Restaurants are hoping hot chocolate and flavored lemonades can help build loyalty with Gen Z consumers.

Compared to previous generations, Gen Z is the most open to new flavors and comes from the most diverse backgrounds. Gen Z’s openness gives fast-food chains more latitude to explore more unusual offerings, such as butterfly pea or ube, according to Parlapiano. Monin, a French company best known for its flavored syrups, tapped yuzu, an East Asian citrus fruit, as its flavor of the year for 2025.

Traditionally, large fast-food chains are less likely to experiment with such audacious flavors, but even they have stepped outside of their comfort zones. For example, Wendy’s current lemonade lineup includes blueberry pomegranate and pineapple mango — two choices that have paid off for the burger giant.

“Our premium craft lemonades are also incredibly loved by our customers, and this product over-indexes with Hispanic consumers and Gen Z,” Wendy’s U.S. Chief Marketing Officer Lindsay Radkoski said at a recent investor event.

Restaurants have also been inspired to mix different drink trends favored by Gen Z, hoping that the unique mashups will attract adventurous consumers.

For example, the soaring popularity of bubble tea, with its chewy tapioca balls, has inspired restaurant chains to add their own boba-inspired touches to drinks beyond tea. CosMc’s, the McDonald’s spinoff, offers dried blueberries and fruity popping boba as customizations for some of its drinks. Shake Shack’s tropical kiwi lemonade includes tiny pieces of kiwi inside the drink, adding a new texture and evoking the chewiness of boba pearls, Parlapiano said.

While different than a traditional soda, restaurants’ foray into drink innovation often means just as much sugar, if not more, depending on the syrups and add-ons. But that doesn’t change Gen Z’s appetite for them.

“We think of it as ‘little treat’ culture. What I can spend is in the grand scheme of things, not a huge sum of money, and yes, I can splurge on this big sugary drink,” said Claire Conaghan, trendologist and associate director for Datassential. “I think the younger consumer is pretty aware that they’re full of sugar, but they’re OK with that as their preference for where they get their sweet treat.”

For some chains, beverages have taken center stage as an area for improvement — and future sales growth.

“We recognize that it’s not just about carbonated sodas anymore,” El Pollo Loco CEO Liz Williams told CNBC. “So we did a deep dive in beverage innovation this year.”

El Pollo Loco’s expanded drink offerings now include more flavors of its Aguas Frescas, which are fruit-infused waters. Future drink innovation could mean following the mashup trend, such as selling horchata coffee, Williams said.

Wendy’s also wants more of its customers to order drinks. Roughly 30% of Wendy’s customers do not add a beverage to their order, according to a recent investor presentation.

“This is an opportunity for growth when these are highly profitable,” Wendy’s U.S. President Abigail Pringle told analysts.

In many cases, beverages generate higher profits and are easier to add to menus than a new food item. While a customer sees a new flavor, for the workers making the drinks, it’s just swapping out a syrup flavor or adding a new drizzle on top. With just a little more labor, restaurants can charge a lot more. Plus, syrups also usually have longer expiration dates than food items and are easier to store, according to Datassential’s Conaghan.

Wendy’s new focus on beverages dovetails with its strategy to keep growing its breakfast sales. When the chain launched its breakfast menu nationwide for the first time in early 2020, the early morning menu featured only a few coffee options, such as its Frosty-ccino, which has since been replaced by the Frosty Cream Cold Brew.   

“Our next horizon of growth at breakfast is in beverages,” Radkoski said.

Likewise, Taco Bell focused on the future opportunity presented by beverages during its investor presentation earlier this month.

“We believe that beverages can be a new core craving for Taco Bell, and we see a line of sight to building a $5 billion beverage business by 2030,” Taylor Montgomery, Taco Bell’s North American chief marketing officer, said in an investor presentation earlier this month ahead of the brand’s Live Mas Live event.

Taco Bell is looking to its new Live Mas Café concept to inform future drink innovation. In December, the chain opened the first location inside an existing store in Chula Vista, California. So far, it has helped the restaurant achieve double-digit transaction and sales growth, according to Taco Bell executives.

The Live Mas menu features more than 30 drinks, spanning different day parts. Highlights include refrescas that are caffeinated with green tea or Rockstar energy drinks; Churro Chillers; and a “Dirty Baja,” made by adding cream to its signature Baja Blast Mountain Dew.

“Things that we’re learning within the Live Mas Café concept, we’re pulling out and trying to scale across all of our units in the U.S.,” Montgomery said, adding that the company wants to aggressively expand the Live Mas Café this year.

Later this year, Taco Bell plans to bring its Dragonfruit Refresca to all U.S. restaurants.

In late October, Wendy’s announced it would shutter 140 underperforming locations by the end of the year, in addition to the roughly 80 closures it had in the first three quarters.

Executives made the decision to prune some outdated restaurants that had annual unit volumes of about $1 million each to improve the company’s overall footprint.

Despite the closures, the company expects to end 2024 with an unchanged restaurant count, thanks to its new restaurant openings, Wendy’s CEO Kirk Tanner told investors on the company’s third-quarter earnings conference call.

In May, Applebee’s parent, Dine Brands, said it planned to shutter between 25 and 35 of the brand’s U.S. locations. By late September, Applebee’s global unit count had fallen by 36 locations compared with the year-ago period.

Applebee’s same-store sales have declined for the last six straight quarters, according to company filings.

Dine Brands, which also owns IHOP, has closed more stores than it has opened every year since 2016, with the exception of 2022.

Denny’s closed about 50 locations in 2024 and plans to shutter an additional 100 restaurants by the end of 2025. Including this year’s closures, the 24-hour diner chain still has roughly 1,300 open locations.

The restaurants marked for closure are in the lower third of the chain’s performers, with annual unit volumes of $1.9 million to $2 million, executives said at the company’s investor day in October. Once those restaurants shutter, Denny’s expects that both its same-store sales and annual unit volumes will improve. In its latest quarter, the chain’s same-store sales were roughly flat.

After 2025, Denny’s plans to open between 45 and 50 net new locations annually.

In November, TGI Fridays joined the slew of restaurant companies that filed for bankruptcy protection. But before it filed for Chapter 11, it shuttered 86 restaurants, starting with 36 closures in January and another 50 in late October.

The last round of closures took the chain’s footprint down to roughly 160 open locations worldwide. But the count could dwindle more. A bankruptcy court in Texas will determine TGI Fridays’ future, which could mean closures for the chain.

Red Lobster permanently shuttered more than 120 restaurants in 2024.

The seafood chain closed roughly 100 locations before it filed for Chapter 11 bankruptcy protection in May. Before it exited bankruptcy with a new owner and CEO, the company rejected the leases of another 23 restaurants.

But with 2024 now in the rearview mirror, Red Lobster is hoping that a comeback — with no more restaurant closures — is in its future.

Fast-casual chain Noodles & Co. announced in August that it would close roughly 20 locations after reviewing its entire 475-restaurant footprint.

The review was part of the company’s efforts to improve its operations and finances after a rocky few years. Noodles & Co. has also been overhauling its menu, cutting items that don’t sell and adding new entrees that might appeal to more customers.

But the turnaround will take time. In its latest quarter, the company said same-store sales fell 3.3%.

Bloomin’ Brands, the parent company of Outback Steakhouse, Carrabba’s Italian Grill and Bonefish Grill, shuttered 41 underperforming restaurants in 2024.

The closures affected older locations with leases dating back to the 1990s and early 2000s, executives said on the company’s earnings conference call in February. To make the decision, the company weighed the locations’ sales and traffic, as well as the cost of investments to improve the locations. Most of the closures were Outback locations.

Like many other casual-dining companies, Bloomin’ has struggled to grow sales in recent quarters. Its U.S. same-store sales fell 1.5% in the third quarter.

Two metrics shape a company’s same-store sales growth: how much customers spend on every order, and how often they visit the restaurant chain.

As eateries delay more price hikes and customers watch their wallets, restaurants have to rely on the second benchmark — traffic — to bolster their same-store sales. And Wall Street is watching closely.

“Investors certainly want lots of traffic as a sign of health for the concepts,” TD Cowen analyst Andrew Charles told CNBC.

McDonald’s, Chipotle, Texas Roadhouse and Wingstop were among the few chains that reported U.S. traffic growth in the latest quarter.

On the other end, Restaurant Brands International said U.S. traffic slipped for three of its chains: Popeyes, Burger King and Firehouse Subs. Rival Wendy’s reported its domestic transactions fell 1% in the second quarter.

Looking ahead, traffic could fall even more in the second half of the year.

“And as we move through 2H23, menu pricing will likely fall fast as inflation no longer justifies the prices, and barring a rapid traffic reversal, the comps should optically fall just as fast,” Barclays analyst Jeffrey Bernstein wrote in a note to clients Aug. 11. “This does not bode well for restaurant stock performance in coming months, in our view.”

Inflation is cooling, and more economists are predicting a “soft landing” rather than a recession. But consumers are still looking for value.

Broadly, the fast-food sector has benefitted from consumers trading down from fast-casual restaurants into their cheaper burgers and tacos. But consumer perception of value differs across chains.

For example, McDonald’s CEO Chris Kempczinski said the chain is performing well with consumers who make less than $100,000, and with those who make under $45,000. On the other hand, Wendy’s CEO Todd Penegor said the burger chain saw diners who make less than $75,000 pull back on their purchases.

Likewise, Wingstop said its customers’ perception of its value is improving, coinciding with falling chicken wing prices.

“We are seeing positive trends in value scores with guests, in an environment where many brands are measuring decline,” Wingstop CEO Michael Skipworth told analysts.

Fast-casual rival Chipotle has also benefited from diners’ perception of its burrito bowls’ value. Chipotle has seen low-income consumers return to its restaurants more than they were a year ago, CFO Jack Hartung told analysts.

Still, Chipotle’s low-income customers aren’t visiting as frequently as they were before inflation began accelerating. The chain has paused price hikes for now, but will decide closer to the fourth quarter if it will raise them again.

One fast-casual chain has struggled with consumers’ value perception. Noodles & Company said its traffic cratered by double digits in the first part of the quarter as customers pushed back against its higher prices, which rose 13% from the year-ago period. In response, Noodles dropped its prices by 3% and pivoted its marketing to focus on value.

As restaurants and customers focus on value, discounts and combo meals have stolen most of the marketing thunder. Limited-time menu items also helped some restaurants’ sales — but weren’t enough to offset weakness for others.

On one end of the spectrum was McDonald’s. The burger chain’s Grimace Birthday Meal fueled buzz on social media and traffic to its restaurants.

“This quarter, the theme was, if I’m being honest, Grimace,” CEO Kempczinski said on the company’s conference call.

The promotion featured the limited-time purple Grimace milkshake and core menu items, like the choice of a 10-piece McNugget or a Big Mac. It leaned on nostalgia for the mascot.

But not all promotions helped restaurants’ top line.

For example, Papa John’s released Doritos Cool Ranch-flavored Papadias for $7.99 in May. The limited-time menu item also drove social media buzz and traffic to restaurants, according to executives. However, the new Papadias couldn’t compete with the chain’s pepperoni-stuffed crust pizza it released a year earlier for $13.99.

“That traffic increase wasn’t enough to offset check decline, and therefore you had weaker same-store sales,” BTIG analyst Peter Saleh said.