Restaurant Stocks Face Challenges Amid Changing Consumer Behavior
This year has been tough for restaurant stocks. The industry is navigating inflation, mixed economic growth, and the rise of weight-loss drugs. The S&P 500 Hotels, Restaurants, and Leisure sector has dipped roughly 4%, with the overall index expected to fall 1.8% in 2026. Notably, DoorDash has dropped over 27%, while Chipotle Mexican Grill is down nearly 12% this year. Wendy’s has also faced difficulties, decreasing by 15% since January.
However, it’s not all doom and gloom. Darden Restaurants, which owns Olive Garden, saw a 10% increase in 2026, and McDonald’s rose by 6%. Kava even bounced back strongly, gaining over 40%. Shifts in consumer eating patterns, influenced by artificial intelligence layoffs and the appetite-suppressing effects of GLP-1 drugs, are creating these market dynamics. Analyst John Tower from Citi warns that 2026 might bring “the wall of fear” to the restaurant segment, potentially leading to frustrations for investors. Yet, he seems optimistic that opportunities will arise amidst the turbulence.
Interestingly, while GLP-1 hasn’t yet significantly impacted restaurant chains, there’s a possibility that could change soon. Research from Cornell University showed that households with at least one GLP-1 user spent 8% less on eating out in the initial phase, with this decreased spending persisting for about a year. This pattern held true across various income brackets. The greatest users of GLP-1 are typically older, wealthier consumers, but analysts anticipate broader access, particularly for lower-income individuals, as costs decrease and more oral options become available. “Newly introduced pills could really shift the balance,” Bank of America analyst Sara Senatore noted.
The growing availability of GLP-1 could pose challenges for quick-service and fast-casual restaurants, which cater predominantly to lower-income customers less inclined to use these drugs. Senatore believes that impulsive buying and snack food purchases, critical for these establishments, will likely face declines due to increased GLP-1 usage. Citi’s data indicates that total calorie intake in the U.S. is expected to drop over the next decade as GLP-1 adoption rises. In an effort to adapt, fast-casual eateries are starting to offer more protein-rich options and diverse beverage selections. For instance, McDonald’s and Wendy’s are testing energy drinks, while Taco Bell has expanded its drink menu. “If consumers are watching their calories, this could provide them low-calorie choices at restaurants,” Tower remarked.
Conversely, full-service and casual dining venues like Chili’s seem less affected by the GLP-1 trend. Dining experiences here usually involve heavier meals focused on protein rather than what Tower terms “calorie stops.” He expressed belief that sit-down restaurants won’t see the same decline as quick-service ones.
The weak job market also introduces volatility for the restaurant sector. According to the Bureau of Labor Statistics, employment fell by 92,000 jobs in February, with slight increases in unemployment rates. Fast-casual joints might feel the effects the most, as several chains reported stagnant or declining same-store sales. Sweetgreen, Wingstop, and Chipotle have all faced disappointing growth figures. Notably, Sweetgreen’s sales dropped by 9.5%, while Wingstop’s decreased by 3.3%, and Chipotle reported a 2.5% decline.
Bank of America’s analysis linked weak restaurant demand to a struggling labor market. Fast-casual and quick-service establishments attract a sizable young consumer base, but these consumers tend to be more responsive to job market fluctuations. Moreover, the unemployment rate for recent graduates was 5.8% as of September 2025, slightly higher than the overall rate of 4.1%. Wage growth for job changers has also slowed, impacting younger generations significantly. “Demand for restaurants closely tracks salary changes. The recent labor market dip has extended weak demand across more than just low-income consumers,” noted Senatore. Despite these challenges, Bank of America holds a “cautiously optimistic” view regarding job market improvements in 2026.
Analysts are also considering how a “K-shaped” recovery might affect restaurant spending. Tower remarked that companies under Citi have a higher dependency on lower-income customers, putting them at greater risk amid economic disparities. In contrast, fast-food chains are maneuvering to capture lower-income consumers. For example, McDonald’s same-store sales surged after reintroducing “Extra Value Meals,” and Wendy’s also launched Meal Deals, including the popular $6 Biggie Bag. Unlike fast-food establishments, Senatore sees casual dining not needing substantial discounts to thrive, favoring their inherent value instead.
Stocks to Monitor
City Tower expresses confidence in several stocks like Darden Restaurants, owner of brands such as McDonald’s, Chipotle, Cheesecake Factory, and Olive Garden, along with Brinker International, which operates Chili’s. He has “Buy” ratings for these stocks. Tower highlighted potential growth for McDonald’s due to new beverages and menu items. Chipotle continues to focus on offering made-from-scratch protein options that align with America’s growing protein interest. He believes Cheesecake Factory, which appears to be gaining market share, is undervalued at a $65 price target, representing a 6% increase from Wednesday’s closing price. Tower concluded that long-term value growth in this sector stems from high-margin unit expansion paired with steady same-store sales, largely driven by customer traffic.
Moreover, improvements in sourcing and supply chain efficiencies, as well as a move toward a more robust franchise model, suggest potential benefits, but the restaurant industry is indeed entering a tricky period.
