Restaurants October 2025: “We Have Seen This Before”

Unfortunately, restaurant industry sales continued to weaken from August through September and into the first few days of October. My always excellent analyst friend Jeff Farmer at Gordon Haskett reported that the traffic trend was down 6 consecutive weeks, while Sara Senatore (Bank of America) pointed to that softer middle income wage growth was having an effect, along with continued soft wage growth among lower cohort wage earners.  

As a result, the stronger brands and sectors: casual dining is still on top, with Outback, First Watch, CAVA, Chili’s,  Shake Shack, Dutch Bros, positive but sequentially more modest since early August. The QSR sector has been slightly negative, with only Taco Bell (YUM)  positive and picking up momentum.  

Despite massive efforts, both McDonald’s and Starbucks have remained negative in Quarter 3 for weeks.

Thinking about this, there are scores of both macro and micro factors influencing us negatively, some of which way beyond our control and ability to influence. A few macro influences come to mind: (1) fears of a recession more visible (2) consumer prices up e very month since April ( 3) tariffs effects,[1] (4) tuition loan forgiven  repayments now kicking in (5) US political “right track/wrong track trend worsening (6) job loss differentials and  confidence differentials by age cohort  (7) GLP drugs trimming appetites (and with lower retail costs (8)  government shut down effect (9) inbound US tourism down due to fear of travel hassles (10) fear of immigration raids and quick removals depressing the Hispanic market  economic activity (11) unending political strife and (12) only very minor job creation.

Then our direct issues: (1) consumer restaurant price fatigue affecting many but not all segments (2) inability to take “easy” price increases (3) new and remodel unit CAPEX costs up from 2019 levels (4) negative effect of unsuccessful CEO’s bombing out[2]  (5) failure of deep discounting –that hasn’t worked (6) restaurant brand and franchisee balance sheets loaded up by debt, (7) poor franchisee economics in some brands and (8) higher food and especially labor costs (9) recent flat effect of new products and promotions at most brands.[3] and always, (10) staff turnover and retention.

Are we  Broken? Regular and Routine Restaurant Industry Ups and Dows

Not broken!

The restaurant business has always been cyclical. Looking back to US Government records pre WW-Two,  restaurant activity was near zero in 1941-1945, then improved up to the 1958-1960 recession, then multiple ups and downs: 1962, 1973, 1980, 1982, and on. We survived the most far reaching problem ever, the Great Pandemic.     

Through the year 2024, industry sales was not broken. Compared to the pre Pandemic  2019 to 2024 (latest US Census full year data), the industry is growing, but much less when we exclude food sales inflation. Calculating all restaurants, chain and independents,  (less tips and sales taxes
th rate was 1.27%.

FSR and LSR Restaurants, $millions[4]
Less Sales Tax and Tips, US Department of Census Surveys

What Does This Mean?...What to Do…

·  Despite all the trauma, we (the industry as a whole) did see positive real or transaction growth in 2024.

·  The cumulative menu inflation has been immense (but we know why)

·  It seems independents are picking up market share vs. chains.[6] 

·  We still have cost inflation underway. Most of the margin and ROI improvements will have to come from LTOs, middle of the P&L and marketing mix, and below the line CAPEX and debt efficiencies. 

· I continue to see unbelievably bad new store opening and CAPEX waste even in top tier brands. For example, In Omaha, Starbucks recently closed two brand new units as part of their recent closings ! 

Chain Chapter 7 and 11 filings—we got ‘em.

Before we get into the numbers and other issues, please see these insights from Mac Brand, Founding Partner, Bellwether Food Group, and a 2-time author. More details follow the article.

Since the middle of the year, several chain restaurant brands have filed for bankruptcy. It begins slowly and then speeds up quickly. It’s a cascade effect.

The recent victims include Bravo/Brio (second time in 5 years), Abuelos, Pinstripes, Opa, and Iron Hill Brewery. One of the challenges for each brand was a lack of access to capital. The investment community is less likely to invest in smaller, regional brands, especially those that are closing units. It’s simply not a compelling investment thesis.

When the business begins to get tough, operators will start cutting corners and skimping on essential details. Of course, the first to notice are the employees, especially those in the customer-facing team, such as the waitstaff and bartenders. That’s a negative on the team spirit and confidence.

When the customer experience begins to deteriorate, slowly at first, customers comment, as they tip less and/or come less frequently. Often this is cheaper ingredients or financially engineering the menu. At an upscale Mexican Restaurant in Northern California last week, it was painfully obvious that the formerly cheese-intensive chicken nachos had become the victims of the operator’s efforts to cut costs. We noticed immediately.

When food quality declines, shrinking tips follow, as the most talented bartenders and wait staff find work elsewhere. If there’s tip-sharing with the back of the house, the dependable $75-$125 cash gratuities for kitchen staff on Friday or Saturday, become $25-$50. The impact is felt immediately.

Next, the vendors begin shorting orders, missing deliveries, or requiring cash on delivery, and the staff notice quickly. These are the people who interact with the salespeople and delivery teams most often. Many of the distributor and vendor sales teams are comprised of former restaurant managers, who know the symptoms all too well.

One of the harsh realities of the restaurant business is that most full-service brands have a shelf life. Not unlike fashion, tastes change as consumers transition to the next life phase. We’re seeing this now with beverage alcohol sales. That reality is that the younger generations are simply not consuming as much alcohol as previous generations. That’s an issue for casual and fine dining, where robust alcohol sales have made the profit difference for decades.

If you’re planning a conference, corporate training, leadership retreat, or team development session, Mac brings energy, clarity, and impact. A 2-time author, you can see more and connect with Mac at next month’s RFDC in Las Vegas, November 10th-12th,  773.255.6466; www.macbrandbooks.com, or macbrand76@outlook.com.

About the author: John A. Gordon MAFF[7], is a long time restaurant analyst  who works (among other things)  operational and financial analysis, CAPEX planning, brand reviews, G&A assessments as well as expert litigation projects. 619 379 5561 (mobile/text), jgordon@pacificmanagementconsultinggroup.com  

[1]   Goldman Sachs research note, October 12, 2025.

[2]   While always a matter of opinion, my view is that new CEOs at Starbucks, Jack in the Box and the interim CEO at Wendy’s are still trying to dig their brands out of holes created.

[3]   IHOP has broken the trend with strong results . on a 1 year basis

[4]   US Census Department, 2024 recap

[5]   Assumed 30% price inflation per current media reports.

[6]   Very few publicly reported chains are up in traffic per earnings calls and SEC documents. At the same time, food distributors see independent case counts up. [Q2 earnings calls]

[7]  Master Analyst Financial Forensics.