Retail and restaurant outlook: Navigating uncertainty

As retail and restaurant businesses finish out a volatile year, they continue to confront a landscape shaped by cautious consumer sentiment, inflationary pressures, geopolitical tensions and rapid technological transformation. While growth remains achievable, it requires operational resilience, digital and artificial intelligence fluency, and strategic recalibration to changes in trends and consumer behavior.

Evolving resilience in retail

Unadjusted total retail sales in the U.S., excluding automobiles and gas, grew 5% year over year in October, according to the National Retail Federation. However, spending has been uneven—with decreased growth due to tariffs and economic uncertainty mixed with periods of stronger spending ahead of potential tariff increases to take advantage of promotions.

Some categories—including apparel, sporting goods and digital products—continue to perform well, while discretionary categories like toys and electronics are experiencing uneven demand.

Businesses must understand and adapt to changing trends to capture demand and control operational costs.

• Early seasonal shopping: The back-to-school season began earlier than ever this year, with 67% of shoppers starting by July, according to the National Retail Federation. This shift was driven by inflation and tariff concerns, prompting consumers to seek discounts and spread out spending. Early shopping was expected to continue this holiday season. Many retailers adapted with early campaigns, tiered discounts and targeted price reductions to incentivize shoppers to spend more and buy upmarket products with higher margins.
• Private-label loyalty: Generation Z is forecast to become the demographic most loyal to private-label brands by mid-2026, spending 18.4% of their consumer packaged goods and general merchandise budget on these brands, according to Retail Dive. These brands are seen as affordable while still being trendy, innovative and premium. Many major retailers across categories have introduced their own private-label brands to take advantage of this trend.
• Omnichannel convenience: Online purchasing remained the top choice for back-to-school shoppers. During Amazon’s extended Prime Day sales in July, online sales grew 30.3% year over year, with the use of mobile devices accounting for 53.2% of sales, according to Adobe Analytics, underscoring the need for mobile-first strategies.
• AI-driven commerce: Retailers are integrating AI into everything from predictive supply chains to digital stylists and conversational instant checkouts. Google is testing try-on technology that allows users to virtually see how clothes will fit by uploading a photo of themselves, an improvement over using a selected model. New AI agentic features can track and inform shoppers when a product becomes available at a desired price. These innovations allow retailers to offer personalization not just with the product, but with the discovery, presentation and purchasing of the product. It may not be long before AI agents are entrusted to search for and purchase products unattended, making it vital that retailers understand how to ensure their products are chosen, and how this affects loyalty programs.

Comfort, convenience and a focus on health

The restaurant sector is experiencing slower nominal growth, projected at 2.8% through the end of 2025, down from 3.1% in 2024, due to rising operator debt and cautious consumer spending, according to Nation’s Restaurant News. Growth is uneven across food categories: Chicken, Mexican cuisine and coffee/beverage sales are outperforming, while burger, pizza and sandwich categories remain stagnant.

Several shifting trends may create opportunities for restaurants to drive sales as customers tighten their budgets while still desiring the comfort and convenience of a meal they do not have to prepare.

• Delivery-first models: Eighty-two percent of restaurants saw takeout/delivery sales grow in 2024, according to Apicbase, demonstrating a reshaping of the restaurant experience. “Ghost kitchens” allow delivery-focused restaurants to operate without a physical dining space, which lowers costs and allows for faster scaling. While these methods can be affected by unpredictable external factors, such as street traffic and third-party delivery issues, brands must focus on controllable elements, like personalized packaging and presentation, to boost loyalty and satisfaction.
• Health-conscious consumption: Shifts toward nonalcoholic drinks and protein-rich snacks reflect a broader wellness trend that restaurants must plan for. For example, as of April 2024, 22% of millennials said they consumed both alcoholic and nonalcoholic beverages, up from 7% the year before, according to IWSR. Despite coffee prices increasing 20.9% year over year in August, according to the U.S. Bureau of Labor Statistics, consumers have not been deterred. Daily specialty coffee consumption among American adults reached a new record of 46%, with 61% of those adults saying they believe coffee is good for their health, according to a National Coffee Association report.

Operational challenges

In addition to driving growth by responding to changing trends, businesses must protect against ongoing challenges that may affect their operational costs and processes.

• Tariff pressures: Ongoing trade tensions inflate costs and disrupt supply chains. For example, 50% tariffs on imports from Brazil, the U.S.’s top supplier of coffee, have intensified price pressures. Kitchen cabinets, bathroom vanities and upholstered furniture saw an initial 25% tariff applied on Oct. 14. The tariff on kitchen cabinets and bathroom vanities will increase to 50% and the tariff on upholstered furniture will increase to 30% on Jan. 1, 2026. Supply chain diversification must continue to be part of any business's strategy.
• Cybersecurity risks: A major cyberattack hit the UK retail sector in April 2025, compromising the personal data of 6.5 million customers at a single company. Businesses must diligently conduct breach response audits, train employees to counter social engineering, and invest in cybersecurity protection and insurance.
• Labor and wage costs: Businesses face tight labor conditions, ongoing labor shortages and challenges in hiring and retention. Rising wages and fulfillment expenses are squeezing margins. As more states implement minimum wage hikes, these changes raise operational costs for more businesses, further increasing price pressures.
• Bifurcated spending: Lower-income households are pulling back on restaurant spending, while higher-income groups continue to dine out. This bifurcation requires nuanced pricing and varied menu options.
• Regulatory uncertainty: The 43-day U.S. government shutdown that ended on Nov. 12 disrupted inspections, supply chains and labor markets. A halt in SNAP (Supplemental Nutrition Assistance Program) benefits during the shutdown reduced consumer spending and elevated uncertainty for the millions of Americans who rely on federal support programs.

The takeaway

The retail and restaurant landscape demands that businesses reimagine how value is created and delivered to their customers. Success will come to those that move quickly and innovatively, launching campaigns earlier, deploying AI before competitors and pivoting supply chains ahead of tariff changes. The question is no longer whether AI will reshape commerce, but which businesses will lead the transformation and which ones will scramble to catch up.