President Trump’s tariffs are disrupting the plans of major fast food companies, which are already grappling with higher costs and reduced customer traffic. However, anxious investors are eyeing value-driven chains that could appeal to budget-conscious diners. McDonald’s (MCD) shares reached a historic peak on Friday, climbing 5% over the past week amidst market turbulence caused by tariff updates. Yum Brands (YUM) (which owns KFC, Pizza Hut, and Taco Bell) has seen a 22% increase in its shares this year, while Restaurant Brands International (QSR) (owner of Burger King, Tim Hortons, and Popeyes) has experienced a 6% rise. In contrast, Chipotle (CMG), Cava (CAVA), and Shake Shack (SHAK) saw their shares decline by 9%, 11%, and 15% respectively in the previous week, reflecting a shift away from upscale fast-casual options.
According to Wedbush analyst Nick Setyan, McDonald’s value-focused menu is driving positive customer visits, setting it apart in a challenging restaurant landscape. Amid an uncertain market climate, investors are favoring larger industry players. However, the long-term outlook for the sector remains uncertain due to the unpredictable nature of tariff announcements. The recent extension of a one-month tariff exemption to USMCA-compliant goods by President Trump has provided temporary relief, but uncertainty looms as the exemption is set to expire on April 2.
The imposition of tariffs is impacting the restaurant industry across various fronts, from equipment costs to utility prices and potential inflation in key product categories. The future adoption of AI and other technological advancements by restaurants may also be hindered by these additional expenses. The current environment has led to a cautious approach among industry stakeholders, with a focus on short-term priorities like maintenance rather than long-term investments in new technologies. Rising prices, including those resulting from the China tariff, may further impact consumer spending power, particularly in the dining-out sector where prices have been outpacing grocery costs.
In this challenging landscape, value offerings are expected to reign supreme for the foreseeable future.
In 2025, fast food chains might encounter increased costs as they expand, but those who excel in offering value could still thrive in the uncertain market. At Taco Bell’s recent investor day, CEO Sean Tresvant mentioned that consumers are cautious about spending, yet willing to splurge if presented with a compelling offer. Tresvant emphasized that consumers still seek out top-notch brands and revealed that Taco Bell is employing a dual strategy of providing both value-centric and premium menu items like birthday churros and cantina chicken. The company aims to boost its value offerings from 13% to 18%. While attracting customers with value items can drive foot traffic, Tresvant pointed out that orders from the value menu tend to result in higher overall spending. Taco Bell anticipates an 8% growth in same-store sales for the first quarter, with analyst Peter Saleh from BTIG noting its success in the value segment. Yum Brands saw a surge in its stock value following a strong fourth-quarter performance that exceeded market expectations. KFC’s sales remained steady, while Pizza Hut experienced a slight decline. The standout performer was Taco Bell in the US, contributing to Yum Brands’ positive performance. Conversely, other fast food chains struggled post-earnings due to cautious consumer spending habits and stiff competition in the value segment. Domino’s shares dipped after falling short of forecasts in the fourth quarter, and McDonald’s faced challenges with declining foot traffic despite its strong presence in value meals. Looking ahead, growth prospects appear more favorable for robust brands like Taco Bell compared to smaller chains or weaker brands such as Wendy’s. However, international expansion plans could face obstacles if a trade war ensues, potentially impacting the approval process for US brands in foreign markets. Analysts caution that a decline in the perception of US brands abroad could lead to complications for major players like KFC, McDonald’s, Chipotle, and Starbucks in their global expansion efforts.
