Soaring gasoline prices are putting a significant dent in U.S. restaurant sales, with many chains reporting weaker-than-expected growth as consumers tighten their budgets. The average price for a gallon of gas has climbed to $4.45 nationwide, a 41% increase over the past year, according to AAA data. In some states, like California, prices have even surpassed $6 a gallon.
A new analysis by Revenue Management Solutions, a restaurant consulting firm, highlights that $4 per gallon acts as a critical threshold. Beyond this point, consumers begin to reduce their restaurant visits, with the impact doubling once prices reach this level. The firm estimates that at an average of $4.20 per gallon, restaurant visits could decrease by 1.5%. If prices climb to $5.10 or higher, fast-food restaurants might see a 3% drop in customer traffic. For a drive-through establishment with 300 daily transactions, a $1 increase in gas prices could lead to a loss of about six customers per day, translating to approximately $22,000 in lost annual sales.
Wingstop, a chicken-wing chain known for its affordability, reported an 8.7% decline in quarterly same-store sales, citing higher fuel prices as a contributing factor. CEO Michael Skipworth acknowledged the difficulty in predicting the current economic environment and expects shrinking sales to continue this year due to persistently high gas prices.
Domino’s CEO Russell Weiner noted that competitors’ aggressive promotions, which he described as “out of our playbook,” impacted his chain’s same-store sales growth of 0.9% in the latest quarter. While Domino’s is better positioned than rivals to sustain discounts, the company has lowered its sales forecast for the year.
Chipotle reported a slightly better-than-expected same-store sales growth of 0.5%, but maintained a forecast of flat growth for the year, with CFO Adam Rymer attributing this caution partly to gas price uncertainty. Starbucks, however, saw a 7.1% increase in North American same-store sales, potentially benefiting from consumers seeking affordable indulgences during uncertain economic times, according to CEO Brian Niccol.
In response, restaurants are increasingly focusing on value menu offerings to attract budget-conscious consumers. Taco Bell, part of Yum Brands, launched a value menu starting at $3 in January and reported 8% same-store sales growth in its U.S. restaurants. Mark Wasilefsky, head of restaurant finance at TD Bank, observed a “record level of value menus” across the industry.
Concerns over the restaurant sector’s resilience amid the gas price surge have impacted investor sentiment, contributing to a 5% drop in the LSEG U.S. restaurant index since the start of the Iran war, erasing over $40 billion in market value. Investors will be closely watching McDonald’s upcoming earnings report on May 7 for further insights into the industry’s performance and consumer behavior in the face of these economic pressures.
