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Amid reports of workforce reductions, a Starbucks outlet in Encinitas, California, is at the forefront of market changes on February 24, 2025.
Recent trading data reveals a concerning trend for restaurant stocks as they experienced significant declines on Monday morning, primarily driven by investor apprehension regarding an impending recession.
The U.S. stock market has faced downward pressure for three consecutive days, primarily triggered by President Donald Trump’s unexpected announcement of increased tariffs on imports from key trading partners. While these tariffs may not directly impact most restaurant companies, analysts warn that the resulting inflation could strain consumer spending and potentially precipitate an economic downturn.
UBS analyst Dennis Geiger expressed a nuanced view in a note to clients, stating, “While the immediate cost impacts of tariffs on restaurants seem manageable, particularly with a focus on selective commodity expenses, the more pressing concern is the added pressure on consumer expenditures and overall demand within the industry.”
The negative sentiment from investors extended across various sectors within the restaurant industry.
Notably, Starbucks shares dropped by over 3% after Baird downgraded the stock to neutral, citing challenges in the near-term economic outlook. The coffee giant, which is currently working to revitalize its U.S. operations, has seen its stock value decrease nearly 20% since the tariff announcement. Analyst Sara Senatore from Bank of America Securities pointed out that reasons for this decline include increased coffee costs driven by tariffs, a rise in anti-American sentiments, and heightened recession risks.
The global coffee market, predominantly sourced from the Coffee Belt—a region that encompasses parts of Latin America, the Asia Pacific, and Africa—faces further complications. President Trump’s new tariffs affect key coffee-exporting nations such as Vietnam and Brazil as well as Switzerland, where beans are roasted. The nature of coffee production complicates its relocation to the U.S., where demand and climate conditions limit domestic production capabilities.
Moreover, Starbucks’ international market prospects, especially in China—its second-largest market—are jeopardized as consumer sentiment shifts due to political factors, leading to boycotts of Western brands in the past.
In the casual dining sector, stocks also reflected downward trends, with Dine Brands—parent of Applebee’s and IHOP—seeing a nearly 3% drop in share prices. Competitors like Darden Restaurants and Texas Roadhouse experienced declines exceeding 2% and 3%, respectively.
Fast-casual dining chains, which had been gaining popularity among investors, similarly saw declines. Chipotle’s stock decreased by almost 2%, while Sweetgreen and Wingstop stocks fell by nearly 1% and 3%, respectively.
Fast-food chains were not immune to these shifts on Monday either, as shares of McDonald’s, Restaurant Brands International, and Yum Brands experienced dips during morning trading sessions.
Traditionally, fast-food establishments tend to perform better in recessionary periods as consumers gravitate towards more affordable meal options, transitioning from full-service and fast-casual restaurants to establishments like McDonald’s and Taco Bell. However, a downturn in consumer spending last year significantly impacted fast-food outlets, with lower-income consumers eating out less frequently and reducing order sizes, while higher-income patrons maintained their dining habits, contributing to declines in same-store sales for quick-service restaurants.
Interestingly, a few restaurant stocks managed to post gains amidst the broader market downturn. Dutch Bros., a rising competitor to Starbucks, saw its shares increase by over 3% following a nearly 10% decline on the previous Friday. Cava’s stock rose by more than 3%, and Domino’s Pizza saw a slight uptick.
Source
www.cnbc.com