MW Restaurants expected to suffer as tariffs bite into take-home pay and lead to job losses

By Steve Gelsi

Tariff costs are likely to 'hit wallets harder than kitchens,' one analyst says, so people won't eat out as much

Some of the largest U.S. restaurant chains face the risk of negative sentiment from overseas customers over President Donald Trump's tariffs and will also see fewer people eating out as companies lay off workers, Stifel analysts said Friday.

With stocks still in the red in early trading on Friday after the worst selloff in five years in the previous session, Stifel noted that Starbucks Corp. $(SBUX)$, McDonald's Corp. $(MCD)$, Dominos Pizza Inc. $(DPZ)$, Yum Brands Inc. $(YUM)$ and Restaurant Brands International Inc. (CA:QSR) have the most exposure to international markets.

"The announced tariffs pose the greatest risk to the restaurant industry through potential impacts on consumer demand," analyst Chris O'Cull said. "Higher costs for U.S. companies reliant on imports may lead to price increases or layoffs, affecting consumer spending - even before any direct corporate action."

Americans will likely cook at home more and have less money for meals out after paying other expenses, he said.

Tariffs are likely to "hit wallets harder than kitchens, leaving restaurants hungry for customers," O'Cull said.

McDonald's stock fell 1.7% in premarket trading on Friday, while Starbucks retreated by about 5%, Domino's Pizza dropped 3.3% and Yum Brands declined by 2.1%,

Another wild card for overseas sales is negative sentiment toward U.S.-based consumer names.

"We believe sales will likely soften due to anti-American sentiment, which could impact the recent improvement in international trends that some of these companies have experienced," O'Cull said.

On the plus side, Stifel analysts don't expect material costs to increase for most restaurants - partly because avocados, tomatoes and other agricultural imports are currently exempt from tariffs.

A tariff on Australian beef could affect quick-serve restaurants, but more are serving fresh rather than frozen beef nowadays, which puts a damper on demand for imports, Stifel said.

However, green coffee - which is purchased by Starbucks and other chains - will face a 10% base tariff.

"Elevated spot prices will begin to flow through to beverage costs more meaningfully in the second half of 2025," O'Cull said.

While some restaurant stocks fell back on Friday, some defensive sectors such as consumer durables have remained relatively strong and resistant to the effects of tariffs as investors look for safer places to put their money.

Also read: Potatoes, discount chains and drugmakers offer havens in stock-market bloodbath

-Steve Gelsi

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April 04, 2025 10:04 ET (14:04 GMT)

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