What the Fast Food Industry Is Telling Us About the Economy

Newsweek

a day ago

Based on facts, either observed and verified firsthand by the reporter, or reported and verified from knowledgeable sources.
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For many Americans, cutting back on dining out is one of the first signs of financial pressure—especially among lower- and middle-income households. And when they do choose to eat out or order in, they're shifting to lower-cost options.
That change is showing up in restaurant sales. Between January and March, Americans ate one billion fewer restaurant meals than during the same period last year, according to market research firm Circana.
So-called "fast casual" chains like Cava, Sweetgreen, Panera Bread and Shake Shack—viewed by many as too expensive for everyday dining—are the first to send the distress warning. Cava, which posted double-digit same-store sales growth in the first quarter, slowed to just 2.1 percent in the second. Sweetgreen reported a 7.2 percent sales decline in Q2, while Chipotle dropped 4 percent.
Analysts say these chains are caught in the middle: too pricey to compete with budget deals at fast-food chains, yet not premium enough to justify the cost when consumers are watching their spending.
"There's a fog for consumers where things are changing constantly and it's hard to see the clear," said Cava CFO Tricia Tolivar, according to CNBC. Sweetgreen CEO Jonathan Neman said the company began seeing a more cautious consumer starting in April, aligned with a dip in consumer sentiment that manifested around the time of President Trump's "Liberation Day" tariff announcement.
Chipotle COO Scott Boatwright pointed directly to the rise of low-cost competitors. "You have to look no further than what's going on with our competitors with snack occasions or $5 meals. That's where the consumer is drifting towards," he said.
Customers order food at a Chipotle Mexican Grill restaurant on April 26, 2023 in Austin, Texas.
Customers order food at a Chipotle Mexican Grill restaurant on April 26, 2023 in Austin, Texas.
Getty Images
A Broader Economic Signal
The restaurant slowdown is part of a larger shift in consumer behavior.
U.S. inflation was 2.7 percent in July, but core inflation—excluding food and energy—jumped to 3.1 percent, the fastest pace in five months. Meanwhile, job growth has slowed, and Trump's renewed tariff policies are raising prices on imported goods. Combined, these factors are hitting household budgets.
"Tightening the belt on restaurant spending is one of the earliest signs that households are feeling economic strain," said Todd Belt, professor at George Washington University. "It's not just about skipping a night out—it's about families making daily trade-offs."
The University of Michigan's consumer sentiment index rose slightly to 61.7 in July, up from 60.7 in June but still down 7.1 percent compared to a year earlier. While views on current conditions improved—rising 4.9 percent month over month—the expectations index, which reflects longer-term outlook, fell to 57.7 and remains more than 16 percent below where it stood last July.
Consumer sentiment improved for the second straight month, inching up a scant single index point from June.
Consumer sentiment improved for the second straight month, inching up a scant single index point from June.
University of Michigan
That shift is already playing out in restaurant foot traffic. Fast-food visits declined 2.3 percent in the second quarter. Chains including IHOP, Denny's, Wendy's and Sweetgreen all warned of declining sales and softer foot traffic.
"Right now we have highly leveraged consumers," said Sally Lyons Wyatt, a Circana adviser, in an interview with the Financial Times. "It's going to take a lot of levers being pulled in order to get consumers more comfortable to spend more money out of home."
Value Still Wins
Some brands are adjusting more successfully.
Domino's posted a 5.6 percent gain in U.S. same-store sales in the second quarter, rebounding from a decline earlier this year. Papa John's also returned to growth after two straight quarters of losses.
McDonald's has outperformed by leaning heavily into value. Its U.S. same-store sales rose 2.5 percent in Q2, supported by a national $5 combo meal and a refreshed McValue menu. "Re-engaging the low-income consumer is critical," CEO Chris Kempczinski said on the company's July earnings call. "We've got to get that fixed."
Chili's has also gained ground with its "3 for Me" deal, starting at $10.99, which helped drive a 31 percent increase in same-store sales and a 21 percent boost in traffic. Taco Bell's $5 and $9 Luxe Cravings Boxes are resonating with lower-income and younger diners.
A closeup view of the exterior of a McDonalds in Kissimmee, Florida on February 6, 2022.
A closeup view of the exterior of a McDonalds in Kissimmee, Florida on February 6, 2022.
Getty Images
On social media, consumers are vocal about the growing price gap. "Sweetgreen charged extra for every small thing you add to the bowl, and the base price is like $16. At those prices, I'll go somewhere nice," one user wrote on X. Another said, "$12 burrito, $3 guac, $3 drink—at that point, I'm just eating at a real restaurant."
Some fast-casual chains are trying to respond. Cava has added about 50,000 loyalty members a week and now counts nearly 8 million users. Sweetgreen has increased protein portions and added $13 loyalty-exclusive bowls, though sales have continued to decline.
Still, executives say improvement depends largely on economic factors out of the restaurants' control.
"I think much of what we're experiencing right now is due to macro and the consumer—the low-income consumer is looking for value as a price point at present," Chipotle's Boatwright said. The company recently lowered its sales growth forecast for the second time this year.