In 2023, the U.S. restaurant industry navigated inflationary pressures while maintaining stability. Despite consumer caution in spending due to elevated borrowing rates, there was a significant rise in dining sales, notably contributing to overall growth. In December, restaurant sales continued to rise, albeit at a slower pace compared with recent months’ levels. According to preliminary data from the U.S. Census Bureau, eating and drinking places recorded total sales of $94.6 billion on a seasonally-adjusted basis. This was a slight increase from November's revised volume of $94.5 billion and marked the 10th consecutive month of sales growth.

Dining Out: A Trend Reimagined

The National Restaurant Association conducted a survey, revealing significant consumer preferences for dining out or ordering takeout/delivery during the holiday season. The study, based on responses from 1,010 adults nationwide between Nov 10-12, 2023, indicates that 63% of adults plan to dine at restaurants, while 48% intend to order takeout or delivery. Across all age groups, 66% of those opting for restaurant orders choose entire meals.

Consumers trust restaurants for various holiday meal components, with high percentages relying on them for the main course (89%), sides (86%), appetizers (74%) and desserts (63%). Social media, particularly TikTok-driven trends, influences holiday meal choices. This prompts chefs to consider social inspirations. Generational differences show millennials strongly inclined (91%) to purchase the main course from a restaurant, prioritizing takeout or delivery options (82%). Baby boomers place less emphasis on these factors (53%). Millennials also use restaurants to avoid grocery shopping (75%), surpassing Gen Z (65%).

Strategic Initiatives Amidst Challenges

Responding to dynamic customer preferences, industry players are strategically expanding their offerings in beverages and food, introducing personalization and customization features across existing and new formats. This proactive approach aims to meet customer expectations and stimulate business growth in a competitive landscape.

Despite prevalent inflation, the industry witnessed a trend where many restaurant brands are opting to raise menu prices. However, some companies are deviating from this pattern by adopting alternative strategies to bolster restaurant profitability and employing a deliberate approach to price and promotions management. Consequently, companies are highlighting the attractiveness of their products, positioning them as compelling value propositions for consumers compared with other Quick Service Restaurants (QSRs). This strategic orientation is acknowledged as a crucial element in stimulating transaction growth.

Navigating 2024

Looking ahead to 2024, the overall outlook for the restaurant industry is cautiously optimistic. Restaurants that are well-prepared experience fewer disruptions, achieve improvements in on-time and accurate digital orders and make consistent progress in throughput. Successful navigation through concerns related to inflation and rising input prices are anticipated to benefit restaurants that have streamlined supply chains and implemented cost controls, leading to enhanced operational efficiency.

Operators are concentrating on reinforcing an essential aspect of their value proposition: providing customized, delicious cuisine quickly with excellent hospitality. Improvements in operational execution and maintaining accessible menu pricing are likely to contribute to a positive momentum in transaction comps growth. In 2024, stability in online ordering is a possibility compared with that during the pandemic period. Restaurant operators stress the importance of regularly updating their menus to provide value and encourage increased spending.

3 Solid Picks

Given the backdrop, here are four restaurant stocks that are likely to move higher in 2024. With the help of the Zacks Stock Screener, we have zeroed in on stocks that carry a Zacks Rank #2 (Buy). These companies have witnessed a sharp rise in the past three months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Image Source: Zacks Investment Research

Dave & Buster's Entertainment, Inc. (PLAY Quick QuotePLAY - Free Report) is an owner and operator of high-volume venues in North America that combine dining and entertainment for adults and families. The company’s strategic testing of various initiatives in marketing, pricing, food and beverage, remodels and special events set the stage for broader implementation in the near future, with expectations of substantial improvements in revenues, profitability and cash flow. A commitment to efficiency led to a reduction in recurring costs, while the strategic opening of new stores has proven to be a lucrative investment.

During the third quarter of fiscal 2023, progress updates were provided on six key organic growth initiatives. These include advancements in marketing optimization, strategic game pricing, improved food and beverage offerings, successful remodels, enhanced special events and technology enablement. Positive outcomes and encouraging results from tests indicate confidence in achieving long-term goals and boosting shareholders’ value. The company maintains confidence in achieving a $1-billion adjusted EBITDA target for fiscal 2024.

Dave & Buster's currently carries a Zacks Rank #2 and has gained 38.6% in the past three months compared with the industry’s 12.8% growth. For 2024, the Zacks Consensus Estimate for PLAY’s financial-year sales and earnings per share (EPS) suggests an increase of 12.9% and 14.3%, respectively, from the year-ago period’s levels.

Chipotle Mexican Grill, Inc. (CMG Quick QuoteCMG - Free Report) , together with its subsidiaries, operates quick-casual and fresh Mexican food restaurant chains. Chipotle is committed to driving growth through the addition of Chipotlanes. The drive-thru format enhances customer accessibility, convenience and contributes to improved sales, margins and returns for new locations. With plans to open 285-315 restaurants in 2024, Chipotle aims for at least 80% of new establishments to feature Chipotlanes. Chipotle focuses on menu innovation, marketing efforts and digital ordering improvements, including testing an automated digital make line and exploring technology collaborations for streamlined operations.

Chipotle currently has a Zacks Rank #2 and has gained 28.3% in the past three months. For 2024, the Zacks Consensus Estimate for CMG’s financial year sales and EPS suggests an increase of 13.3% and 19.5%, respectively, from the year-ago period’s levels.

Darden Restaurants, Inc. (DRI Quick QuoteDRI - Free Report) stands out as one of the largest global operators of casual dining restaurants. The company is committed to a strategic approach, leveraging four key competitive advantages: substantial scale, extensive data and insights, meticulous strategic planning and a culture focused on delivering results. Darden's unwavering emphasis on executing a back-to-basics operating philosophy centered around food, service, and atmosphere ensures consistently high performance across its brands. The holiday season witnessed Ruth's Chris, The Capital Grille, Eddie V's and Seasons 52 setting daily sales records. The integration of Ruth's Chris is progressing well, showcasing positive developments in guest experience and system changes.

Darden currently carries a Zacks Rank #2 and has gained 12.4% in the past three months. For 2024, the Zacks Consensus Estimate for DRI’s financial year sales and EPS suggests an increase of 9.9% and 10.9%, respectively, from the year-ago period’s levels.