A Restaurant Rotation Is Underway: Traffic Tells the Story
- - A Restaurant Rotation Is Underway: Traffic Tells the Story
Bryan White, The Motley FoolFebruary 2, 2026 at 5:50 PM
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Key Points -
Pricing power had its limits in 2025 as consumers became more focused on value.
Some popular fast-casual brands struggled, while some casual-dining operators gained ground.
The consumer shift and widening divide among restaurant operators are expected to continue into 2026.
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It was a difficult year for restaurant stocks in 2025. During the past 12 months, the segment is down about 0.7%, trailing the S&P 500's 16% gain by a wide margin.
Although the restaurant index was little changed, there have been some wild moves in individual stocks: Sweetgreen (NYSE: SG) collapsed by 80%, Cava Group (NYSE: CAVA) dropped 50%, and even Chipotle Mexican Grill (NYSE: CMG) fell 30%.
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Analysts anticipated industry sales growth of 4% to $1.5 trillion in 2025, even as guest traffic declined for many operators. After years of inflation-driven price increases, customers became more selective and changed their spending patterns.
As prices rose, the perceived gap among quick-service (QSR), fast-casual, and sit-down dining narrowed. In this environment, some fast-casual chains are struggling to defend their premium pricing, while some casual dining and QSR concepts are better positioned to take market share.
Taking a tour of the restaurant landscape
For investors, the best way to start to analyze the industry is by looking at the underlying business models.
Quick-service restaurants are typically high-volume chains, where convenience, speed, and affordability matter most. McDonald's (NYSE: MCD) remains the industry benchmark, reporting a 2.4% gain in domestic same-store sales (comps) in the third quarter, a reminder of the business model's durability in turbulent times.
Others, including Wingstop (NASDAQ: WING), have emerged by focusing on doing fewer things well while using a digital-first model to maintain margins amid food-price inflation.
Fast-casual, which is positioned between QSR and casual dining, was hit the hardest in 2025. The category centers on convenience and higher food quality at a modest premium. Chipotle and Cava felt the impact of a slowdown last year, but Sweetgreen felt the most pain, as $15 salads proved an easy budget cut.
people sitting at a restaurant.
Image source: Getty Images
Casual dining, after spending years out of favor, is making a surprising comeback. The strongest of the full-service operators benefited from a value proposition that resonated with diners. Texas Roadhouse (NASDAQ: TXRH) reported strong traffic gains in the third quarter, up 4.3%, while Brinker International's (NYSE: EAT) Chili's delivered one of the strongest performances in the category.
The metrics that matter most
When looking at restaurant stocks, a handful of metrics can tell you how the business is really performing.
Comps are the industry standard for measuring organic growth. The metric tracks sales increases at locations that have been open for at least a year, stripping out the impact of new store openings and closings. Texas Roadhouse has been one of the more resilient casual dining outfits, averaging roughly 5% comps growth, reaching 6% in the third quarter.
Digging deeper into comps, the split between traffic and the average check size shows where growth is coming from. The healthiest results tend to include contributions from both higher guest counts and higher average spending. Brinker showed that at Chili's in the first quarter of 2026, when traffic rose about 13%, driving comps growth of 21.4%.
For company-owned locations, restaurant-level operating margin measures profitability after food, labor, and occupancy costs. It shows how profitable a restaurant is at the store level.
Chipotle has consistently reported restaurant-level operating margins in the mid-20% range during the past few years. In the third quarter, margins of 24.5% held up well, even as labor and food costs remained elevated.
Lastly, average unit volume (AUV) tells us how much revenue each location generates on average, a useful way to assess brand power and site selection. Chipotle has long set the industry standard, with AUVs now above $3 million. That level of volume provides the scale needed to better absorb rising costs and protect margins.
Heading into 2026
Entering 2026, the consumer remains unpredictable. At Brinker, the company's "Better Than Fast Food" campaign continues to help it take market share. During its most recent earnings call, management reported healthy demand from all income levels, noting particular strength in lower-income households.
On the fast-food side, McDonald's continues to warn that pressure on lower-income consumers is likely to persist well into 2026. These recent results show that value perception varies widely by concept, with some chains clearly resonating more with price-conscious diners. The coming round of 2025 fourth-quarter earnings reports should help clarify which way traffic is trending for the industry in 2026.
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Bryan White has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cava Group, Chipotle Mexican Grill, and Texas Roadhouse. The Motley Fool recommends Sweetgreen and Wingstop and recommends the following options: short March 2026 $42.50 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
Source: “AOL Money”
