2026 Mid-Year Outlook, Part Two

Modern Restaurant Management (MRM) magazine turned to industry experts for their insights on how the industry is performing so far in 2026 and expectations for the remainder of the year.

As restaurant operators continue balancing labor costs, rising guest expectations and tighter margins, I believe the next competitive advantage will come from helping every employee recognize, remember and build on prior guest interactions.

Hospitality has always been about making people feel known. Technology should help make that possible at scale.

For years, restaurant technology has focused on making transactions faster and more efficient by focusing on reservations, ordering, payments and loyalty. The next chapter ? It's about helping restaurants build lasting guest relationships. We call that shift Guest Experience Architecture (GeX): the evolution from connecting systems to creating continuity across the guest experience.

The operators that stand out during the rest of the year won't necessarily be the ones with the most technology. I think they'll be the ones whose teams can recognize returning guests, remember what matters to them and make each visit feel connected to the last. In an environment where every repeat guest counts, continuity becomes a competitive advantage. Hospitality has always been about making people feel known. Technology should help make that possible at scale.

—  Uptown Network founder Nadine Locher

Restaurants are experiencing both very retail strain and complexity, yet are remaining cautiously optimistic about where things are headed. Despite years of sustained pressure and incredibly narrow margins tied to a combination of cost volatility, shifting consumer demand and expanding technology, operators still have a positive outlook for 2026. In fact, the James Beard Foundation’s 2026 Independent Restaurant Industry Report found that 73 percent of operators are feeling this positive outlook, showcasing how they’ve truly adapted through every challenge imaginable and they keep finding ways through.

Restaurants are experiencing both very retail strain and complexity, yet are remaining cautiously optimistic about where things are headed.

The operators doing best are the ones being very deliberate about which tools they adopt and why — not just saying yes to everything. Eight in 10 (80 percent) of our surveyed operators say they plan to increase their AI investments in the next year, and they're most interested in using it for inventory and supply chain management, staffing and scheduling, and customer service. At the same time, our data shows that when it comes to technology, both extremes — very low tech and very high tech — correlate with weaker business outcomes.

It's not that technology is bad, it's that indiscriminate adoption isn't better than thoughtful adoption. When it comes to AI specifically, the opportunity is real, but so is the gap between what's available and what's accessible and affordable for a small, independently-owned restaurant. As one chef in our focus groups put it: 'Technology is a lifeline, but affordable, simple AI tools for the little guy — that's what we need next.'” 

— Dr. Anne E. McBride, VP of Impact, James Beard Foundation

2026 has started much like the previous few years for restaurant operators. Continued uncertainty in the market with access to debt, continued higher borrowing costs, as well as, the impact of political issues including the Iran War and Tarriffs has caused most operators to pause and adjust. These "external issues," are outside of a brand operator’s control for the most part. However, there are many areas that can be controlled (internal issues) including managing food and labor costs. Both of these cost areas have grown over the last several years, without brands being able to raise prices in corresponding fashion.

So, what can an entrepreneur do to adjust and combat these external and even internal areas of concern? One item that has been popular is generating more off-premises/catering revenue. Most times these revenue streams can be nice profit centers and even create a more loyal following. In addition, where possible, menu prices need to be adjusted to compensate for higher food/labor costs. I know sometimes this is not possible but it should be analyzed frequently and considered.

Also, it goes without saying that good employees are hard to find and retain. Operators should continue making their team a priority or someone else will. The last half of 2026 should see improvement after external forces improve, but operators should always focus on things within their control and continue building world class brands to differentiate from competition.

— Mike McCraw, Managing Director at FOCUS Investment Banking

One of the biggest things we're tracking that restaurant operators should be paying attention to is how mood and emotion are playing a huge role in food decisions and craveability — food is just more than just a means to feeling full.

Restaurant operators should be paying attention to is how mood and emotion are playing a huge role in food decisions and craveability.

A recent Rubix Foods proprietary survey found that one  in five people believe that a certain food or drink can change their mood, and over half of consumers report their food cravings being the strongest when they’re feeling strong emotions, such as stress or boredom. 

This trend is evident with some QSRs catering their menu items and LTOs to these emotional needs, like Taco Bell launching its first emotional support taco platform to cater towards World Cup fans and McDonald's bringing back its nostalgia-inducing Fried Apple Pie.

 — Ian O'Neil, Director of Consumer Intelligence, Rubix Foods

What operators should be focusing on?

Service. 

Everyone makes good food and drinks, and though that can get worse, it’s probably not going to get much better. Every establishment has a posted seating capacity, but lines through the door aren’t the problem for most operators. The challenge is, how to provide customers with a good experience, to spend more time and money, return with friends and spread the word. Expenses are already paid, lights on, ice in the well, ovens stoked. The point of inflection for all this momentum comes down to one thing: did the customer have a good experience.

Customer experience has more do with service than if their hamburger is “actually” medium rare. Good service is also having an establishment that is as clean as possible, and in good repair. Bad news is a killer, do everything you can to make sure that doesn’t happen. 

What issues are at the forefront?

There are a lot of issues, in my opinion. It started with Covid. Restaurants closed. Then, when they reopened, they sat half-empty because Operators couldn’t find help and when they did, it was unskilled and inexperienced labor. Prices went up, trends changed, people started drinking less, and fewer people are eating in full-service sit-down restaurants. Minimum wage went up in some parts of the country that were so prohibitive, it closed restaurants. Cutting corners became too juicy to deny and the spiral begins. 

The good news is, I do see it coming back. The best restaurants in Seattle take months to get a reservation. They offer creative, well-prepared food and cocktails, they are spotless, the staff is trained how to treat customers and to know the menu. 

Any surprises, and what to expect for the rest of the year?

I think it’s going to be tough for operators for a while still, but I also see quality operators that offer great experiences leading the trend back for people wanting to go out again. People don’t go out to have a mediocre experience. If they’re going to spend their money, they’re going to be selective and do all they can to have a great experience. 

— Demitri Pallis, founder and CEO of Demitri's Bloody Mary Seasonings 

Having spent years on the operator side and now working closely with fast casual and QSR brands across the country, we're seeing the guest profile changing faster than most menus are. The rise of GLP-1 users is one of the most significant demand-side shifts we've seen in a decade. Paired with economic uncertainty, these guests are showing up with different priorities and value perceptions – smaller portions, higher protein, lower sugar, and more intentional spending. Brands that truly understand customer behavior are rethinking how they communicate value.

Operators should be focusing on three things: menu flexibility and engineering, data-driven targeting, and aligning the business to its purpose.

Our data conversations with brands consistently show that check averages are holding, but frequency patterns and item preferences are moving. Understanding "why someone is dining here" is more important than ever.

For the back half of 2026, operators should be focusing on three things: menu flexibility and engineering, data-driven targeting, and aligning the business to its purpose.

— Ben Pryor, VP, Head of Restaurant Innovation at Qu

Consumer spending has held strong in the first half of 2026 and 2026 is proving to be the year that people return to bars and restaurants. 

A huge number of trends are converging which point to hospitality being poised to go through a major resurgence in 2026.

The eldest Gen Z reaches 27 years old in 2026 and our Questex On-Premise Consumer Habits Report finds this cohort is driving important metrics that could signal a return to growth for the restaurant industry.

The report reveals dining out has evolved from a functional activity into an emotional and experiential one. For most consumers—especially Gen Z and younger Millennials—it’s less about satisfying hunger and more about treating themselves, connecting with others, and engaging in something memorable.

More than half of diners we surveyed say they go out as a form of self-reward, while nearly as many prioritize social connection. Younger adults (21-28 years of age) in particular frame eating and drinking out of the home as a way to explore, discover, and experience something new. That mindset naturally extends to a deeper curiosity about what’s on the plate—the sourcing, the story, and the intention behind it. 

Experience is now a core expectation, not a bonus.

Experience is now a core expectation, not a bonus. About half of diners actively seek out food-driven experiences like tastings or specials, while many look for entertainment elements such as live music or interactive components. Among younger consumers, these preferences intensify significantly, pointing to a generation that values immersion, novelty, and shareability.

All of this signals a broader transformation in food and hospitality: brands are no longer serving meals—they’re crafting narratives and environments. Restaurants that can deliver on emotional resonance, transparency, and experiential value are better positioned to build loyalty and cultural relevance.

 — Brandy Rand, VP of Hospitality of Questex

As we reach the midpoint of the year, one of the biggest shifts we've seen is that guests are being much more intentional about where they choose to dine. They're not necessarily dining out less, but they're looking for experiences that feel worthwhile, ranging from genuine hospitality and thoughtful food to a sense of connection. That means operators must stay focused on consistency, taking care of their teams, and delivering value that goes beyond price.

One surprise has been how much diners continue to embrace restaurants with a strong sense of identity rather than chasing the latest trends. Looking ahead, I think we'll continue to see successful restaurants simplify where they can, lean into seasonal menus, and prioritize memorable guest experiences. The operators who remain true to who they are while adapting thoughtfully to changing expectations will be in the strongest position for the rest of the year.

—  Chef Elise Russ from Clementine in San Antonio, TX

The U.S. restaurant industry is currently facing a difficult operating environment characterized by compressed profit margins, uneven customer traffic, and persistent operational inflation. Data from the National Restaurant Association reveals that nearly 42 percent of restaurant operators report their businesses are not profitable.

The restaurant landscape has fractured into a K-shaped economic divide, with dining categories facing vastly different levels of pressure. The categories under the greatest stress are those experiencing a collapse in low- to middle-income traffic, extreme category maturity, or severe full-service labor constraints.

The four dining categories experiencing the highest financial and operational distress include:

1. Independent & Mid-Tier Full-Service Restaurants (FSRs)

"The broad full-service dining segment is currently the most structurally vulnerable. According to Black Box Intelligence data, a striking nine percent of all full-service units in the U.S. are currently classified as "at risk" for closure, compared to only four percent of limited-service tracks.

• The Scale Vulnerability: Mega-chains such as Chili's and Olive Garden are successfully absorbing cost shocks using massive corporate supply chains and heavy bundled promotions. Non-chain independent operators and mid-tier regional chains lack this purchasing power and are absorbing the brunt of the margin squeeze.

• The "Experience Cost" Friction: "FSRs require larger staffs. Rising wages have hit this segment hardest. Because consumers now pay heavily for sit-down meals, their expectations for flawless execution are incredibly high, leaving short-staffed full-service restaurants highly exposed to poor reviews and declining guest retention.

2. Traditional Family Dining & Mid-Scale Buffets

Family-style sit-down concepts (e.g., legacy breakfast concepts, casual 24-hour diners, and older buffet lines) are posting the worst overall metrics.

• Negative Sales Trajectory: Technomic research flags family dining as the weakest overall sector, marked by consecutive quarters of negative same-store sales.

• The Demographic Crunch: This category skews heavily toward a budget-conscious, car-dependent demographic. Rising household overhead and fuel costs have forced these core consumers to aggressively trim discretionary spending, bypassing the neighborhood diner entirely.

3. Lower-Tier Quick-Service Restaurants 

Fast food is experiencing a severe internal fracturing. While top-tier innovative brands (Chipotle, Chick Fil-A) continue to expand, legacy burger-and-pizza fast-food concepts are facing intense pressure.

• The Low-Income Retraction: McDonald’s executive leadership notes that traffic from low-income cohorts is in absolute decline, rather than just softening.

• The Luxury Perception Trap: Close to 80 percent of U.S. consumers now view fast food as a 'luxury' due to years of consecutive menu price increases. Brands that heavily rely on a car-centric, value-seeking consumer are watching traffic drop off as customers actively trade out of QSRs entirely and shift to supermarket meal solutions.

• The Specific Cuisine Slump: Comprehensive consumer data from McKinsey & Company notes that when shoppers look to cut their restaurant budgets, burgers (57 percent) and American fare (51 percent) are the very first food categories they choose to drop.

4. Mid-Market Fast Casual

The decade-long fast-casual boom has officially reached a cooling-off point and structural maturity.

• The Squeeze from Both Sides: Fast casual is caught in a vice. From below, quick-service chains have aggressively upgraded their digital applications and ingredients. From above, casual dining chains like Chili’s are executing aggressive $10.99-style sit-down bundles, erasing the price advantage that fast-casual formats once held.

• Grocery Component Aggression: Fast-casual lunch hubs are directly losing market share to premium grocery stores (like Trader Joe's or regional supermarkets). Grocers have vastly improved their own high-margin grab-and-go lunch bars and prepared hot-food counters, capturing the cost-conscious office worker.

— Richard Stark, Senior Business Consultant, Waters Business Consulting Group

Restaurant operators are under real pressure halfway through the year, and delivery economics are one of the clearest places where that pressure shows up. Consumers still want convenience, but they are also watching prices more closely.

At the same time, restaurants are trying to protect already thin margins while absorbing food costs, labor costs and the ongoing cost of digital demand. The challenge is that the current third-party marketplace model often makes the transaction more expensive for the guest and less profitable for the restaurant. By the time menu markups, service fees, delivery fees and tips are added, a simple order can look very different from what the customer expected.

Restaurant operators are under real pressure halfway through the year, and delivery economics are one of the clearest places where that pressure shows up.

For the rest of the year, operators should be focused on owning more of the transaction again. That does not mean delivery becomes less important. It means restaurants need a model where convenience does not come at the expense of margin, pricing transparency or the customer relationship.

The next shift will be toward more direct, POS-connected ordering models that allow restaurants to preserve their economics while still meeting consumers where they are. AI will likely accelerate that shift because people will increasingly ask an assistant for what they want instead of opening multiple apps. The important question is whether those orders flow through another expensive middleman or connect consumers more directly to restaurants in a way that creates better outcomes for both sides.

— Bala Subramaniam, Founder and CEO of Bites

I think the biggest thing restaurants should be thinking about for the rest of the year is the long game. It's very easy to get caught up in short-term opportunities because they feel like this money machine. Restaurateurs see the demand and think, "I've got to grab what I can." But that can actually lead to short-term thinking that isn't good in the long term.

Restaurants start bringing in more inventory, more labor, maybe raise prices because demand is higher, and then it's like a sugar high. It lasts for a little while, and then it's over. Regular customers are still the people who are going to be there after that event or surge is gone, so I think restaurants have to keep doing what they're doing, build relationships, stay steady and think about the long game, not the short game.

The biggest thing restaurants should be thinking about for the rest of the year is the long game.

The other thing that I think is happening is that we're going through a change in the restaurant labor model. The big brands are definitely looking at more automation in the kitchen. That's just a fact of the industry right now. They're trying to move people away from repetitive tasks and toward things that create a better customer experience. But a small independent restaurant should lean into being different. They don't need a thousand people, but I'd go all in on the best humans they can find. That's something the big chains can't always compete on, and I think there are customers who will continue to value that.

— Bob Vergidis, Founder/Chief Visionary at pointofsale.cloud

The churn operators can't see: how 2026's regulars are quietly thinning out

The biggest surprise in our portfolio data through H1 2026 is how quietly the most valuable guests are slipping away. Of every 100 guests who were "regulars" in the second half of 2025, meaning four or more completed visits in six months, only about 17 are still visiting at the same pace. Roughly 29 vanished entirely; they have not made a single reservation in 2026. Of the 71 who did return, more than three-quarters are visiting noticeably less often, with a median decline in visit cadence of nearly 60 percent.

This decline is dangerous because it quietly emerges, largely invisible to restaurant operators. A regular guest who used to come in twice a month and now comes once every six weeks still shows up in the system, still gets seated, still pays a check, but they are mid-defection, and operators almost never have a number on it. Through the first half of 2026, the data says the same thing the floor managers feel: the loyal regulars who carried the business through 2025 are quietly thinning out, and the brands that pull ahead in the back half of the year will be the ones who can see that thinning early enough to do something about it.

Your most frequent guests are strangers on paper

Across our portfolio of upscale-casual and enterprise restaurants, we looked at every guest who visited four or more times in the trailing six months, which we can call the "regulars" of the business. Only about one in five of them has a full record: a recognition action on file, a reservation note carried forward, and a stored preference such as a favorite dish, seating choice, or allergy. Nearly 40 percent are missing at least two of those three signals. Roughly one in ten has none of them on record at all. They are visiting frequently, paying checks, and from the system's perspective, they are functionally unknown.

The deeper problem isn't only how little gets written down but where the knowledge lives when it does exist. In most restaurants, the regulars are "known" the way a bartender knows a regular: in one person's head. The server who remembers the corner booth and the no-ice rule, the manager who knows the anniversary couple. That knowledge is real, but it's individual, and it leaves with them on their day off, their next shift, or their next job. 

The restaurants that pull ahead in 2026 will be the ones that move guest recognition from individual memory to something the whole floor can draw on.

Captured properly, that same knowledge becomes institutional: every server, every shift, every location greets that guest as a known guest. The restaurants that pull ahead in 2026 will be the ones that move guest recognition from individual memory to something the whole floor can draw on. This may sound obvious until you check the numbers and find that an industry built on hospitality has a near-empty shared record of its best customers. This is the shift we expect in restaurant AI this year: less about sending more messages, more about ensuring the right guest is recognized, no matter who is working the floor.

The third visit makes a regular. The second is where you earn it.

The single most underutilized moment in casual dining is a guest's second visit. By the time someone has come back once, the signal is there for which guests will become high-value regulars and which will fade, but operators have only a narrow window to act on it before the guest moves on. In our portfolio, a guest who received any recognition action at their second visit was roughly three times more likely to become a regular in the following six months than a propensity-matched guest who did not. Crucially, the intervention itself is the simplest possible thing: a manager visit, a comped amuse, a tableside acknowledgment.

The disconnect is the rate. Across roughly 266,000 second-visit guests in our portfolio in H2 2025, fewer than half a percent received any recognition action within thirty days. This is where AI earns its keep in restaurants in 2026 and not in volume of outreach, but in prediction and prompting: surfacing which two-visit guest at table 14 tonight is the one worth a thirty-second hello, and doing it while there is still time to change the outcome. Operators do not need additional communication channels. They need a sharper sense of who and when, and that is a problem the floor can no longer solve on its own.

— Ryan Volberg, Founder and CEO of Guestologie 
 

The restaurant industry is navigating a genuinely difficult operating environment right now, and I think the operators who are doing well have one thing in common: they stopped waiting for conditions to improve and started finding margin where they can control it. The macroeconomic pressures — fuel costs, commodity volatility, the lingering effects of tariffs on packaging and supply chains — are real, and they're squeezing operators across the board.

What I'd tell operators to focus on for the rest of the year is prime costs and menu discipline. Simplify. Protect what the customer gets for their money. The brands that came through the last few years in the best shape are the ones that never let cost pressure show up on the plate.

— Matthew Walls, Chief Stores Officer at Edible Brands