Industry Description
The Zacks Retail-Restaurants industry comprises several owners and operators of casual, upscale casual, fine dining, full-service and fast-casual restaurants. Some industry participants operate as roasters, marketers and retailers of specialty coffee. Some companies develop, operate and franchise quick-service restaurants worldwide. A few restaurant operators offer cooked-to-order dishes, including noodles and pasta, soups, salads and appetizers. Some industry players develop, own, operate, manage and license restaurants and lounges worldwide. A few companies also run technology-enabled Japanese restaurants in the United States and provide Japanese cuisine through a revolving sushi service model.
4 Trends Shaping the Future of the Restaurant Industry
Challenging Market Landscape: The industry is currently grappling with a challenging macroeconomic environment, led by persistent inflation and reduced consumer purchasing power. The restaurant industry has been facing declining traffic for quite some time. A rapid increase in menu prices is the primary reason behind traffic erosion. This decline highlights the ongoing challenges that the industry faces in maintaining customer counts, especially as consumers grow frustrated with rising prices.
Intense competition and high wages are concerning. The industry continues to bear increased expenses, which have been affecting margins. Higher pre-opening costs, marketing expenses and costs related to sales-boosting initiatives are exerting pressure on the company’s margins.
2026 Restaurant Industry Outlook: Cautious but Constructive: Per the National Restaurant Association, the restaurant industry heads into 2026 with measured optimism, with U.S. sales projected at about $1.55 trillion and modest real growth despite inflation. Consumer demand for dining out remains supportive, but operators continue to face margin pressure from elevated costs, uneven traffic and tighter household budgets, especially among lower and middle-income consumers. Employment is expected to rise slightly to nearly 15.8 million jobs, underscoring the sector’s economic role. To manage ongoing challenges and drive long-term competitiveness, restaurants are increasing investments in technology and workforce development, focusing on digital tools, automation and data-driven operations to boost efficiency and enhance guest experiences.
Digitalization to Drive Growth: Restaurant operators’ focus on digital innovation, sales-building initiatives and cost-saving efforts has been a catalyst. With the growing influence of the Internet, digital innovation is the need of the hour. Restaurant operators constantly partner with delivery channels and digital platforms to drive incremental sales. Partnerships with delivery channels like DoorDash, Grubhub, Postmates and Uber Eats, and the rollout of self-service kiosks and loyalty programs continue to drive growth.
Off-Premise Sales Act as Key Catalyst: The industry is gaining from the increase in off-premise sales, which primarily include delivery, takeout, drive-thru, catering, meal kits and off-site options, such as kiosks and food trucks. Most restaurant operators have initiated the testing of ghost or virtual kitchens. The idea of providing off-premise offerings and a connected curbside service has been garnering positive customer feedback.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Restaurant industry is grouped within the broader Retail-Wholesale sector. The industry carries a Zacks Industry Rank #189, which places it in the bottom 22% of more than 243 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry’s position in the bottom 50% of the Zacks-ranked industries results from a negative earnings outlook for the constituent companies in aggregate. Before we present a few stocks that you may want to consider for your portfolio, let us take a look at the industry’s recent stock-market performance and valuation picture.
Industry Underperforms the S&P 500 and the Sector
The Zacks Retail-Restaurants industry has underperformed the Zacks S&P 500 composite and its sector over the past year.
Over this period, the industry has declined 6.6% against the Zacks S&P 500 composite’s rise of 15.8%. The sector has declined 2.3%.
1-Year Price Performance
Restaurant Industry's Valuation
Based on the forward 12-month P/E, a commonly used multiple for valuing restaurant stocks, the industry is currently trading at 25.08X compared with the S&P 500’s 22.9X. It is up from the sector’s forward 12-month P/E ratio of 25.05X.
Over the past five years, the industry traded as high as 30.53X and as low as 22.08X, the median being 25.16X.
P/E (F12M)
3 Key Restaurant Picks
Brinker International: Brinker remains steadfast in the goal to drive traffic and revenues through a range of sales-building initiatives such as streamlining of menu and innovation, strengthening its value proposition, better food presentation, advertising campaigns, kitchen system optimization and introduction of a better service platform.
Shares of this Zacks Rank #1 (Strong Buy) company have gained 2.6% in the past year. EAT’s fiscal 2026 sales and earnings are anticipated to rise 8% and 19.8%, respectively, year over year.
Price and Consensus: EAT
Yum China: Yum China continues to benefit from growth in system sales and same-store sales, strong delivery momentum and contributions from new store openings. Menu innovation, unit expansion and digitalization efforts bode well. For 2026, the company anticipates opening more than 1,900 net-new stores, more than 20,000 total stores, and expects to exceed 30,000 stores by 2030.
Shares of this Zacks Rank #2 (Buy) company have gained 9.1% in the past year. YUMC’s 2026 sales and earnings are anticipated to rise 7.4% and 15.9%, respectively, year over year.
Price and Consensus: YUMC
BJ's Restaurants: The company is benefiting from efforts focused on growing traffic, enhancing operational efficiency and improving restaurant-level profitability. Ongoing remodeling efforts and menu innovations continue to strengthen brand positioning, while management is advancing work on a new prototype design that better reflects the brand’s identity.
Shares of this Zacks Rank #2 company have gained 15.3% in the past year. BJRI’s 2026 sales and earnings are anticipated to rise 2.4% and 3.3%, respectively, year over year.
Price and Consensus: BJRI
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Free: See Our Top Stock And 4 Runners UpYum China (YUMC) : Free Stock Analysis Report
BJ's Restaurants, Inc. (BJRI) : Free Stock Analysis Report
Brinker International, Inc. (EAT) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
