Sales Are Up. Guests Are Not. What That Means for Restaurant Operators

By Doug Greenspan and Joe McKeska, Senior Managing Directors, A&G Real Estate Partners

If you’re reading same-store sales reports and feeling cautiously optimistic about the restaurant sector, take a closer look. Sales may be positive, but traffic is not. That distinction matters more than almost anything else in assessing a restaurant business’s true health. It’s also a clear signal that a stress cycle is already underway, even if the headline numbers have yet to show it.

For most of the past year, restaurant same-store sales have stayed positive, supported more by higher prices than guest traffic. Black Box Intelligence data show the pattern clearly: in January 2026, industry comps rose 1.0% while traffic fell 1.1%. Higher average checks are masking declining guest counts, and price-driven growth is inherently less durable than traffic-driven growth. When consumers resist further increases, as many already are, sales will follow traffic downward.

Consumers are not abandoning restaurants, but are becoming more deliberate with their spending. Persistent household budget pressure is driving more value-oriented behavior. Guests are visiting less often, trading down to lower-priced alternatives, responding more aggressively to promotions and concentrating their spending on brands with a clear value, convenience or experience proposition. Chili’s is a case in point. They leaned into value, stronger execution and sharper marketing, and guests responded. Brinker International reported that average weekly guests per restaurant increased from 3,400 in fiscal 2023 to 4,200 in fiscal 2026, and is now targeting 2% to 3% annual unit growth.

Others are feeling the pressure. Noodles & Company posted 1.5% same-store sales growth in the second quarter of 2025, driven largely by pricing, while traffic at company-owned restaurants fell 2.5%. Leadership pointed to an unexpected decline in guests’ perception of value, and the company has since moved to close dozens of underperforming locations. Denny’s faces a similar situation, using value-focused promotions to bring back lapsed guests while continuing to close underperforming restaurants.

Inflation has moderated, but restaurant cost structures remain materially elevated compared to pre-pandemic baselines. Food and labor are significantly more expensive than in 2019. Operators continue to face pressure from labor and benefits, insurance, utilities, delivery commissions and commodity volatility – particularly in beef and select produce categories. Many operators have reached the limits of what menu price increases can absorb without further weakening traffic, making occupancy costs one of the most meaningful remaining cost levers.

The result is a widening divide between high-performing brands with the scale, pricing power and operational discipline to absorb these pressures, and operators with challenged unit economics, overleveraged balance sheets or lease portfolios that likely made sense in a different environment. That bifurcation is already showing up in the courts. More than 20 restaurant chains and large franchisees filed for bankruptcy in 2025, including Hooters, On the Border, Bar Louie, Bertucci’s and Pinstripes. Several were repeat restructurings, a reminder that fixing the capital structure alone does not work when underlying unit economics remain broken.

One of the most important dynamics right now is that franchise systems can appear healthy (and may be legitimately healthy at the franchisor level) while individual franchisees are under significant pressure. Common culprits include wage inflation, debt service burdens, required remodel programs, mandatory capital expenditures, weak store-level profitability and above-market lease obligations. Franchisee distress is frequently an early indicator of broader sector weakness, and the gap between a franchise system reporting growth and its operators quietly deteriorating can be shorter than it appears.

The past year offered several instructive examples. Popeyes franchisee Sailormen filed for Chapter 11 in January with 136 restaurants and roughly $130 million in debt, citing inflation and declining customer traffic. Neighborhood Restaurant Partners Florida, a 53-unit Applebee’s operator, followed in March after a failed sale process, and Moe’s Southwest Grill franchisee Quality Fresca filed in August with 38 restaurants. QDOBA franchisee The Integritty Group, meanwhile, faces a lender lawsuit seeking a receiver for its 41 locations. In each case, the brand held up while the operator’s economics did not.

Financing remains relatively accessible, but lenders have grown considerably more selective. Borrowers face lower leverage availability, higher debt service costs, greater equity requirements and reduced refinancing flexibility. Companies with stable sales but deteriorating EBITDA – a description that fits much of the market today – may find refinancing harder than expected, or that the capital available to them comes at a cost that accelerates rather than alleviates pressure. Lower leverage and higher return thresholds are also pressuring valuations, which directly affects any operator contemplating a sale or recapitalization.

The restaurant sector’s current challenge is not simply a demand problem. It is the convergence of softer traffic and multiple cost pressures on margins that were already thin, at a moment when capital markets are less willing to provide the buffer they once did. In that environment, operators who wait for a liquidity event to address their real estate almost always negotiate from a position of weakness.

Lease negotiations, rent reductions, portfolio optimization, strategic relocations and negotiated exits are not limited to distressed situations. They are profit improvement tools that can improve EBITDA, preserve liquidity and extend runway at any stage of the business cycle. The best outcomes consistently come from operators who address their real estate alongside their operations and capital structure, rather than treating it as an afterthought.

In practice, that begins with a clear, unit-by-unit review of the portfolio: which locations support their rent, which could improve through lease renegotiation, and which should be relocated or exited. Lease expirations, renewal options, co-tenancy and go-dark provisions, as well as landlord relationships, shape what is possible. Those options narrow as an operator’s financial position weakens. Operators who develop that view early keep control over timing and terms.

Right now, the headline numbers can look healthier than the businesses behind them. Operators who recognize that disconnect and act early will be better positioned when the next phase of this cycle arrives.

Doug Greenspan and Joe McKeska are Senior Managing Directors at A&G Real Estate Partners, where they advise restaurant and retail operators on lease negotiation, portfolio optimization and real estate dispositions. They will attend the Restaurant Finance & Development Conference in Las Vegas in November.