Consumer Conditions Challenged But…
Since January of 2025, and with aggressive tariffs proposed and implement by the new administration, it has been difficult to figure out what was going on in the macros US economy. With great hopes in late 2024, consumer confidence headed lower by February. That has persisted and now more complicated by our actions against Iran. Oil availability and cost inflation in general is a major deal.
Of course, we restaurant operators can control none of that. We are challenged to win new guests, operate the business with food, labor and OPEX inflation where we can take little price to cover the normal inflation, and retain and develop people all up and down through the brand. Lenders are dealing with portfolio risk (a bankruptcy can easily wipe out lending profit in a heartbeat); security analysts are still dealing with sliding stock values, and on and on.
Despite all this, it seems that 2026 is off to a fair start but EOM April/May right now has down slightly. Monthly charts show weakness in September/October 2024 (think Starbucks SBUX; McDonald’s (MCD) and burger and pizza operators. Casual diners, esp. $EAT) and Darden ($DRI). The monthly SSS trend line sloped down again through 2025 2nd half and now flattish through April 2026.[1] Data does show that US consumers have not meaningfully pulled back.
Implications for SSS: we really need plus 3
If there was ever an overused and over typed metric in any business, SSS is it. Comparing one week, one period, one month or one quarter of data is very difficult as:
1. We don’t know exactly what happened last year….and was it a trend then
2. There is no law of large numbers effect in looking at such a short period of time, with spikes offset.
Critically, very small SSS gains don’t represent real profit gains. The reason is that inflation must be covered by that SSS gain. If SSS is up only 1%, forget it. 2 to 3% might be marginally passable if there is very low inflation.
This is illustrated by McDonald’s Q1earnings last week. The company owned units, both in the US and international, showed a revenue gain[2] of $185 million but expenses were up to $673 million. Margin slipped to 12.4 % These stores do not pay a royalty. Chris K noted twice that franchisee margins are pressured, also. With both company and franchisee margins under 15% it becomes very difficult to remodel and repair units, unless interest expenses or G&A is cut or debt fall (to remodel or build new units).
April/May Restaurant Notable Notes
Restaurant stocks are down 9.7% on a very over year full year basis. More recent rates are sequentially improved, however, down only 2.3%.
Of the most visible restaurant brands that are on improving plans, Starbuck’s and McDonald‘s both have store margin problems. McDonald’s company store margins fell to 12.4%, down 220 bpts. CEO Chris K mentioned twice on their call that franchisees were under margin pressure. Here we see cost inflation bouncing against a lower average ticket due to value menu mix.
Starbucks company margin fell by 90 basis points to app. 9.3% [3] No doubt, COGS (coffee), labor (hours and benefits) created the bulk of the EBIDTA shortfall. North American SSS was up plus 7% but it seems that reported CAPEX outlays hasn’t caught up to management themes noted…but CAPEX spending often lags.
New Products and Restaurant Training
I am sometimes told that restaurant staff conditions are so tough that they can’t roll out new products and platforms as often they might like. If it is true, then your training and communications processes must be fixed ASAP. Because our wellbeing depends on it.
I asked Mac Brand, an industry training, communications and culture expert, to give us practical tips.[4]
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Give the guest-facing team tools, not mandatory directives!
New product news is a great tool for guest engagement, as well as one way to keep the team excited about new menu additions, promotions, or special events. Keeping the staff, especially wait staff and bartenders, engaged is essential to the success of the added item, the restaurant, and their respective livelihoods.
Having the team members talk about the added item or the LTO in their own words is often the most effective way to gain traction.
We’re often shocked by how often a waitstaff person hasn’t ever tried the added item or the special. It seems obvious that this would be one of the first steps.
Offering a brief script is essential, but only as a guide and an outline. You’ll get better sales when the wait staff has the option of either using the established copy and adding their own spin or take. It feels less scripted and more genuine. Whether or not many people order the added item is secondary if the engagement piece is working.
Finally, encourage your team members to “read the table”! If they sense the customer isn’t interested in hearing about it, don’t force it. If they sense that the guest is NOT the least bit interested, just move on!
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About the author: John A Gordon is a veteran restaurant analyst and expert. Focused on restaurant strategy, brand assessment, financial planning & analysis and litigation investigations, he is a certified Master Analyst of Financial Analysis. He has worked for and with investors, analysts, attorneys and operators of all types.
Call him anytime to talk restaurants; 619 379-5561 or jgordon@pacificmanagementconsultinggroup.com
[1] Jeffries, Andy Barish, Data Dish, SSS, Vol 267.
[2] McOPCO SSS are not reported.
[3] Starbucks does its best to hide store margins in calls and its 10Qs and 10Ks.
[4] Mac Brand, Communications Clarity and Culture Expert (773)255-6466)
