The impact of a K-shaped economy on foodservice.

Developing a clear outlook on the state of the foodservice industry represents a daunting task given the current economic and operating conditions. That’s because “the reality is it’s a pretty mixed economic environment right now. There are two Americas and the K-shaped economy has become the latest iteration of that,” says Chad Moutray, Ph.D., vice president of research and knowledge for the National Restaurant Association. 

A K-shaped economy refers to an environment with two divergent paths, much like the letter K. Higher income households represent the ascending branch of the K. Lower income households represent the descending branch of the K, emblematic of the struggles some have to make ends meet. Which branch of the K best describes an individual’s current condition will also shape their outlook on the economy. The same applies to businesses in the foodservice industry.

“There’s still a lot of resilience in the economy because there are people out there who are still spending,” Moutray says. “The stock market is at a record high. Wage growth has been pretty solid. If you own a home, you are looking pretty good.”

Those economic indicators tend to benefit the branch households with annual incomes of more than $150,000. For those in that income range, “things are looking pretty good,” Moutray says. “You see that reflected not just in restaurants but in other parts of the economy as well. That branch of the K is what has kept the economy afloat.”

Then there’s the other branch of the K. “There’s lots of Americans struggling to make ends meet,” Moutray says. “If you don’t own a home, you feel priced out at this juncture. We’ve seen a lot of inflation over the past couple of years.”

The Economy

The U.S. economy is in a period of slowing but positive growth and it appears that will be the case for the next several years. In 2024, U.S. gross domestic product grew at a rate of 2.8%, per data from The Conference Board. For 2025, The Conference Board projects GDP growth will slow to 1.8% and in 2026 it will slow a little more to 1.5%. Finally, in 2027, The Conference Board projects GDP will start climbing, posting a projected growth rate of 1.8%. For its part, the National Restaurant Association projects U.S. GDP will grow at a rate of roughly 2% in 2025 and 2026.

Slow but steady GDP growth is not unique to the U.S. economy. Take, for example, Europe, where GDP grew at a rate of 1.2% in 2024, per The Conference Board. In 2025, Conference Board estimates call for Europe’s GDP to grow at a rate of 1.3%. For 2026 and 2027, projections call for growth rates of 1.5% and 1.6%. Results will vary considerably by country. 

Not surprisingly, a similar moderate growth scenario continues to play out on a global scale. In 2024, global GDP grew at a rate of 3.3%, per The Conference Board. In 2025, that will drop to 3.1%, per a Conference Board estimate. Its projections call for real growth rates of 2.9% in 2026 and 3.0% in 2027.

Tariffs remain a significant factor in the overall performance of the U.S. economy. When President Donald J. Trump was sworn in in January, an aggressive, tariff-centered trade policy began to unfold, as many economists have noted. The administration touted multiple objectives for doing so, including onshoring of manufacturing, balancing trade deficits and generating revenue for the federal government, among others. 

The speed and sweeping nature of such an approach made many economists pause. “If you go back to the spring, a lot of us thought the risk of a recession was higher,” Moutray says. “Now I don’t know many economists who feel a recession is inevitable. So, we have to give ourselves credit and acknowledge that things have improved.”

At the same time, though, many economists feel the true impact of these tariffs has yet to be felt. And that leads to a cloud of uncertainty that’s obscuring business leaders’ ability to look to the future. “Businesses need certainty. They invest on what they feel the next two years, three years or even a decade will hold,” Moutray notes. “The lack of clarity is what has held back some investment in the overall business sector.”

When looking at the impact tariffs have had on the foodservice industry, Moutray points to mixed results. “The reality is that tariffs have impacted overall commodity prices,” he says. “But we’ve also been blessed in that a lot of restaurants source their food and supplies domestically or within the U.S., Canada, Mexico relationship. Those products that are USMCA compliant have not seen those increases. So, it could have been a lot worse.”

In 2026, the USMCA will be up for renewal, which is something to watch. “You will see restaurants clamor for the renewal of that,” Moutray adds.

It’s also important to note that not all imports take the form of finished goods. Coffee represents one such example. When it enters the U.S., coffee often gets sold to roasters, who then prepare it for sales in restaurants, retail and more. According to The Conference Board, the U.S. imports 33% of its coffee from Brazil, a country that had 50% tariffs as of October. This is a cost that will impact many consumers. 

Consumer Matters

Given all this economic uncertainty, it should come as no surprise that consumer spending patterns are evolving. 

“In all of our modeling and forecasting work, the variable that stands out as being more different is consumer sentiment,” notes David Portalatin, Circana’s senior vice president and industry advisor, food, and foodservice. “Some of the underlying fundamentals of the economy are not that bad. Unemployment is still relatively low, for example. The difference is the uncertainty. You can’t get on social media or watch a news program or talk to your neighbors without it being an overall negative environment. We are talking about global conflict. We are talking about government shutdowns. We are talking about divisive policy matters or national tragedies. There’s always something that has the consumer feeling a little sour. Consumer sentiment is one of those things that is holding the industry back.”

To help assuage consumers’ fears, “value” has emerged as a key industry buzzword. 

Consumer-perceived value-menu traffic increased 1% across the total foodservice universe for the 12-month period ending in June, per data from market research firm Circana. This builds on 2% growth related to value-menu traffic from the previous year. What’s notable about this trend, Portalatin notes, is the fact that dining on a deal is up 1% while overall foodservice traffic declined during that 12-month period.

Chili’s represents one such example of how dining on a deal can help drive performance. During parent company Brinker International’s first fiscal quarter of 2026, Chili’s posted a same-store sales increase of 21.4% and a traffic increase of 13.1%. The company attributes this to a variety of factors, including its “3 for Me” value meal promotion, as well as menu improvements and operational updates aimed to enhance speed of service.

“Value is still paramount, but value does not mean meeting a price point. For those consumers most focused on the least expensive place to eat, they will go to their pantry or refrigerator every time,” Portalatin says. “But once they decide to go outside of their home food supply, they are paying a $6.64 premium per eater. Yes, value matters but it’s also about what they are getting for that premium. Quality? Craveable indulgences? Healthier options? Differentiated experiences? Or more convenience? These are the ways successful operators will distinguish themselves in the marketplace.”

The appeal of lower prices continues to motivate consumers to use restaurants. That same Circana study notes that 50% of people who had not recently dined out would be encouraged to visit restaurants with lower prices. Among households with income levels at less than $75,000, a total of 54% said they would visit restaurants more frequently for better prices. 

“Among the lower and middle classes, you see a lot of stress on value,” Moutray says. “Those restaurants who are communicating and delivering on that value have done well, and have succeeded.”

Despite all the changes and challenges the industry faces, its bread-and-butter dayparts remain the same. 

“Breakfast, lunch, and dinner will always be the main things. That’s not going away. But our rhythms of the day have been disrupted,” Portalatin says. “We now see more occasions described as a morning snack or brunch. What are these brunch occasions? They are not boozy bloody marys and omelet bars. These are mobility-driven occasions at a drive-thru window. The consumer did not know what to call it. Similarly, we are seeing more late night occasions.

“When you think about the types of foods that would be useful for such occasions, they tend to be smaller portion sizes and maybe more portable options,” Portalatin notes. “Foodservice operators need to learn how to keep their bread and butter working — namely breakfast, lunch and dinner — but also to accommodate these more flexible, portable opportunities that are emerging around those main dayparts.”

Restaurant Industry Sales

Overall sales are expected to grow to $1.53 trillion in 2025, per an estimate from the National Restaurant Association. In real terms, this represents a 0.3% increase from 2024. If this holds, 2025 will mark the second consecutive year of real but moderate growth for the industry, which saw sales increase to $1.41 billion in 2023 and $1.47 billion in 2024, per NRA data.

Datassential’s projections for next year call for relatively modest growth in real terms, too. The company estimates consumer spending at eating and drinking places will come in at $940.4 billion in 2025. This is $42.6 billion greater than 2024, yet it only tells part of the story. Of that increase, Datassential’s projections say only $8.0 billion was in real dollars, meaning the remaining dollar growth is attributable to inflation. 

Looking ahead to 2026, expect more of the same. Datassential’s projections call for consumer spending at foodservice operations to total $978.8 billion, of which only $10.6 billion will be in real dollars, with the remainder of the growth coming from inflation. In other words, overall growth rate from 2025 to 2026 will be 1.6% in real terms, per Datassential. Overall, from 2021 to 2026, Datassential says consumer spending at restaurants will increase a total of $277.5 billion, of which 75% will be inflation driven.

A moderate growth environment, though, should not come as a surprise to seasoned industry observers. “Foodservice is a very structurally mature, very flat industry. Even with improvements in the macroenvironment, we would expect customer traffic to increase roughly 1% going into next year,” Portalatin says. “Gone are the days of the ’80s and ’90s when we had consistent growth of 2% or more every year. This business has essentially been flat since the 2000s. I tell people that flat is the new up. We will see a little incremental growth going into 2026.”

During a period of moderate sales growth, it’s only natural to expect operator purchasing to moderate as well. Datassential projects operator purchases of food, beverages and supply items will increase 0.9% in 2025, 1.1% in 2026 and 1.3% in 2027.

In terms of locations, overall unit count is up 1% year over year, says Portalatin. “In any given year, you will have older units that close and new ones that will open,” he says. “In a structurally flat market, it’s one of the reasons we are struggling to reach same-store location goals. The industry continues to increase units faster than the demand is growing.”

The Economy’s Impact on Foodservice

In many respects, views of the current state of the restaurant industry reflect the national economy. “There’s a lot of mixed news out there about the economy and mixed news that pertains to restaurants. I’ve heard both iterations of this story,” Moutray says.

One thing all foodservice operators can agree upon is the costs of doing business continue to soar. Since the pandemic, restaurants have seen food costs increase 36% and labor costs 35%, says Moutray. And through September of this year, menu price inflation was up 3.7% year over year.

As a result, the pressure on profits continues to add up for operators. “Those cost increases have been pretty intense,” Moutray adds. “We’ve seen a profit squeeze since the pandemic.”

“That’s why we see the average eater check growing at a rate faster than retail prices,” Portalatin adds. “The cost of dining out is still up 34% over the past five or six years.”

The National Restaurant Association’s Restaurant Performance Index, a bellwether of industry performance, “is flat to negative but that’s because foot traffic is flat to negative,” Moutray adds. “When we ask restaurants about their overall performances, they are really anxious right now.”

Noncommercial foodservice has fared a little better than commercial restaurants for a variety of reasons, Portalatin points out.

Take, for example, the K-12 foodservice sector, where Datassential projects consumer spending will increase 0.8% in 2026. 

And a slow but steady number of businesses continue to evolve with their back to office plans, which will lead to a 0.8% increase in consumer spending at business and industry foodservice operations. For example, according to data from Kastle Systems, which provides security services for properties across the country, weekly office population is at 53% of pre-pandemic levels. That’s up from 49% last year.  “That has benefitted the restaurant industry in the morning more so than at other times,” Portalatin notes.

One might naturally assume that more people returning to the office with greater regularity might benefit restaurants in these business districts but that is not always the case. “Consumers can get a subsidized or free lunch at the workplace cafeteria, which allows them to save money when compared to going out to eat at a restaurant. As a result, the business and industry segment is doing a little better,” Portalatin notes.

In a nod to the K-shaped economy, fine dining restaurants are doing better, too. Datassential projects a 0.59% increase in consumer spending among these operations in 2026.

“Fine dining is a small segment, but traffic is up,” Portalatin says. “And we are seeing some casual dining operators doing much better, particularly as they provide more on the experiential level.”

Another segment doing better than some of the others is fast-casual. In fact, Datassential projects consumer spending will increase 2.0% in this segment during 2026. 

“That goes against conventional wisdom because a lot of the bigger companies are missing their comp store sales numbers,” Portalatin notes. “But that’s because they are still building more restaurants. They are capturing a growing share of customer traffic as they expand their footprint. The macro headwinds are still causing them to fall short of their sales targets.”

By the same token, some chain operators have chosen to close some units in order to make their overall systems stronger. One such example is Starbucks, which over a three-month period closed 627 locations worldwide which translated into a net closure rate of 107 units. More than 90% of those locations were in North America.

Portalatin also points to positive developments within the entertainment and recreation segments, such as cruise lines, movie theaters and other entertainment venues. “Yes, the American consumer is being cautious. There’s a bifurcation between high and low. But, in general, there is some pent-up demand for a little bit of an escape; for an affordable indulgence like going out to a movie or getting a treat or reward from a restaurant.”

A natural outcome of consumers’ emphasis on experiences means on-premises dining occasions are on the rise at restaurants. “They are smaller than they were five or six years ago and forever will be,” Portalatin notes. “But in the moment, with this return to office environment, you have a consumer who is looking for that third place. We’ve increased our capacity to do life at home. We’re readapting to the workplace, but we need some escapism. We need some experiential occasions.”

Finding Foodservice Success in 2026

Since foodservice represents a mature market, and the macroeconomic headwinds show no signs of subsiding as of this writing, is there any reason to believe 2026 could be any better than 2025? 

Moutray, for one, sees a few reasons for optimism on the horizon. “I think you are going to see some softer growth in the next couple of quarters but as you move through 2026, though, you will see some positive developments.”

When Congress passed the One Big Beautiful Bill earlier this year, the National Restaurant Association pointed out several tax provisions it felt would benefit operators, including the ability to fully expense capital equipment purchases, 20% of qualified business income deduction, business interest expense deduction and permanent family and medical leave tax credits. 

“The bill has provisions in it that will provide some stimulus for the economy,” Moutray says. “Hopefully, we are going to have some greater certainty on the tariff front. And we are going to have lower interest rates from the U.S. Federal Reserve. All those things are going to combine to help improve the economy over the course of 2026.”

Lower interest rates can benefit the industry. “Hopefully, lower interest rates will lower the cost of capital and help restaurants make some additional investments in their businesses,” Moutray notes.

What will it take for operators to be successful next year? “Success in 2026 will take being strategic, finding those pockets of growth where consumer trends are accelerating demand,” Portalatin says.

For those looking for data points to monitor in the coming year, Moutray offers two. The first is continued moderation of costs. “That has really impacted operators success. Prices don’t necessarily have to go down but some moderation in costs would be helpful for the industry,” Moutray adds.

The second would be improved foot traffic at restaurants and other foodservice operations. “The number one thing that keeps restaurant operators up at night is turning around traffic. It’s been relatively flat to negative,” Moutray says. “The question becomes how can you get more bodies in the restaurant or increase your off-premises or both? If we can increase traffic, that would be a success.”

Of course, 2026 won’t be without its challenges.

“The labor market has been pretty soft. It has continued to weaken considerably since the summer,” Moutray says. “We don’t have data right now because of the government shutdown but the October labor numbers are going to be pretty bad largely because of the federal government aspect and the layoffs coming from there.

“Until now, the labor market has really kept us afloat the past couple of years. It’s hard to have a recession when you are at full employment,” Moutray adds. “That weakness in the labor market is a bit of a red flag for me. And I will be looking at the labor market pretty intently over the next few months and how it impacts consumer spending, consumer confidence and business confidence.”

One factor the industry has going for it is its resilience and that will be critical moving forward. “Think of all that restaurants have gone through during the past decade. There’s been a trade war, supply chain bottlenecks, a pandemic and labor tightness. Every time you turn the corner there’s another challenge,” Moutray says. “Restaurant operators have to be agile because you don’t know what will happen around the corner. Flexibility is a trait true leaders will have to master given that uncertainty is the new normal.”