Fast-food sales confirm U.S. economy is on struggle street
Fast-food and drive-thru sales are powerful gauges of an economy’s health because they capture real-time consumer behaviour, particularly among lower and middle-income households. Unlike government data or consumer confidence surveys, which can be delayed or skewed by sentiment rather than action, fast-food sales reflect what people are actually doing with their money.
When discretionary spending tightens – often a sign of economic stress – consumers may skip small indulgences like a quick burger or coffee, opting to save money by eating at home. As many QSR (Quick Service Restaurant) operators in the U.S. have recently reported their first quarter results, including McDonalds this week, I looked at whether they offered any insights into the condition of the U.S. economy.
This shift in spending behaviour is especially useful from chains like McDonald’s, which serve a broad, value-conscious customer base. A drop in fast-food visits or a move toward cheaper menu items can signal broader economic pressures, such as inflation, job insecurity, or declining disposable income. Conversely, steady or growing sales, especially for premium items, suggest consumer confidence and spending power.
Because fast-food is a low-cost, frequent purchase, it’s sensitive to subtle changes in financial behaviour, making it a useful leading indicator, and something investors might like to tune in to.
In the first quarter of 2025, the quick-service restaurant (QSR) industry is sending mixed signals, with declining sales and foot traffic at major chains like McDonald’s, Starbucks and Chipotle.
McDonald’s
McDonald’s, the world’s largest restaurant chain, reported a significant 3.6 per cent drop in U.S. same-store sales for Q1 2025, marking its worst performance since the 2020 pandemic lockdowns. This decline was driven by reduced foot traffic, with both low- and middle-income consumers pulling back. Consumers’ social media posts echo this sentiment, with many noting that rising menu prices – US$12 for a burger or US$5 for a soft drink – have made fast-food feel like a luxury for some, pushing customers to cook at home or seek cheaper alternatives.
McDonald’s CEO Chris Kempczinski reported inflation is hitting lower-income families hardest, with many “dropping out of the market” entirely. To counter this, McDonald’s extended its US$5 meal deal through the summer of 2024 and is doubling down on promotions like free fries via its app.
McDonald’s is a bellwether for consumer spending. Its broad customer base, especially value-conscious diners, makes it a reasonably reliable indicator of the condition of discretionary spending. When affordable fast-food sees a pullback, it suggests inflation and economic uncertainty are seriously squeezing wallets.
The question however is whether the pulling back of cheaper fast-food spending represents the end of the line for cost cutting, or just the beginning. Do consumers cut a trip to McDonald’s first or last? Perhaps the reduced spending is coincident with reduced spending in retail and entertainment. The fact that middle-income groups also show traffic declines raises further red flags about the U.S. economy’s resilience.
Starbucks and Chipotle
Starbucks, which caters to a more affluent demographic, also faced headwinds, with U.S. comparable transactions falling four per cent in Q1 2025 compared to an already weak prior year. The coffee giant cited fewer visits as a key driver, with grocery prices rising only 1.1 per cent compared to 4.1 per cent for restaurant meals, incentivising consumers to brew coffee at home (That might be good for Breville!).
Activist investors like Elliott Investment Management and Starboard Value have taken stakes in Starbucks, signalling dissatisfaction with its strategy amid a 14 per cent sales drop in China and sluggish U.S. performance. Starbucks is responding with more discounts and meal combos to lure customers back.
Chipotle’s results also reinforced the experience at McDOnald’s and Starbucks, with an anxious consumer forcing the burrito chain to report declining quarterly sales for the first time in nearly five years and to lower the top end of its outlook for full-year same-store sales growth.
The company noted foot traffic started slowing in February as diners began worrying more about their finances. The trend has continued into April.
Chipotle said Trump’s newly enacted tariffs, including those on aluminium, will impact Chipotle’s cost of sales by about 50 basis points. The company imports beef from Australia, which faces a 10 per cent tariff, and paper and packaging material from China, which faces a 145 per cent duty. The company also imports some tomatoes from Mexico, which was hit by a 21 per cent tariff.
In the earnings call, Chipotle CEO, Scott Boatwright, said, “We could see this in our visitation study, where saving money because of concerns around the economy was the overwhelming reason consumers were reducing the frequency of restaurant visits.”.
Both Starbucks and Chipotle’s results suggest that it’s not just the lower socio-economic consumers who are tightening their belts.
Domino’s
Domino’s, the value-oriented pizza chain in the U.S., offered a different spin on the belt-tightening, while reporting results that lagged expectations in Q1 2025. The company noted a shift from delivery to walk-in orders, a clear sign of cost-conscious behaviour as delivery fees add up. CFO Sandeep Reddy warned of a “challenging macro backdrop” pressuring low-income consumers.
Finally, data from Placer.ai, which tracks foot traffic using mobile phone location data, paints a broader picture of the QSR industry. According to the company, U.S. visits to quick-serve restaurants fell 1.6 per cent year-over-year (YoY) in Q1 2025, continuing a trend of declining traffic.
QSR and fast-casual visits followed similar monthly patterns in Q1 2025 – rising in January, dropping in February, and then stabilizing in March. A minority of chains, including Raising Cane’s Chicken Fingers (+12.3 per cent) and Taco Bell (+3.7 per cent), saw YoY visit growth, while papidly-expanding mid-sized fast-casual chains – Dave’s Hot Chicken, CAVA, and Sweetgreen – saw significant YoY visit growth in Q1.
What this means for the U.S. economy
The fast-food sector’s performance suggests that the U.S. economy is under pressure in 2025.
With restaurant prices rising faster than grocery prices (4.1 per cent vs. 1.1 per cent over the past year), consumers are opting to eat at home, especially lower-income households. This shift reflects a broader squeeze on disposable income, as cumulative price hikes since 2020 (24 per cent for restaurants vs. 19 per cent for groceries) erode purchasing power.
Figure 1. University of Michigan Consumer Sentiment Survey.
Source: University of Michigan, Haver Analytics, Apollo Chief Economist
Consumer confidence surveys, such as the University of Michigan survey (Figure 1.) already show declining, if not plunging, sentiment. Fast-food sales however provide a more tangible measure of economic health. The fact that Americans are skipping or downgrading food purchases – small, routine expenses – indicates real financial strain.
Higher-income consumers might still be spending, but even they are showing caution, as seen in Chipotle’s recent concerns about economic uncertainty. Meanwhile, lower- and middle-income groups are cutting back significantly, signalling potential weakness in mass-market retail and services.
For now, the message from U.S. drive-thru’s is clear: Americans are feeling the pinch, and their changing habits could foreshadow tougher times ahead. When even fast-food becomes a luxury, you know the economy is broken
Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience.
David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
