President Trump’s tariffs are throwing a wrench in fast food giants’ plans as the industry continues to struggle with rising costs and lower foot traffic.
However, jittery investors may be looking toward value chains that could win over budget-conscious diners. On Friday, shares of McDonald’s (MCD) hit a record high. Over the last week, its stock rose 5%, even as tariff news roiled the broader market.
Yum Brands’ (YUM) (KFC, Pizza Hut, Taco Bell) shares are up 22% year to date, while Restaurant Brands International (QSR) (Burger King, Tim Hortons, Popeyes) have climbed 6%. S&P 500 returns are essentially flat on the year.
Meanwhile, shares of Chipotle (CMG), Cava (CAVA), and Shake Shack (SHAK) sank 9%, 11%, and 15% in the past week, respectively, a reversal of fortunes as investors in recent years have favored the more upscale, fast-casual sector.
McDonald’s “value menu is driving positive guest traffic in a slowing environment for almost all other restaurants,” Wedbush analyst Nick Setyan told Yahoo Finance. “It’s all about a rotation into the larger players given the uncertain market environment too.”
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The long-term future of the industry remains cloudy. The “unpredictable nature” of tariff announcements is causing frustration, from franchise owners to the manufacturing community to agribusiness, Phil Kafarakis, CEO of the Food Away From Home Association (IFMA), told Yahoo Finance.
On Thursday, President Trump extended a one-month tariff exemption to goods compliant with the United States-Mexico-Canada Agreement (USMCA). He initially announced a 25% tariff on Canada and Mexico in February but has since paused them twice.
Non-compliant goods will still pay the new duties. The exemption is scheduled to expire on April 2, when Trump is expected to announce his reciprocal tariff plan.
Though restaurants source more items domestically, Neil Saunders of GlobalData told Yahoo Finance that tariffs still make it extremely challenging to plan ahead.
The Budget Lab at Yale predicts that overall prices for gas, rubber and plastic products, processed rice, machinery and equipment, vegetables, fruit, sugar, and dairy could increase in the low- to mid-single digits.
One McDonald’s franchise owner told Yahoo Finance it’s still unknown what this could mean for equipment costs, calling it “nerve-racking” when it already costs roughly $25,000 for one piece of kitchen equipment.
Utility prices will also affect restaurants, even if energy is subjected to lower duties.
Given “more electricity is sourced from Canadian producers,” it’s an “unwelcome disruption” for chains that have a strong presence in the Northeast, said Morningstar analyst Sean Dunlop.
And all the extra costs could hinder the rollout of AI, just as more companies are trying to compete on automation and app ordering.
Equipment is “such a big capital spend,” forcing owners to focus on maintenance instead of investing in “some new technology that’s coming down the pike,” Kafarakis said.
At a recent food service equipment trade show, he noticed “people aren’t making the long-term bet” that they might have in the past.
And rising overall prices could soon ding consumer purchasing power as a 20% tariff on China hits everything from iPhones to sneakers. For the past year, the cost of eating out has consistently outpaced that of groceries.
Prices for food at home increased 1.9% from a year ago, per the latest US Bureau of Labor Statistics data for January, while food away from home jumped 3.4%.
Fast food chains may face higher costs in their expansion plans, but players who come out on top in the value race could still win in the volatile environment.
At Taco Bell’s investor day on Tuesday, CEO Sean Tresvant told Yahoo Finance that consumers are “still “pinched” but willing to spend if given a reason.
“Consumers still want to experience great brands,” he said. The company is using a barbell strategy of offering value items and premium items like birthday churros or cantina chicken.
Taco Bell plans to increase its value mix from 13% to 18%.
“Value can bring consumers in, but from a margin standpoint, we know that when people order off the cravings value menu, their check is higher,” Tresvant said. The taco chain expects first quarter same-store sales growth of 8%. BTIG analyst Peter Saleh said it’s “clearly winning” with the value push.
Yum Brands’ stock took off following a solid fourth quarter print that beat Wall Street’s expectations. KFC’s same-store sales remained flat, and Pizza Hut’s slightly declined. Its better-than-expected international sales and a strong Taco Bell in the US was the “kicker,” Citi analyst Jon Tower said.
“When you put them up against almost all the other global quick service or the other domestic quick-service players [in] the fourth quarter, they look phenomenal,” Tower told Yahoo Finance over the phone.
It’s a different story for other players, whose stocks have stumbled after earnings amid cautious consumers and tough value competition.
Shares of Domino’s (DPZ) faltered after it missed Wall Street’s estimates in its fourth quarter print. Same-store sales increased 0.4%, compared to the 1.72% jump the Street predicted.
McDonald’s, a longtime leader in value meals, struggled with foot traffic in 2024. It has a value mix of 40%, per Saleh, and kicked off 2025 with a new McValue platform.
The meal deal may be providing a slight boost. Despite a call for an economic blackout last week, foot traffic only declined 0.8% year over year, compared to large drops in previous weeks, when colder weather played a factor.
Dunlop said growth plans for strong brands like Taco Bell “are least in danger” compared to smaller, independent chains or “weaker” brands like Wendy’s.
But international expansion plans could come under pressure if a trade war erupts. Saleh warned that if the perception of US brands wanes in other countries, their governments could slow their approval process.
“They can deny them in certain areas, make it much more difficult for US brands to grow,” he said, listing KFC, McDonald’s, Chipotle, and Starbucks as some players with major foreign presence.
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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