Mentioning rising gas prices for the American consumer would be stating the obvious. Yes, this has caused and continues to cause severe hardship to middle and lower income folks. But the fallout has not stopped there.  

Latest reports (Reuters) indicate that US crude and fuel inventories continued to draw down. This comes amidst countries around the globe scrambling to secure their supplies of gas/ petrol as disruptions continue. This, despite the pause of ‘Project Freedom’ announced by President Trump on May 05, 2026.

So, gas prices are expected to remain high in the near term at least. As the Iran war continues into the tenth week, American businesses are seeing the impact on different sectors of the economy.

The US restaurant industry is no exception. Wall Street reported this week that the industry is seeing lower footfall and warned that revenues may be impacted. US chains, including Domino’s and Wingstop have already reported weaker sales for the previous quarter.

McDonald’s CEO Chris Kempczinski said that despite good performance, the company expected a challenging environment. This was due to weakened consumer sentiments and expected reduction in consumer spending as gas prices remain high.

The Iran war has heightened the risk of stagflation and slower growth. This has created a double whammy for the restaurant industry. Firstly, higher living costs have squeezed customers’ pockets for discretionary spending and hence the slowing footfall. Secondly it has resulted in a sharp spike in operational costs for restaurants and most of them have been unable to absorb it and are forced to pass it on to the customers.

The industry initially forecast a sale of $1.55 trillion for 2026. However, recent data shows a slowdown and has now cast doubts about the projected revenue.

Consumer behaviour, as expected, is a key factor in the restaurant industry. It is fundamentally driven by consumer’s discretionary spending. At times like these, lower income segments will lead by cutting dining out, while middle income segments tend to trade down to less expensive eat out options. This creates a domino effect across casual dining and fast-food chains.

Wall Street pundits know that historically, price at the pump has served as a leading indicator of restaurant performance. Data from Revenue Management Solutions indicates that for every $1 increase in gas prices, a typical Quick Service Restaurant (QSR) loses six customers per day.

There is also a psychological threshold for consumers. If gas prices hit $5 per gallon, pundits expect a 3% overall decrease in restaurant traffic. This is because 90% of consumers would most likely stop eating out to pay for higher fuel costs. According to S&P Global Market Intelligence, ‘food-away-from-home’ inflation saw a 4% rise year over year.

Further restaurant prices have risen 39% since 2019. The Iran war and continuing high gas prices have negatively impacted consumers and they see dining out as poor value. Casual dining, family-diners and those dependent on delivery operations which are directly dependent on footfall may be the most vulnerable segments of the industry. On the other hand, luxury dining and value-oriented chains may be less impacted.

However, since it appears that consumers may not get early relief in gas prices, analysts expect many other restaurant chains may face declining sales, according to LSEG.

But the biggest near-term risks, obviously, are continued high gas prices, weaker traffic at casual and value-focused chains, and tighter margins for franchisees. If energy prices stay elevated, restaurants may respond with fewer promotions, slower expansion, or more aggressive value menus.

The restaurant industry in the US is a key sector of the economy that powers consumer spending, and sustains interdependencies among several others like tourism, transportation, travel, hotels etc. Demand destruction will create a negative impact on this vital sector and may be a sign of things to come for the larger economy.

Coming weeks will provide a better picture of how many restaurants survive this collateral onslaught of the war.