The U.S. unemployment rate has hovered around 4% over the past year, and before that was under that rate. Gas prices, meanwhile, have been similarly stable since a mid-2022 spike.
So why is restaurant traffic so low? Blame consumer confidence.
That metric is the key driver in restaurant traffic now, according to the data and consulting firm Revenue Management Solutions, or RMS.
The firm analyzed the lowest-performing traffic periods over the past 15 years against 10 key metrics. A 10-point shift in consumer confidence can lead to a 0.5% to a 2% decline in traffic within just two months.
Guess what has happened since 2023? Consumer confidence has dropped by 14 points. “Right now, confidence is king,” RMS CEO John Oakes said in a statement.
Consumer confidence has always influenced industry results, but it has typically been overshadowed by other issues. Gas prices often create headaches for brands that have large numbers of lower-income consumers. And the unemployment rate is always a key factor—people who don’t have jobs are naturally more likely to cut back on dining. But neither of those metrics are moving enough to make a difference right now.
Yet the industry is facing a brutal sales period and not even a heavy dose of value-based offers appear to be moving the needle.
Menu price inflation isn’t keeping traffic down, though perception of those prices may be having an influence. The average price at quick-service restaurants in the second quarter of this year was up 1.3%, compared with 2.9% in the fourth quarter and 10.6% in the second quarter of 2023. Yet RMS notes that 40% of survey respondents say they are spending less of their discretionary income on restaurants.
This year has been worse than many industry executives have expected, and consumer confidence is certainly the culprit.
The metric plunged in April, according to The Conference Board, the result of concerns that the Trump Administration’s tariff policy would lead to higher prices. Confidence has stabilized since, and rose 2 points in July. But it remains well below where it was a year ago, while the Conference Board’s expectations index is well below what it considers to be a key recession signal.
It's certainly not lost on the executives themselves. Wendy’s blamed the springtime fall in consumer confidence for its own weakening sales this year. “We saw a significant shift in industry consumer behavior as we moved throughout March,” Wendy’s Interim CEO Ken Cook said in May. “Consumer confidence fell and customers increasingly pulled back from the QSR industry.”
Chipotle CEO Scott Boatwright, whose chain just reported a surprisingly weak 4% decline in same-store sales, suggested things could improve later this year, “If we could get a little favorability on consumer confidence, which seems to be trending upward in June July, and then layer the initiatives that we have in the back half of the year.” That’s according to a transcript on the financial services site AlphaSense.
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