TXRH) are among the top players trying to gain market share.
“There’s an opportunity to win share from weaker competitors, mostly independents,” Tower added, calling it “a tailwind for chain operators, assuming they get things right.”
Jefferies analyst Andy Barish expects the industry overall to see “negative [foot] traffic” growth and “slightly positive” same-store sales growth in 2025 — a trend in stark contrast to the robust growth the sector saw two decades ago.
“It’s been a category that has been really quite competitive probably since the early 2000s,” he said. “It made it difficult for most of these brands to … consistently drive comp [same-store sales] and traffic growth.”
Additionally, inflation-battered diners looking for cheaper choices or eating at home, as well as the rise of fast-casual players like Chipotle (CMG), Cava (CAVA), and Sweetgreen (SG), pose further challenges for the industry.
However, brands that use scale, marketing, and technology to boost their “competitive advantage” have “big market share opportunities,” Barish told Yahoo Finance over the phone.
Chili’s had been coming out on top in 2024. Barish called the chain “the most extreme example of being able to hit a value promotion at exactly the right time and then be able to support it with an incredible amount of social media spending and influencers.”
Tower called Chili’s an “overnight success” that was years in the making after enduring mismanagement prior to CEO Kevin Hochman’s arrival to Brinker in 2022. He reinvested in operations and restaurants and introduced the $10.99 meal deal, which includes an appetizer, entree, and beverage, with an opportunity to upgrade to a premium offering.
“We’re leading the industry on value,” Hochman told Yahoo Finance’s Market Domination following Chili’s 14% year-over-year same-store sales jump last quarter. Brinker’s stock has boomed 280% in the last 12 months.
Tower has a Neutral rating on the stock, given “expectations of continued top and bottom line outperformance are already priced in,” he wrote in a note to clients.
The analyst has a Buy rating on Texas Roadhouse (TXRH), as it has “consistently been a winner from a traffic and sales standpoint” and prioritizes the guest experience.
“We want to be the everyday value player out there,” a Texas Roadhouse executive told the audience at the ICR conference in Orlando earlier this month. The chain has promotions like an Early Bird special before 6 p.m., which offers entrees like steak, chicken, and pork for roughly $10.99.
Texas Roadhouse’s company-owned same-store sales growth has increased 8.50%, 9.30%, and 8.40% in the past three quarters, respectively. Its stock is up around 45% in the past year.
Barish has a Hold rating on both Brinker International and Texas Roadhouse. “[They] are kind of near or at peak valuations,” he said.
He has a Buy rating on Cheesecake Factory (CAKE) and BJ’s Restaurants (BJRI), which have lower expectations.
LAS VEGAS, NV – AUGUST 13: A Denny’s Restaurant near The Plaza Hotel & Casino, located at the Fremont Experience in downtown, is viewed on August 13, 2023 in Las Vegas, Nevada. (Photo by George Rose/Getty Images) ·George Rose via Getty Images
Breakfast players like Denny’s (DENN) and Cracker Barrel (CBRL) are still getting the short end of the stick. Denny’s stock has plummeted 40% in the past year, while Cracker Barrel’s fell nearly 20%.
“[The] breakfast category is more challenged,” Tower said, as budget-conscious consumers replace the outing with home-cooked meals.
Denny’s CEO Kelli Valade told Yahoo Finance there is “cautious optimism” and a “bit of a stabilizing consumer” at the ICR conference.
She said its five-year plan, including a remodel program and closure of 30 locations, is working. Same-store sales grew 1.1% in Q4, per preliminary results the company shared.
Tower said these companies “have to be even more aggressive with their deals … to get people in the door.” Valade said the chain is offering a “$2 $4 $6 $8 Value Menu” in addition to meal deals for $10.
Service, ambiance, convenience, and having a range of price points is also critical, said Valade.
“About 20% of the guests are eating some kind of value offering … $6 and the $10 categories are doing the strongest,” she said, while the higher price points provide a boost to profitability.
Cracker Barrel has taken a similar approach. Per its latest results, same-store sales increased by 2.9%, with expectations for fiscal 2025 same-store sales to also grow 2.9% overall.
“We have some very, very sharp entry price points” like a $7.99 breakfast menu, CEO Julie Felss Masino told Yahoo Finance at ICR.
Tower expects the challenges to continue in the near term, though. Denny’s and Cracker Barrel have a customer base that “skew lower-income and older,” and those customers have pulled back on eating out starting in late 2023 due to inflation.
One potential bright spot is Keke’s Breakfast Café, a chain that Denny’s acquired in 2022. Tower said the brand is a “little bit more insulated,” given its diners skew higher-income.
—
Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
Click here for all of the latest retail stock news and events to better inform your investing strategy
Leave a Reply