It would be more than fair to say that a lot of Americans are feeling financially squeezed these days.
Inflation rose 3.3% annually in March in the wake of the Iran conflict, according to the Consumer Price Index. And while fuel oil, which rose 44.2%, was the primary driver of that increase, food costs rose as well.
Overall, food prices were up 2.7% year over year in March. But while grocery prices rose 1.9% annually, restaurant prices rose twice as fast at 3.8%.
Not surprisingly, consumers are changing the way they spend in light of rampant inflation and economic concerns.
An estimated 28% of Americans expect their financial situations to get worse in 2026, according to a March YouGov survey. And among people in that category, 66% intend to cut back on eating or drinking outside the home to cope.
That puts restaurants, many of which are already operating with slim margins, in a tough spot.
Consumers shift toward meals at home as prices soar
Restaurant meals aren’t the only thing U.S. consumers are cutting back on. On a broad level, discretionary spending dropped steeply in March, according to Deloitte. And while spending levels picked up a bit in April, they’re below January’s levels.
This signals that reduced spending isn’t likely to be a short-term trend.
Related: Walmart sees troubling shift in consumer behavior
If there’s one restaurant chain that’s well equipped to weather the storm, it’s McDonald’s. The fast food giant reported stronger-than-expected first-quarter earnings on May 7. Global sales rose 3.8% on an annual basis, while U.S. comparable sales increased 3.9%.
Still, the company wasn’t too quick to celebrate those impressive numbers.
During the earnings call, CEO Chris Kempczinski called the restaurant business a “challenging environment.” He also said that consumer sentiment and spending are “certainly not improving, and… may be getting a little bit worse.”
Kempczinski emphasized that while higher-income diners continue to have “very resilient spending,” lower-income consumers are continuing to pull back on spending as inflation, debt burdens, and rising fuel prices put pressure on household budgets.
Restaurants and retailers could feel the pain
Clearly, economic conditions and spending patterns haven’t taken a toll on McDonald’s yet. But other restaurants and retailers may not fare as well, which is certainly a troubling trend.
In fact, Shake Shack shares plunged after the company reported weaker-than-expected earnings tied to declining customer traffic, Reuters reported.
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