Restaurants

The Restaurants industry is a significant part of the global economy, encompassing various establishments like quick-service, fast-casual, full-service, fine dining, and ghost kitchens. It is characterized by high volatility but offers substantial growth potential. Business models often involve company-owned and franchised locations, with key performance indicators including same-store sales growth, customer traffic, and new unit expansion. The U.S. restaurant industry is projected to reach $1.5 trillion in sales in 2025 and employs nearly 16 million people.

The Restaurants industry's performance is influenced by economic indicators like consumer spending and disposable income. Shifting consumer behavior shows a growing demand for convenience, health-conscious options, and sustainable practices. Technological advancements are transforming the industry through online delivery platforms, mobile ordering, self-service kiosks, and loyalty programs. Off-premise sales have become a significant growth catalyst. Regulatory changes, especially those related to labor costs and wages, pose ongoing challenges. There is an increased focus on Diversity, Equity, and Inclusion (DEI) initiatives and environmental sustainability. Rapid menu price hikes and increased average checks have driven sales, but the industry is grappling with declining customer traffic due to persistent inflation and reduced consumer purchasing power.

The U.S. restaurant stock market has a total market capitalization of $602.28 billion across 56 listed stocks. Major players include McDonald's and Starbucks, with McDonald's accounting for 40% of the U.S. restaurant stock market capitalization as of March 2020. Other prominent companies are Chipotle Mexican Grill, Yum! Brands (KFC, Taco Bell, Pizza Hut), Restaurant Brands International (Burger King, Tim Hortons, Popeyes), Darden Restaurants (Olive Garden, LongHorn Steakhouse), Domino's Pizza, and CAVA Group. Competition is fierce, with companies competing through pricing, menu innovation, technology, and scale. Food delivery aggregators like Grubhub and Just Eat have intensified competition, shifting consumer spending towards off-premise consumption.

In the past six months (approximately January to July 2025), the Zacks Retail – Restaurants industry has underperformed the broader S&P 500 and its sector. The LSEG Retail/Restaurant Index reported a 7.5% blended earnings growth rate for Q1 2025. Restaurant sales showed strong momentum in April 2025, and the Restaurant Performance Index (RPI) rose for the third consecutive month in May 2025. However, the Q1 2025 earnings growth rate is projected to decline to -1.7% in Q2 2025. Restaurant prices have increased by approximately 30% over the last five years. Companies like CAVA Group, Wingstop Inc., and BJ's Restaurants, Inc. are noted for their strong performance. The U.S. restaurant industry is projected to reach $1.5 trillion in sales in 2025, with an expected addition of 200,000 jobs. Operators are cautiously optimistic about future sales, but pessimistic about the overall economy. Value offerings and boosting on-premises traffic are priorities. The global food service market is projected to grow at a CAGR of 7.79% from $4.03 trillion in 2025 to $6.81 trillion by 2032.

Investors in the Restaurants industry face economic sensitivity to downturns, fluctuations in consumer spending, and changes in disposable income. High labor costs, wage increases, and staffing shortages are significant operational challenges. Volatility in commodity prices can affect profitability. Geopolitical factors can disrupt supply chains and consumer behavior. Intense competition from various food service providers and the influence of food delivery services add pressure. Declining customer traffic due to inflation and reduced consumer purchasing power, along with supply chain disruptions, remain concerns.