Low-income consumers tighten their wallets, McDonald's sees a drop in customer traffic, and a chill spreads across the U.S. restaurant industry.

Low-income consumers tighten their wallets, McDonald's sees a drop in customer traffic, and a chill spreads across the U.S. restaurant industry.

The US restaurant industry is facing a severe test due to multiple overlapping headwinds.

According to the latest research by UBS analyst Dennis Geiger, macroeconomic pressures, high oil prices, and weak demand from low-income consumers continue to drag down traffic and sales at chain restaurants. Overall industry sentiment remains "generally cautious."

The latest feedback from McDonald's and Wingstop franchisees is particularly concerning. McDonald's franchisees noted that performance so far in the second quarter of 2026 has been mixed, and elevated oil prices have had a notably negative impact on the consumption demand of the core low-income customer group. Wingstop franchisees reported that same-store sales and traffic have remained negative, with multiple factors suppressing performance.

Meanwhile, the national average gasoline price has exceeded the politically sensitive threshold of $4 per gallon for ten consecutive weeks. The tax rebate boost is gradually fading, and financial pressure on wage-earning consumers is becoming increasingly palpable. Geiger warned that with tougher year-over-year comparison bases in the second half of the year and persistent recent headwinds, his outlook for the restaurant industry is becoming more conservative.

McDonald's and Wingstop Franchisees: Pressured Traffic, Varying Challenges

According to the latest communication between UBS and management and franchisees of major restaurant brands, McDonald's franchisees attribute the weak performance in the second quarter mainly to two factors: first, the high base effect in April; second, the direct negative impact of current macro conditions and high oil prices on the willingness of the core low-income customer group to spend. Franchisees admit that if macro headwinds persist, comparison pressures in the second half will also be far from optimistic.

Nonetheless, McDonald's franchisees remain cautiously optimistic about the brand's outlook and listed several potential drivers: recently launched specialty drinks (including "dirty sodas" and refreshing beverages) have raised average transaction amounts; energy drinks are expected to launch in August, along with new chicken products and snack wraps; the World Cup meal (with collectibles) had a strong start, and the fourth-quarter "Home Alone" meal is also promising; value platforms like the "under $3 menu" and "breakfast set for $4" are expected to gradually boost traffic over the coming quarters; digital, delivery, and loyalty platforms are also contributing incremental growth.

For Wingstop, franchisees cited a wider range of pressure sources: ongoing macroeconomic pressures impacting core customer groups; the high base effect from strong sales growth in recent years (including delivery, marketing expansion, and sports sponsorship); as most fast-food peers focus on chicken amid rising beef costs, consumers are showing fatigue with the chicken category; self-cannibalization is evident in some markets with high delivery penetration; intensified industry promotions are increasing competition; and social media buzz has diminished in recent years. However, franchisees expect the World Cup (June-July) to provide a temporary boost, and sales trends could turn positive later this year or in early 2027.

Restaurant Prices Remain Higher Than Supermarkets, Consumers Shift Rapidly to Home Dining

Price data is also significant. According to government data, inflation for dining out (FAFH) eased slightly to 3.5% in May (down from 3.6% in April), while inflation for home dining (FAH) fell to 2.7% (down from 3.0% in April). However, restaurant price increases remain about 80 basis points higher than supermarkets, and this gap widened from around 60 basis points in April. Fast-food prices rose by 3.3%, and full-service restaurant prices by 3.8%, both roughly flat compared to April. UBS expects restaurant price increases to moderate over the next few quarters as premium-priced items cycle out.

Consumer behavior data confirms the real impact of price pressures. According to Technomic industry research, 83% of respondents noticed price increases, and 63% have increased their frequency of home cooking as a result. Looking ahead to the next 12 months, 45% plan to reduce dining out, and 38% are actively seeking promotional deals.

The survey also revealed differences in value preferences across age groups: baby boomers and Gen X place more importance on speed and high-quality products, while young consumers care about brand identity, digital convenience, and social values in addition to price.

The Long-Term Impact of GLP-1 Weight Loss Drugs Cannot Be Overlooked

UBS also conducted a special study on the long-term impact of GLP-1 weight loss drugs on the restaurant industry. According to Michael Yee, UBS global biotechnology research head, the global GLP-1 market size will reach about $133 billion by 2030. The number of obese patients in the US undergoing GLP-1 treatment is expected to grow from about 5 million in 2025 (about 1% of the population) to over 10 million in 2030 (about 5% of the adult population), with new drug development and greater convenience offering further upside.

Recently launched oral GLP-1 drugs are expected to account for about 20% of the overall market in the long run. However, because their efficacy is weaker than injectables, they are not expected to disrupt the US market in the short term. Currently, about 50% of GLP-1 users stop medication after one year due to high costs, but as insurance coverage (including Medicare and Medicaid) expands and out-of-pocket costs decrease, treatment duration is expected to lengthen.

UBS believes GLP-1 drugs will affect the restaurant industry in four main ways: reduced dining out frequency, growing as medication becomes more widespread; declining alcohol consumption at full-service restaurants; increased consumer preference for healthy foods and smaller portion sizes; and even if dining frequency remains unchanged, GLP-1 users will consume fewer calories overall. Although this structural variable is a long-term trend, it is already being factored into industry strategic planning.

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