Major restaurant chains are stumbling this year. Chipotle has highlighted softer spending from younger guests, Starbucks is working through weaker US traffic, and even McDonald’s has acknowledged pressure among lower-income diners.
These headlines have fueled a familiar narrative that the economy is weakening and that consumers are pulling back. But the data tells a different story. Rather than retreating, consumers are becoming more rational, reassessing where they spend and gravitating toward the strongest relative value.
After years of post-pandemic pricing distortion, the gap between restaurant inflation and grocery costs has widened dramatically, and a new wave of discounting across quick-service restaurants (QSRs) – classic fast-food chains like McDonalds and Wendys – is reshaping traffic patterns across the industry. In this environment, value perception now drives performance. Restaurants that protected affordability are gaining share, while those that overshot consumer expectations are now giving it back.
The Battle Raging in Fast Food
In the post-COVID era, many consumers enjoyed elevated disposable income thanks to stimulus checks, paused rent and utilities, and extra savings. Quick-service chains, especially burger-focused QSRs, took the opportunity to raise prices aggressively. Since 2019, burger QSR prices have risen roughly 50 to 55%, far outpacing the roughly 30% increase in grocery costs.
As stimulus-era conditions faded in 2023–2024, the long-standing relationship between restaurants and grocery reemerged. For many households, especially lower-income ones, QSR functions as a direct substitute for eating at home. When QSRs become more expensive than groceries, diners shift back. As a result, roughly 10% of prior restaurant traffic has moved back to grocery over the past two years.
Within QSR, pizza and burgers have responded very differently. Pizza QSRs raised prices only about 27% over the same period, making it significantly more affordable than other dining options. That advantage is driving traffic, especially among lower-income households that use QSR as a primary meal replacement.
Burger QSRs, on the other hand, are now facing the consequences of their prior pricing strategies. As their value gap widened, diners migrated away – not only toward pizza, but toward casual dining and grocery. With labor and commodity costs still elevated, many burger-focused franchises lack the flexibility to sharply reduce menu prices. Instead, they have leaned into value since late 2023, rolling out five-dollar bundles, cheaper wraps, and more prominent discount tiers. Those efforts are starting to improve perceived value, but they come with real margin pressure.
The New Shape of the Middle of the Market
While the fast-food battle has drawn the most attention, other segments are adjusting to the same value-driven forces.
Fast casual dining – the tier above QSR, offering higher-quality and made-to-order meals at slightly higher prices – includes restaurants like Chipotle and Panera. From 2021 to 2023, these brands gained traffic as consumers traded up from burger QSR. But once QSRs returned to value in 2024, traffic momentum faded. Younger diners who had been gravitating toward fast casual are now shifting back to QSR as the price gap narrows. To stay competitive, fast casual operators now need to hold price increases below QSR, supporting traffic but pressuring margins.
Casual dining sits a step above both QSR and fast casual. It includes full-service restaurants with table service, larger menus, and historically higher price points, such as Chili’s and Olive Garden. With price increases of only about 30% since 2019, casual dining is now closer to QSR in affordability than at any point in the past decade. Third-party delivery has also shrunk the convenience gap. And unlike many QSR chains, casual dining operators often avoid delivery markups, giving them an unexpected edge with value-oriented customers. As a result, these restaurants are increasingly being used for everyday meals, not just special occasions.
Family dining remains the most challenged category. Brands like IHOP or Denny’s – sit-down restaurants focused on comfort food and all-day breakfast – rely heavily on breakfast, the daypart that faces the most at-home competition and is most easily replaced at home. Family dining also skews toward lower-income households that have felt inflation most acutely. Despite price increases of roughly 38% since 2019, profitability has fallen from about 15% to just over 9%, the lowest in the industry.
Across the industry, the pattern is clear: consumers are not spending less; they are reallocating toward the formats that give them the strongest relative value.
Why the Consumer Wins
Looking toward 2026, the restaurant industry seems destined to continue its broad price war. QSR burger chains, after years of outsized price increases, are working to rebuild affordability. Their strategy is to slow check growth and lean on low-cost bundles to win share back. The goal is for average check growth – the rate at which the typical amount a customer spends per visit changes – to fall below grocery inflation, bringing the cost of eating out back in line with food at home.
The price war will end when that balance is restored. Once restaurant pricing moves back in line with grocery, value perception improves and traffic patterns begin to normalize. In that environment, fast food may reclaim some of its lost footing.
The restaurant industry is not in decline – it’s in transition. As prices reset, the competitive landscape will settle into a more sustainable balance. Chains that preserved affordability are already gaining share, while those that didn’t are now rebuilding trust.
The broader takeaway is straightforward: consumers are not weak. They are rational. And the brands that understand this shift in behavior – and align their strategies with it – will be the ones that lead the next phase of the industry’s growth.
