Restaurants: More of the Same
Sorry to report that again restaurant conditions haven’t normalized or inflected positive yet. I say yet because surely they will in time. But it’s not likely in 2026 or first half 2027. The reason of course is negative macro and micro factors that hold down sales, cause negative operating costs and CAPEX results. Last winter, I counted 25 different factors that caused restaurant “overhang.” [1]
Unfortunately, we have to add two: the war in Iran which is both a social and governmental negative cost as well effect on shipping [2]. The shipping reduction has led to tremendous consumer oil and gasoline price shock in the US and elsewhere.
In addition to consumer sales, this will also affect laid in restaurant freight and transportation costs. Jet fuel availability is in even worse shape. As CNBC’s Brian Williams just said, “I literally don’t know what will happen day by day.” [3]
POSITIVES SEEN…MAINLY NEW PRODUCTS AND MANAGEMENT
All this is not to say there are no positives. Unlike in periods such as 1974, 2008 and 2020, restaurant sales have not collapsed. There are still some restaurant brands doing very well, such as Texas Roadhouse, Chili’s and Long Horn. Starbucks and McDonalds have run positively for three quarters. Many restaurant brands are working new products and concepts (shout out to both Burger King, (QSR), Dominos (DPZ) and Taco Bell (YUM). McDonalds is trying[4]. Chipotle (CMG) is wiggling up with LTOs.
And there have been a ton of brand and franchisee closings. Mainly concentrated in quick service (no surprise—the most overbuilt) include planned closings Jack in The Box (JACK), Wendy’s (WEN), Del Taco, Popeyes’s (QSR), Firehouse (QSR), Carl’s and Hardee’s (private equity). Even very strong Darden made the decision to pull the plug on Bahama Breeze. And Red Lobster had a few new closings. While none of us want to see employees and guests stranded, the industry belief of 30% reverse cannibalization has been stated again.
IT’S A MESS TO READ THE US NUMBERS CURRENTLY
Weather, holidays and rapidly rising gasoline costs (and aftermath) have made for a mess in reading sales and traffic. Given the 2026 weekly volatility, we are not going to find a similar first half of the year. Despite living through the volatile 2025, it turns out 2025 was pretty classic. Given help from the great Andy Barish (Data Dish! SSS Digest, Volume 266) the 2025 industry curve turned out to be pretty normal; operators could use adjusted 2025 as a base.
One important note is we as an industry are still taking price at a higher rate than grocery stores (both numbers as per BLS survey),broadening to 3.8% versus Food at home/grocery store of plus 1.9%[5]. While there is little noise in these numbers not 100% replicating restaurants, this trend has been consistent. Common industry wisdom is consumers are the tightest in January-February (Christmas credit cards); April (tax payments) and September (back to school). I’ve told clients to think a out small price increases in May and November.
RESTAURANTS ISSUES TO WATCH
The Starbucks China JV Partnership with Boyu Capital is up and running as of April 2. 60% was sold to Boyu, Starbucks retains 40% and continues to own the IP, in a deal “valued at” $4 billion. It is not clear if all or some stores will remain company operated. It will be instructive to see what Starbucks does with the cash. My bet is they will restrict it and use it for additional US turnaround costs. With all of the US OPEX and CAPEX to date, the US total turnaround investment ROI will be fascinating to see.
BETTER RESTAURANT INVESTOR METRICS ARE NEEDED
In the US, per press reports, we have something north of 1500 units announced or planned for closure. Virtually all of these are QSR stores. Most restaurant observers have noted that restaurant overdevelopment, is a problem in the US (and in some international markets such as China and India). 1500 units closing is a terrible blow to franchisee owner/operators, the city or county tax base, crew and managers, landlords, lenders and others. The franchisor is impacted as well.
Much of this comes for struggling to find meaningful restaurant metrics other than end of year store count. There are more meaningful metrics I can spit out in detail, but this will take lenders, security analysts and franchisors to be more creative and resourceful in coming up with metrics. More on this soon. The Restaurant Finance and Development Conference might be a good time to meet.
About the author: John A. Gordon is a long time restaurant industry veteran with 45 years plus of operations, financial management and organization improvement engagements. He is happy to talk your restaurant issues and opportunities. Call/text/email at 619 379-5561.
[1] That Wall Street shop talk meaning caps on growth.
[3] CBNC video, April 13, 2026, 1120a PT.
[4] I just had an excellent Arch Deluxe this weekend, but its emphasis on cheap is puzzling and perhaps self-imposed.
[5] BLS News release, April 12 202t.
