Still Waiting for the Turn
We have passed through summer and Labor Day and now into early fall. Not a surprise but the restaurant industry has not turned, that magical wording usually noting positive momentum. By my count there are 26 macro and micro influences that are very difficult to offset completely. Average hourly earnings were flat in 2025 and down .3 percent over the last year. Along with consumer goods, inflation is still underway. [1]That is the macro hole that we will have to dig out of.
To be sure, the restaurant industry has always been dynamic; restaurants are a key part of socialization, food satisfaction and convenance. We are not endangered but do go through waves.
One clear development that our friend John Hamburger John Hamburger [founder of Restaurant Finance and Development Conference and the useful Restaurant Finance Monitor coming up soon] was right that the era of very cheap money was over in 2022. Look at the SOFR rate long term trend—falling and then und6er 1% for 2 years; with then a jump up to 5.3% late 2023.[2] Restaurant operators, especially franchisees say the increases hurt greatly. But rates have been much higher in the pre 2000 era. That implies that restaurant break-even has risen.
The quick service sector’s (QSR) very limited reporting display includes only same store sales and number of units opened and closed. That is poor disclosure to lenders and franchisees, who need that data. But by extending this point, have franchisee store economics worsened to the point that we must have very interest rates to grow properly?
Current sales trends
We had some very decent 2-year SSS momentum in late June, and then a string of LSD growth for 10 weeks thereafter. Last week, 2-year SSS was up 4.7%, after softness the week before Labor Day. In July and August, the 2-year SSS looked to be high enough to cover food, labor and OPEX inflation. Any week that we are not at 3% or higher we run the risk of margin compression.
On the positive side, we achieved these numbers despite a lot of negative news—impending tariff problems with Canada, bogged down, expensive war against Iran, US consumer goods cost inflation. But we do have powerful brands, with emerging strength on the casual dining side.
The issue is that our strength remains concentrated in the usual brands: CAVA, now Jersey Mile’s reporting, Shake Shack, Long Horn and Yard House (two Darden top brands now), Chipotle stronger, Cheesecake Factory finally stronger, Burger King, Texas Roadhouse and El Polo Loco still strong. Note, McDonald’s has continued to be very flat the last 5 weeks, and Taco Bell is sequentially improving, to negative two territories.
Starbucks remains positive although their SSS results were choppy in August. To their credit they have a startling and impressive line of new fall beverages and flavors, and the effects of the fall menu have not hit yet.
Popeye’s declines are material, Wendys; Wingstop and the Roark burger brands still double digit negative.
Restaurant Bankruptcies are news every week. On September 8, Qdoba IRG Franchisee defaulted on $20 million loan ($18M still due) and did not notify the Bank Midwest. IRG, 41 units, tried to sell itself but was not notified. The Bank is litigating for a receiver to be named. Once again, as far as we know to date, there is another debt problem. And on Friday, O’Charlies essentially closed, with the overwhelming bulk of the system closed. O’Charlie’s, PE owned since 2018, has been on an elevator path down. With ownership changes since 2011, it was acquired in 2018 by PE operator Cannae Holdings. It filed for chapter 11 in 2023.
Frequent ownership changes and a legacy casual dining brand, stuck in dated sites, was fatal.
Starbucks Direction: last week CEO Brian Niccol announced further action to improve the coffee house experience. The plan was announced for appx.$1 billion in spending covering 8000 to 9000 units. While the average spending is a reasonable $150,000 per average unit, some units will have much higher spending, since drive through only units can’t have many needs. This is a bet that in-house appearance and look carry all. I will certainly work to see coffeehouse only sales gains and ROI, since the majority of SBUX sales are still drive-thru-based.
About the author: John A. Gordon is a restaurant veteran with 45 years of analysis and management consulting experience. He will again be at RFDC; look him up with questions and problems. Mobile and text, 619 379 5561, @johnagordon.
[1] Wall Street Journal, September 11, 2026.
[2] See St. Louis Federal Reserve FRED data base, SOFR.
