What fast food’s downturn says about the U.S. economy

Restaurants have raised prices to offset rising labour and ingredient costs, leading low-income customers to visit less often

The growing reluctance to spend among a key consumer group is putting pressure on the restaurant model that reinvented how Americans dine out. Photo by Hxdbrxy/Getty Images/Postmedia files

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William Lee is on his way out of a branch of Wendy’s in New York carrying two burgers and fries. The meal cost US$14, a sum the 52-year-old hospital worker describes as “ridiculous”.

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“I usually cook at home but I didn’t today, so I suffered,” he adds. These days, he prefers to bring lunch to work and save meals out for something “more upscale”, like a sit-down Italian restaurant.

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Only nine per cent of quick service brands reported positive growth in visits year over year, according to market research firm Black Box Intelligence, compared to 27 per cent of restaurant brands overall. That is the lowest out of all restaurant categories, including fine and casual dining.

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Fast-food chains such as Wendy’s, McDonald’s and Burger King are among America’s most recognizable business exports and have become fixtures alongside highways, at airports and inside sports stadiums around the globe.

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But their business model, which combines low operating costs and high volumes of cheap meals, is now buckling in its home market. Prices for food, energy and labour are rising, but consumers are increasingly dialing down impulse and convenience spending. In January United States consumers were the least confident they have been about the health of the economy in 12 years, according to an index by think-tank the Conference Board.

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Perhaps none have struggled as much as Wendy’s, the chain that invented the modern drive-through in 1970, but whose share price has fallen 48 per cent in the past year. Its interim chief executive, Ken Cook, told analysts in November that sales “remain under pressure” and that it is “acting with urgency” to restore growth.

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Bill and Mary, a Midwestern retired couple, are eating at one of its outlets, off Interstate 75 in Chattanooga, Tennessee. They are the only ones in the restaurant, even though it is lunchtime on a Friday.

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Bill, who declined to give his surname, says that he purchases fast food at least once a week, either to save time or to treat one of his 10 grandchildren.

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But he adds that he isn’t surprised at the lack of other customers. “Everything’s expensive these days,” he says, as he eats chicken tenders, fries and lemonade. “You’ve got to watch your money when you’re on social security like us.”

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The growing reluctance to spend among a key consumer group is putting pressure on the restaurant model that reinvented how Americans dine out.

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“It would not be hyperbole to say things are tough across limited-service restaurants these days,” Morgan Stanley analysts wrote in a research note last year.

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Wendy’s is in the process of closing hundreds of its stores after three consecutive quarters of year-on-year revenue declines. Pizza Hut posted a three per cent drop in U.S. sales in the most recent quarter on Wednesday, its ninth consecutive quarterly decline. Owner Yum! Brands is to close hundreds of stores and is considering selling the chain.

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Company bosses such as McDonald’s Chris Kempczinski and Wendy’s Cook say budget-conscious diners are trading down to cheaper promotions or shifting more of their food spending to grocery stores. Stock prices in the sector trailed the performance of the S&P 500 in 2025.

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Sara Senatore, senior restaurant analyst at Bank of America, says that in previous downturns the impact of belt-tightening among lower-income customers has been offset by higher-income diners trading down from more expensive options. “We are looking for the trade-down that was present during the global financial crisis and we have not seen it yet,” she adds.

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The struggles of quick-service restaurants also speak to the growing bifurcation in the U.S. economy, where restaurants and other businesses that cater to low-income Americans are experiencing reduced sales as their customers increasingly struggle to make ends meet, while businesses that cater to affluent consumers enjoy resilient spending bolstered by booming stock markets.

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Fine dining restaurants were the top-performing segment of the restaurant industry in December as high-earning households splurged, Black Box Intelligence found.

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“If you build data centres, or provide energy, or sell to higher-income customers, or trade on Wall Street, or build pharmaceutical plants, or live in the Carolinas, your economy is hot,” said Tom Barkin, president of the Federal Reserve Bank of Richmond, in a speech in November.

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“But if you’re a farmer, or a realtor, or a manufacturer hurt by tariffs, or are dependent on lower-income consumers, you are struggling.”

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Families on tight budgets have been the fast-food industry’s core customers ever since brothers Richard and Maurice “Mac” McDonald converted their San Bernardino drive-in restaurant into what is widely considered to be the first quick-service restaurant in 1948.

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Instead of being served meals on ceramic plates by “carhop” serving staff, diners at McDonald’s became the first to walk up to a counter to order 15 cent hamburgers from the restaurant’s streamlined menu and eat them out of disposable packaging. Eliminating costly servers and implementing an assembly-line system in the kitchen that didn’t require specially trained cooks allowed McDonald’s to serve food cheaper than other establishments at the time.

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“Working-class families could finally afford to feed their kids restaurant food,” wrote John F Love in his McDonald’s history Behind the Arches.

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But over the past decade, many diners say that fundamental draw has changed. Prices on restaurant menus have been growing faster than those at grocery stores; the cost of eating away from home has risen 52 per cent since 2015, compared to a 30 per cent increase for eating at home, according to Black Box data.

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Menu prices rose 4.1 per cent in the past year alone, according to official inflation data, well ahead of the 2.4 per cent increase in the cost of food at home.

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“This increasing price disparity is intensifying consumer ‘sticker shock’ and straining restaurant budgets,” says Victor Fernandez, Black Box Intelligence’s chief insights officer.

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The upset has perhaps been the most frustrating for fast-food diners, who tend to be younger and have lower incomes than the median U.S. consumer and find themselves under increasing financial strain from escalating housing costs.

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Haamira Al-Barati, an 18-year-old college student, says her primary frustration was not the menu prices, but the introduction of extra charges for condiments that had once been free.

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“If you’re spending this much for food, why am I paying for sauce?” she says, noting the 25 cent charge for extra dipping sauce at Wendy’s.

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Nothing captures that sentiment like the uproar that McDonald’s faced in 2024, when photos of a Connecticut restaurant charging an anomalously high US$18 for a Big Mac meal deal prompted a backlash so fierce that McDonald’s executives wrote an open letter to customers, and later provided support to franchisees to fund the return of the chain’s significantly discounted Extra Value Meals.

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Despite the chain’s best efforts, lower-income consumers’ visits to fast-food restaurants are still “declining nearly double digits”, McDonald’s chief executive Kempczinski said at its most recent quarterly earnings in November.

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“There’s some significant inflation there that the low-income consumer is having to absorb,” he said. “And I think that is affecting their outlook and their sentiment and their spending behaviour, not just in [quick service restaurants] but across a number of other product categories as well.”

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Other chains have followed with their own promotions, setting off what has been called the “fast-food value wars”. But at those chains with fewer resources available to fund headline-grabbing prices, franchisees say that the popularity of such deals has made the profit margins of their restaurants tighter still.

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“I think [fast-food] regular menu pricing is still pretty high,” says Adam Rymer, chief financial officer of fast casual burrito chain Chipotle Mexican Grill.

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“They have had to dip into value to drive transactions, and I think a lot of us in the industry are just wondering how sustainable it is in the long term.”

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Substantial cost increases for ingredients and labour are the two big factors behind the rises in meal prices at restaurant chains, whose business models were designed precisely to keep such overheads in check.

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The Speedee Service System developed by the McDonald brothers meant workers with little culinary experience could cook hamburgers, deep fry potatoes and blend milkshakes on an assembly-line system modelled on a car factory.

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It slashed labour costs and turned the fast-food industry into one of the largest employers of low-wage workers in the U.S. The Bureau of Labor Statistics estimates that the median fast-food worker earns US$14.65 per hour, compared to a median of US$23.80 across all occupations.

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Limited menus also made it easier to manage ingredient costs and allowed quick-service restaurants to purchase a small range of foodstuffs in large volumes.

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Today, both low-wage workers and ground beef are in short supply. Even as America’s broader labour market has stagnated, competition for fast-food workers has continued. Donald Trump’s crackdown on immigration has cut off the inflow of new workers in an industry where, according to the National Restaurant Association, more than one in five workers were born outside the U.S.

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The labour shortages that followed the pandemic have also reduced the tolerance among existing staff for unstable work schedules and rude or aggressive customers. The California Fast Food Workers Union led a campaign for the 2024 state law that raised the minimum hourly pay for fast-food workers to US$20, above the state minimum wage of US$16.90.

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When Julietta Garcia was first hired as a cook at a California Pizza Hut three years ago, she initially did not complain about being asked to run the cash register and wash dishes.

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“The financial need overpowered my frustration,” says Garcia, 37, who took the role because her main job at a full-service restaurant was no longer paying enough to support her husband and five-year-old son. “I felt like they were taking advantage of me, because I thought I would just cook.”

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But after seeing other workers successfully organizing to introduce collective bargaining with their employers, and learning that they had a legal right to do the same, Garcia says she and her colleagues are pushing for better pay and working conditions.

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Their gains are putting pressure on operators. Cook estimated that Wendy’s labour costs would grow 4 per cent in 2025, outpaced only by the five per cent commodity inflation driven by record-high beef prices. Even an increase in average customer spend in the past quarter was not enough to offset rising costs, Cook said.

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Prices for ground beef, one of the industry’s most foundational ingredients, reached record highs in December, according to the Bureau of Labor Statistics. A years-long drought in the American west has dried up grazing lands and forced ranchers to shrink their herds. The U.S. Department of Agriculture predicts a 9.6 per cent rise in beef and veal prices during 2026, following a 16 per cent rise last year.

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The pressure has been especially acute on hamburger-focused restaurants, for whom beef represents almost a fifth of operators’ commodity baskets, according to estimates by Bank of America Global Research. Red meat represents a similar proportion of commodity input costs at McDonald’s.

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The “accelerating cost of food” is the industry’s “primary concern,” says Fernandez of Black Box Intelligence.

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Despite the short-term pressures, executives in the sector insist that fast-food chains are poised for a turnaround.

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McDonald’s boosted sales at restaurants that have been open at least a year by 3.6 per cent in the most recent quarter compared with a year before, mostly by reintroducing customer favourites like its extra-value meals promotion and snack wraps.

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Wendy’s announced a turnaround plan called “Project Fresh” in October to revitalize the customer experience with kitchen technology that speeds up food preparation, along with revamped marketing. The chain said it had already implemented the changes at company-owned stores, which outperformed their franchised counterparts in the most recent quarter.

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Other companies are hoping that promotions will keep bringing customers through the doors. At the start of December, McDonald’s launched a holiday-themed Grinch Meal and Chick-fil-A reintroduced a peppermint flavour to its milkshake line-up. Both initiatives boosted foot traffic during the holiday season, according to Placer.ai.

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Sharon Zackfia, a partner and head of consumer research at investment bank William Blair, points out that early traffic data shows that diners’ spending “ended the year on an upward arc that has continued so far in January”.

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Kevin Asarba, 18, says he has begun visiting fast-food restaurants more often in recent months, stopping by Wendy’s or McDonald’s about twice a week to save time and to take advantage of the new deals. “They are just everywhere and the food is always fine,” Asarba says, after finishing a US$6 chicken sandwich at Wendy’s. “Everywhere is expensive, so this is a pretty good price for a meal.”

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But despite executives’ best efforts, analysts warn that restaurant operators may still be at the mercy of consumers’ faith in the broader economy.

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“The labour market is the best predictor of demand for quick-service food,” says Bank of America analyst Senatore, “and the softening [of hiring patterns] is giving me pause.”

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© 2026 The Financial Times Ltd

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