No room for average: How retail and restaurant operators can win

The retail and restaurant sectors continue to face persistent cost pressures, declining consumer traffic and accelerating technological disruption. While the National Restaurant Association projects industry sales this year will reach $1.55 trillion, with real growth of 1.3%, beneath the headline numbers lies a bifurcated market where winners and losers are increasingly diverging.

For business leaders, the challenges ahead demand surgical precision in capital allocation, a fundamental rethinking of value propositions, and the readiness to turn artificial intelligence tools into AI-powered capabilities that just months ago seemed futuristic.

Cost and traffic pressures

Restaurant operators continue to experience significant challenges, with 90% citing food, labor, insurance and overall inflation, according to a National Restaurant Association report. Average food costs are now 34% above prepandemic levels, according to the U.S. Bureau of Labor Statistics (BLS).

The performance gap between industry leaders and laggards widened dramatically in 2025. Some top brands exceeded growth expectations, while others announced plans to shutter locations.

While businesses have sought to offset rising costs through price hikes, supplier negotiations and portion size adjustments, little room remains to pass further increases on to consumers. The University of Michigan Index of Consumer Sentiment slumped to 47.6 in March 2026, down from 53.3 in February.

Black Box Intelligence measured four comparable sales and traffic declines at restaurants each month from August through November 2025. Only one-third of the brands they monitor posted positive same-store sales throughout all of 2025.

Nearly half of all operators expect more intense competition than last year, creating a market where differentiation is nonnegotiable. With fewer customer visits, businesses must consistently deliver value, quality and memorable experiences while still protecting their margins.

Regional instability in the Middle East

Regional instability in the Middle East has disrupted access to the Strait of Hormuz, which carries roughly 20% of the world’s traded oil and about a third of the world’s fertilizer inputs, according to Kpler.

Because oil is globally priced, higher crude oil and natural gas costs raise expenses for manufacturing, transportation, electricity and energy-intensive industries like restaurants and food production. These increases ripple through supply chains, raising costs for packaging, shipping and key restaurant ingredients such as soybean oil, which become more expensive as oil prices rise. Fertilizer prices—many of which depend on shipments through the strait—have also surged, increasing the cost of growing crops like corn and wheat, and ultimately pushing up prices for products such as bread, pasta and meat.

IEEPA tariffs ruling

On Feb.^.20, the U.S. Supreme Court ruled the International Emergency Economic Powers Act (IEEPA) tariffs unconstitutional, invalidating the reciprocal tariffs first imposed in April 2025. However, the U.S. administration responded by invoking section 122 of the Trade Act of 1974 to impose a 15% global tariff that expires after 150 days, on July 24.

For restaurant and retail operators, the near-term practical impact on import costs is limited. Consumers faced an overall average effective tariff rate of 14.6%, the highest since 1939, before the IEEPA tariffs were struck down—and now, after the section 122 tariffs were imposed, an effective rate of 10.5%, according to The Budget Lab at Yale. Companies that paid IEEPA tariffs may eventually recover those payments, but the refund mechanism remains unresolved.

The value imperative

With 7 in 10 adults saying they would like to eat at restaurants more, according to FastCasual.com, this is good news for restaurants that can meet this demand.

However, consumers are trading down when dining out, requiring operators to balance affordability with margin protection. Over the past year, the cost of eating out increased 4% year over year, while the cost of groceries increased just 2.1% year over year, according to the BLS. This has heightened consumer scrutiny of every purchase. When portion sizes and food quality fall short of expectations, consumers may be disappointed.

That price differential is redirecting consumer spending, and grocery operators are among the primary beneficiaries. When a consumer skips a restaurant visit, they frequently shift that spending to grocery items, particularly toward prepared foods, meal kits and private-label staples. Grocery retailers have invested heavily in deli and prepared food sections with offerings like grab-and-go meals precisely to capture this trade-down customer. The result is that grocery chains now compete directly with quick-service restaurants on convenience and price point, not merely on staples.

Demand is bifurcated by service type. Quick-serve and fast casual restaurants are under pressure as price-sensitive consumers trade down or shift spending to grocery stores, while casual dining chains are outperforming the restaurant industry overall with bundled value meals and promotions, according to Placer.ai.

The lesson that applies to restaurant operators, grocers and retailers alike is that value is not just about price. It is about the entire experience.

The blurring line between grocery and restaurant

The traditional boundary between food at home and food away from home is quickly eroding. Grocery-prepared food sections, hot bars and in-store dining concepts now rival quick-service restaurants on speed, price and convenience. A $9 rotisserie chicken or a fully assembled meal kit sets the price point against which restaurant operators increasingly must compete.

For grocery operators, capturing the trade-down diner represents a meaningful revenue opportunity, but it also introduces new margin complexity. Fresh and prepared foods carry higher spoilage and waste losses, require trained culinary staff and demand tighter demand-forecasting capabilities than center-store packaged goods. Grocers who get this right create a powerful loyalty loop: The shopper who stops in for a prepared dinner discovers a curated private-label section and leaves with a full basket.

For restaurant operators, the grocery channel is no longer just an indirect competitor but a direct one. Winning back traffic requires delivering an experience that a grocery hot bar simply cannot replicate: hospitality, social atmosphere and customization. Operators who try to win on price alone may lose. Those who compete on experience, speed and personalization have a competitive advantage.

Technology and AI

As retailers and restaurant operators continue to seek to control costs amid a tighter labor market and consumer landscape, AI will increasingly be used in operations to increase efficiency. Specifically, businesses should leverage AI capabilities across forecasting, inventory management, personalization, staffing and pricing.

The businesses that will gain market share will not only use technology to reduce costs but use AI to reimagine the customer experience and deliver greater value and convenience. One-size-fits-all loyalty programs are rapidly becoming obsolete, as AI-powered customer relationship management platforms deliver, in the case of a restaurant business, individualized offers based on specific dietary preferences and order history.

Grocery operators are in many respects further along on this journey than restaurants. AI-driven platforms already deliver household-level offers based on purchase history, dietary signals and weight loss drug usage patterns. For middle market grocery operators, AI demand forecasting tools are now affordable and widely available, enabling significant reductions in fresh food waste, a long-standing hit to margins.

Agentic commerce represents a fundamental shift, in which AI agents handle research and decision-making steps that consumers previously performed across search engines and reviews.

Retail and restaurant businesses need to ensure their offerings are discoverable and usable by agentic commerce by following these best practices:

• Provide machine-readable product catalog, inventory and pricing application programming interfaces (APIs).
• Ensure infrastructure supports agentic purchases without human intervention.
• Include additional context on when, why and how products will be used by customers for enhanced discoverability.
• Leverage orchestration engines to stay compliant with changing standards and run automated testing across major AI platforms.

Grocery is the sector where agentic commerce is advancing the fastest. Platforms that allow digital assistants to research products, assemble baskets and complete purchases without human intervention are moving from experimentation to infrastructure. Middle market grocery operators who have not yet invested in inventory and pricing APIs risk being invisible to AI-powered shopping agents.

Changing consumer preferences

A Gallup survey found that in the first three quarters of 2025,12.4% of Americans were taking GLP-1 medications for weight loss, more than double the rate from early 2024. Twenty-three percent of households now include a GLP-1 user, a figure projected to reach 35% by 2030, according to Circana.

In addition to adopting weight loss drugs, consumers are broadly demanding greater transparency, allergen-friendly options and dining formats that fit smaller, more intentional eating occasions. These shifts are forcing restaurant operators, retailers and grocers to rethink how they present value to guests and shoppers.

The National Restaurant Association’s 2026 culinary forecast signals a decisive turn toward customer comfort and value. Transparent menu labeling is among the top trends, with stronger demand for allergen-friendly options. High-protein mini-meals and snacking plates are gaining traction as weight loss drug users seek smaller portions. Operators should lean into portion flexibility and make allergen information visible and easy to navigate not as a compliance exercise but as a competitive differentiator.

For grocery operators, the weight loss drug shift is a category management event with shelf-level consequences. Protein snack SKUs are growing rapidly while carbonated soft drinks and traditional snack categories face sustained headwinds. As weight loss drug users consume smaller volumes per occasion, smaller, high-value package sizes are more relevant than the bulk formats that drove growth in prior years. Retailers that act early on shelf changes to expand protein offerings, reduce calorie-dense impulse sections and prominently feature allergen-transparent labeling will capture a disproportionate share of this evolving household spending.

Regardless of the sector, the strategic response is the same: Resist blanket discounting and instead build disciplined good, better, best offerings that protect hero items while still providing affordable price points. Promotions should be targeted and tied to consumer signals, not deployed as a blunt instrument to drive traffic. The operators who connect value perception to the specific needs of today’s health-conscious, cost-aware consumer will be best positioned to retain them as needs continue to evolve.

Nurturing talent

Restaurant employment is projected to reach 15.8 million jobs in 2026, with operators planning to add approximately 100,000 positions, according to the National Restaurant Association’s State of the Restaurant Industry 2026 report. Yet three-quarters of operators report difficulty finding experienced managers and chefs, pointing to persistent talent constraints. 

That said, some restaurants are achieving record-setting retention levels as turnover eases. This is important economically for businesses. Lower turnover results in lower costs due to reduced recruitment, training and productivity losses, even as labor costs remain a challenge. Black Box Intelligence data shows that full-service restaurants with the lowest employee turnover outperform peers by roughly 1% in same-store traffic, underscoring the financial payoff of investing in workforce retention and training.

The takeaway

In 2026, there is no room for average in retail and restaurants. Consumers stretched by inflation are making sharper choices, and businesses that do not distinguish themselves are the first to feel it.

With real sales growth projected at 1.3% and traffic growth under 1%, the operators who have been surviving on volume alone will find themselves squeezed from every direction: rising food and energy costs, price-sensitive consumers with diminishing tolerance for mediocrity, and competitors who are moving fast on technology.

While restaurants navigate traffic declines and retailers contend with intensifying shelf-level price competition, the middle market operators who gain ground in today’s environment share three characteristics:

1. Treat margin engineering as a continual discipline rather than a crisis response. They work supplier relationships, labor scheduling and portion architecture with the same rigor they apply to top-line growth.
2. Deploy AI not just to cut costs but to deliver experiences that feel personal. They create loyalty programs that reflect what a customer actually eats, develop forecasting that reduces waste before it happens, and build agentic commerce infrastructure that makes their offerings findable and purchasable without human friction.
3. Stay attuned to consumer signals. They recognize that the shift toward high-protein foods, allergen transparency and smaller-portion value is not a passing trend but a structural change accelerated by weight loss drug adoption and a permanently cost-conscious dining public. For retailers, this means restructuring shelf architecture and private-label strategy around these same signals.

The brands that are winning right now are not doing more. They are doing the right things with greater precision. For middle market operators, that is the only playbook that works in 2026.