By Megan Leonhardt

Americans are increasingly trading in tables at five-star eateries for more casual options and skipping expensive, imported dinner ingredients for shelf-stable canned and frozen options, according to industry experts and recent data.

Eating habits can provide subtle clues to how consumers are feeling about the economy and their own financial health. In recent months, households have tightened their spending on groceries and dining out -- an early sign that consumers may not have the same wherewithal to withstand potential inflation upheavals from tariffs as well as they did in 2022.

Consumer spending accounts for nearly 70% of the overall U.S. gross domestic product growth annually -- and much of that is concentrated in services like dining out. Yet when it comes to restaurant spending of late, it hasn't exactly been business as usual, says James O'Reilly, CEO of Ascent Hospitality Management, the company behind the Huddle House and Perkins restaurant chains.

Overall restaurant sales have been down, as the industry navigates the effects of sustained levels of inflation, poor consumer confidence, and smaller budgets, O'Reilly says.

Data show that spending hasn't ground to a halt completely, but consumers are increasingly prioritizing value options. The fact that overall inflation-adjusted disposable income among households has been on the decline, down 0.7% in May, has likely played a role as well.

Increased menu prices -- paired with less money to spend -- has created strain, particularly among lower-income families. In the latest retail sales report, monthly spending at restaurants fell 0.9% in May, the Census Bureau reported. The agency also revised down April's previous gain of 1.2% to 0.8%.

Restaurant spending picked up some in June, and was up an average of 1.2% year over year for the first three weeks of the month, according to data from Bloomberg data drawn from credit- and debit-card transactions. But that is off from spending levels in 2022 and 2023, when Americans were still flush from pandemic-era stimulus and savings.

The higher average outlays that customers must make due to increased prices is also helping to offset the decline in restaurant use, making restaurant sales look stronger on the surface.

That is why O'Reilly says it's equally -- if not more so -- important to analyze foot traffic patterns.

Last month, visits to all dining establishments were up an average of just 0.1% year over year, according to data from Placer.ai, a location analytics platform that tracks consumer behavior and foot traffic patterns. Foot traffic at full-service, sit-down restaurants was largely flat, while fast-casual eateries saw more growth. Visits to fast food restaurants declined by an average of 0.2% year over year for the month of June.

Restaurant spending isn't the only food-related indicator of consumer health. Grocery shopping patterns can also foreshadow economic trends, says David Ortega, professor and food economist at Michigan State University. Food prices play a key role in people's inflation expectations because Americans come into contact with food prices much more frequently than other prices.

In recent months, consumers have been snacking less and increasing their purchases of canned goods, as well as value-oriented products like store brands as opposed to brand-name products, Ortega says. In some cases, he has seen evidence that Americans are trading in dining out for more meals at home -- frozen pizza sales, for example, have been up. Last year, the U.S. frozen pizza industry generated approximately $7 billion in sales, according to investment bank Greenwich Capital Group.

Additionally, shoppers are making more trips to the grocery store, keeping their average transaction costs smaller as a way to manage cash flows throughout the month, Ortega says.

All of this could be early indicators of a potential economic distress, Oregta says. Even though the rate of grocery price increases has moderated quite significantly, grocery costs remain 29% higher today than they did prepandemic. Paired with smaller disposable incomes and signs of a slowing labor market, consumers feel squeezed -- and that is unlikely to abate any time soon, Ortega says.

Higher-income households, which do make up a greater share of overall U.S. consumer spending, are still spending on services like restaurants and travel, says David Tinsley, senior economist at the Bank of America Institute. "It does look like consumer momentum has ticked down from the pretty strong pace it was over the last part of 2024, but neither would I be too bearish at the moment," Tinsley says.

But even higher-income households aren't completely immune to the current low consumer confidence environment and overall economic uncertainty. Both Walmart and Dollar General executives have recently noted that they have experienced a boost from higher-income households trading down.

"People are being a bit more choosy about where they go and trying to get more for their money," Tinsley says.

Choosy, however, can quickly morph into a chilling economic effect.

Write to Megan Leonhardt at megan.leonhardt@barrons.com

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(END) Dow Jones Newswires

July 11, 2025 21:31 ET (01:31 GMT)

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