Financial experts told consumers to stop ‘wasting’ money eating out. They’re finally listening— and companies are rattled.

Financial experts told consumers to stop ‘wasting’ money eating out. They’re finally listening— and companies are rattled.

Matthew Pagan used to hit the drive-through about twice a week — picking up tacos, burrito bowls or chicken sandwiches on his long drive home from work. It was one way to make things a little easier for his family of six during the week, even though it could get pricey.

“That right there would be around $150 to $200 a week,” Pagan, 34, told MarketWatch.

But when his paycheck unexpectedly shrunk earlier this year, Pagan had to take a closer look at the family budget. There were still student loans and credit-card bills to be paid, so fast food was one of the first things to go.

Now, his family is eating a lot more leftovers and frozen pizzas.

“It’s just one possible thing to cut back on,” Pagan said. “It’s not quite bridging the gap, but it definitely is making a difference.”

Rising costs are forcing some consumers to tighten their belts — especially when it comes to dining out. Quick-service companies including McDonald’s Shake Shack Wendy’s Starbucks and Yum Brands the parent of KFC, Taco Bell and Pizza Hut, reported sluggish first-quarter sales growth this week.

A pullback by budget-strapped consumers could spell bad news for these companies, their investors and, eventually, the broader economy — yet from a personal-finance perspective, it indicates reassuring behavioral changes by consumers under pressure, financial advisers told MarketWatch.

“With numerous reports and studies over the past few years showing that over half of Americans are living paycheck to paycheck, this is welcome news,” said Andrew Herzog, a certified financial planner and associate wealth manager at the Watchman Group in Plano, Texas. Prices for gasoline, groceries, insurance, healthcare and daycare have all increased, he noted, “so it makes sense that eating out should get cut first — and I applaud that.”

“When our clients are being careful with their budgets, we’re really happy, but that doesn’t necessarily translate well for the places that they used to shop,” said Michelle Crumm, owner and lead financial planner at Belle Eve Financial in Ann Arbor, Mich. “People are maybe saying, ‘I have limited means, and I really want to save for something bigger than my Starbucks coffee every day.’”

Certain personal-finance experts have long disparaged buying food and drinks outside the home — particularly small, habitual expenses like coffee — as wasteful spending, especially when they become a routine rather than an occasional treat. Suze Orman famously compared buying a daily coffee instead of investing and growing that money to “peeing $1 million down the drain,” though many people have argued that “coffee shaming” shouldn’t overshadow the bigger economic challenges that people face.

Consumers’ shift away from restaurants isn’t necessarily a sign that people are reallocating those dollars toward growing their wealth. The share of income Americans are spending on food — 11.3% — is at a 30-year high, and delinquencies on loans have been rising.

As inflation eats away at people’s incomes, “staying in to eat may be a better option for those on a budget,” at least for now, said Jake Smail, a financial planner at Demming Financial Services in Aurora, Ohio.

Middle- and lower-income consumers are eating out less

In a recent Conference Board survey, food away from home was by far the top expense people planned to cut back on or eliminate (44.8% of respondents), followed by clothing (31.5%), entertainment away from home (30.7%) and vacations (23.3%).

These changes are already impacting restaurant sales. Spending data gathered for MarketWatch by Revolut, a cash-transfer platform, show the number of total transactions at U.S. restaurants was down 13.9% in February compared with a year earlier, while the overall amount spent at restaurants was down 10.6%.

McDonald’s executives said on the company’s earnings call Tuesday that economic pressures are spurring some consumers to pinch their pennies, leading to lower-than-expected sales growth. Chief Executive Chris Kempczinski said that in all major markets including the U.S., “traffic is slowing” and consumers across the board — not just lower-income diners — are looking for better value now. Starbucks also reported a 7% slowdown in transactions at its U.S. stores. Olive Garden parent Darden Restaurants told investors on a recent earnings call that it was seeing fewer visits from diners with an annual income below $75,000.

“It is something that not everyone is feeling, but some of the biggest players are,” said Brian Harbour, a restaurant-industry analyst at Morgan Stanley.

Only the wealthiest households — those earning more than $200,000 a year — went to restaurants more often in 2023 than in 2019, according to data from market researcher Circana.

As savings have dwindled over the short and long term, Herzog said he hopes “eating out less can redirect some cash flow back into investments and emergency funds.”

“Americans need to reprioritize their cash flow in difficult times, paying for necessities and preparing for the future,” he noted.

Now facing rising debts and reduced savings, many millennial and Gen Z consumers have expressed interest in a “no-spend year,” in which they avoid spending money on nonessential items in order to build up their savings.

As cautious consumers try to get their budgets under control, restaurant companies are already adjusting their offerings to improve value and keep them coming in. “McDonald’s and Starbucks will survive,” Herzog said.

What happens if consumers keep spending less? 

While reduced fast-food spending might be good for individual pocketbooks, it is bad news for the economy overall. Some analysts have viewed falling sales at low-cost restaurants as a sign that consumers are cracking under the pressure of stubborn inflation.

A sluggish food industry has sometimes served as a harbinger of future economic woes. “In the past, you would see some deceleration across all dining occasions if you’re heading into an economy that’s slowing,” Harbour said.

When consumers spend money, they power the U.S. economy — about 70% of it. “The economy thrives on consumer spending, as that drives profits — which, in turn, can drive company growth. This cycle expands the economy,” said Eric Roberge, chief executive of Boston-based financial-planning firm Beyond Your Hammock. “We provide advice to families, so we do view this reduced spending as a good thing for individuals. Whether the overall U.S. economy continues to thrive with reduced sales is TBD.”

The Federal Reserve has held interest rates high in the hope of taming price increases — but monetary policy is also stirring fears of a potential economic slowdown if rates remain too high for too long.

There are some signs that even though some Americans are buying less fast food, others are spending plenty of money on other luxuries — such as cruises. Spending by affluent, older Americans is currently driving the economy, the Associated Press recently reported. People who haven’t benefited from recent gains in the housing or stock markets, on the other hand, may have little choice but to cut back.

But in the eyes of financial planners, consumers’ newfound frugality is positive news.

“We should definitely support this shift in behavior,” said Josh Nelson, founder and chief executive of Keystone Financial Services in Loveland, Colo. “It’s good for people’s wallets today and for their financial future, even if it means some challenges for businesses along the way.”

How have higher prices affected your life and how you think about the U.S. economy? Let us know at [email protected]. One of our reporters might reach out to you to learn more.