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Why McDonald’s and Domino’s could win a recession, while Starbucks and Burger King could suffer

Consumers reduce their dining budgets or trade down to fast-food during recessions, analysts said.Consumers reduce their dining budgets or trade down to fast-food during recessions, analysts said.

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  • During economic downturns, restaurants feel the pain first as consumers tend to eat out less.
  • Some consumers trade down from casual-dining favorites to fast-food chains, analysts said. 
  • Analysts predicted what top publicly traded chains could do well with consumers during a recession. 

A majority of Wall Street analysts have said the threat of a 2023 recession is real. 

Typically during a recession, restaurants feel the pain first.

“People need to eat, but they don’t necessarily need to eat at restaurants,” Mark Kalinowski, a restaurant analyst with Kalinowski Equity Research, told Insider.

When times are tough, consumers either eat out less frequently or trade down from casual-dining favorites to fast-casual or fast-food chains because prices are lower and there’s typically no tipping, Tim Powell, a restaurant consultant, said.

Convenience is also a factor. Consumers scrap driving several miles out of the way to a favorite local burger joint to save on fuel. 

“Instead of going to In-N-Out, they will settle for McDonald’s because it’s closer, cheaper, and faster,” Powell, the managing principal at the industry consultancy Foodservice IP, told Insider. “Believe it or not, convenient locations trump food prices in quick service when consumers have a hankering for a cheeseburger.”

Insider scoured analyst reports and interviewed industry experts like Powell and Kalinowski to get insight on how publicly traded chains might perform in 2023.

Analysts think McDonald’s, Papa Johns, Olive Garden, Taco Bell, Chipotle, and Domino’s are set up for success during a recession. While Burger King and Chili’s could struggle. Analysts are undecided or mixed on brands like Starbucks, Wendy’s, and Cheesecake Factory and how they might fare during a recession. 

McDonald’sMcDonald's is well-positioned in a recession due to its scale and value, analysts said.McDonald’s is well-positioned in a recession due to its scale and value, analysts said.


McDonald’s is the first brand that comes to mind when Kalinowski thinks about recession winners. 

“One of the advantages of McDonald’s is their scale and convenience,” Kalinowski said.

Their prices are typically lower than those found at rival fast-food burger chains. 

“They’re pretty well positioned,” he said.

During the Great Recession from 2007 to 2009, Kalinowski said the chain’s “worst quarter” was still better than most, as same-store sales were 0.1%. Same-store sales are a key indicator of a brand’s financial health. 

“They were positive for the full year 2008. They were positive for the full year 2009,” he said.

McDonald’s usually performs well during a recession, and Kalinowski said that “they tend to be a market-share gainer, and then they tend to keep most of those gains coming out of a recession.”

Andy Barish, an analyst at Jefferies, is also bullish on McDonald’s. 

“We view McDonald’s as the best defensive/offensive play in restaurants given a looming recession,” Barish wrote in a note on December 21.

Olive Garden owner DardenConvenience and scale should help Olive Garden, analysts said.Convenience and scale should help Olive Garden, analysts said.

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The Great Recession hit casual dining the hardest, with multiple chains closing units.

Still, convenience and scale should help Darden Restaurants, which owns Olive Garden, face a recession, analysts said. Darden also owns LongHorn Steakhouse, Cheddar’s Scratch Kitchen, Yard House, The Capital Grille, Seasons 52, Bahama Breeze, and Eddie V’s.  

“Darden’s scale, best-in-class data insights, rigorous strategic planning, and results-oriented culture should enable the company to outperform through various economic cycles,” Eric Gonzalez, an equity-research analyst at KeyBanc, said in a December 8 note. 

Barish said Darden “remains well positioned” due to its size and scale to  “weather through the current backdrop in the context of ongoing macro/recession fears.”

Papa JohnsAnalysts said Papa Johns is well-positioned for the long term thanks to its value and premium offerings.Analysts said Papa Johns is well-positioned for the long term thanks to its value and premium offerings.

Papa Johns

In a November 2022 note, Gonzalez highlighted Papa Johns’ value offering, including its $6.99 pairing. “Recommitment to value through its ‘Papa Pairings’ menu is yet another tool it can use to respond to competitor discounting without compromising on check,” Gonzalez said.

Papa Pairings allows consumers to buy certain items for $6.99 when they buy two or more. Choices include medium one-topping pizzas, chicken poppers, Papadias sandwiches, sides, and desserts.

This month, Gonzalez said Papa Johns is “well-situated” for the long term “given its premium positioning, innovation track record, unit economics, and digital capabilities.”

Last year, Papa Johns introduced multiple new pizza items, including Papa Bowls. Stores are also modernizing. The chain recently released a new design format that leans into contactless ordering.

Those strategies “should help the brand weather an economic downturn better than most,” Gonzalez said.

ChipotleChipotle wins on value, food quality, and convenience.Chipotle wins on value, food quality, and convenience.


Kalinowski said Chipotle was one of the strongest chains in the industry during the Great Recession. The chain’s same-store sales in 2008 were up by 5.8%, and in 2009 they were up by 2.2%.

Chipotle has since become a digital powerhouse, investing in app and website channels, launching a new loyalty program, and building hundreds of stores with drive-thru lanes dedicated to mobile orders. For those reasons, analysts said Chipotle is well-positioned for 2023.

“That brand has some key advantages,” Kalinowski said. “For this year, I’m forecasting Chipotle same-store sales will be up 5.5%.”

In October, Morningstar said Chiptole’s “accelerated digital adoption during the pandemic supercharged Chipotle’s loyalty program, which should continue to drive increased order frequency” even amid “persistent inflationary pressures.” 

Though its average check is higher than fast-food brands, Powell said consumers give Chipotle credit for order accuracy, speed of service, and higher-quality food. “So it is worth the higher amount paid,” he said.

Taco Bell, KFC, Pizza HutAnalysts are bullish on Yum! Brands during a recession. The company owns Taco Bell, Pizza Hut, KFC, and The Habit Burger Grill.Analysts are bullish on Yum! Brands during a recession. The company owns Taco Bell, Pizza Hut, KFC, and The Habit Burger Grill.

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Andrew Charles, an analyst with Cowen, said Yum! Brands has the “best ideas” for 2023. He noted that Yum! management told him the company planned to emphasize value and digital offers this year. 

Specifically, Charles called out Taco Bell as the “crown jewel” of Yum! brands. Yum! owns Taco Bell, Pizza Hut, KFC, and The Habit Burger Grill.

Taco Bell is also on Kalinowski’s list of well-positioned and convenient brands that could weather a recession. 

“Historically, of course, they’ve been known for value, so you can go there and get a lot of food and a lot of calories for little money,” Kalinowski said.

Domino’sDomino's pizza is still seen as a value despite recent price hikes.Domino’s pizza is still seen as a value despite recent price hikes.


Jim Sanderson, an analyst at Northcoast Research, said Domino’s is resilient during recessions.

In a November 18 note, he also noted that consumers are accepting higher prices at Domino’s. 

Last year in March, Domino’s increased the price of its Mix & Match Deal by $1. The value bundle allows diners to pick two or more items for $6.99 each. It was previously $5.99 when buying two or more items. 

Peter Saleh, an analyst with BTIG, said in a December 5 note that he expects 2023 sales to rebound compared to 2022 “on the heels of higher menu pricing.” 

Pizza chains, overall, tend to be recession-proof because they have higher profit margins and give operators the leeway to make discounts available.

Wendy’sConsumers typically pick McDonald's over Wendy's in a recession, analysts said.Consumers typically pick McDonald’s over Wendy’s in a recession, analysts said.

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Kalinowski thinks Wendy’s will lose on price when going head-to-head with McDonald’s.

While Wendy’s “did OK in the Great Recession,” with only two quarters of negative same-store sales, he noted, McDonald’s “put up no negative quarters” during the same time period. 

“So advantage: McDonald’s.”

StarbucksStarbucks consumers might drop add-ons to save money, analysts said.Starbucks consumers might drop add-ons to save money, analysts said.

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For many Starbucks customers, coffee is a frequent necessity. But they might be trimming back some of their extras.

Add-ons — such as syrup pumps, extra espresso shots, and sauces — are a $1 billion business for Starbucks. And that could put Starbucks in a tricky spot during a recession, Barish told Insider

He said Jefferies is “baking into our forecast” a recession, and with that comes a “potential impact on more discretionary afternoon occasions” at Starbucks. 

Still, Bank of America note thinks upcoming changes to the Starbucks Rewards program could help the chain.

On February 13, consumers will have to buy more to earn freebies on most items such as specialty drinks, coffee, and baked goods. In a January 19 note, BofA said the new program emphasizes higher profits and faster service.

“In a macro slowdown, we believe the power of Starbucks Rewards will insulate the company, a key distinction from prior downturns,” BofA said. 

Cheesecake FactoryCheesecake Factory tends to have large checks.Cheesecake Factory tends to have large checks.

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Powell said Cheesecake Factory would have to offer meal deals to attract diners during a downturn because their prices are higher than many rivals’. He suggested, for example, offering discounts on two entrées and a free appetizer to lure price-conscious diners.  

Kalinowski said during the Great Recession, Cheesecake Factory logged negative same-store sales in 2008 and 2009. 

“They’re arguably the most differentiated concept in all casual dining. So they’re helped by that,” Kalinowski told Insider. “On the other hand, their average check tends to be a little higher than that if you’re going to an Applebee’s or Chili’s.” 

“So we’ll see how they hold up.”

Burger KingIn a recession, consumers typically choose McDonald's over Burger King.In a recession, consumers typically choose McDonald’s over Burger King.

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Kalinowski said a typical busy intersection might have a McDonald’s, a Burger King, and a Wendy’s.

If that’s the scenario, McDonald’s wins, because it “is probably a little cheaper from the customer’s point of view than the others.”

In September, Burger King unveiled a $400 million turnaround plan that includes remodeling 800 of its best-performing restaurants. 

Gonzalez said narrowing the funding to 800 “high-quality” operators could hurt the rest of the chain’s US units. 

And, in a recession, Kalinowski said he expects Burger King “to be a market-share donor — and McDonald’s and Wendy’s to take advantage of that.” 

Chili’sChili's interior


Kristina Ruggeri, an analyst with Argus, said Chili’s “was deeply impacted by the pandemic” and is taking steps to deal with eroding profit margins.

“In an effort to improve restaurant margins quickly, Brinker’s new CEO is raising menu prices and scaling back discounting and promotions,” Ruggeri wrote in a November 2022 note. 

While investors see CEO Kevin Hochman’s changes as favorable, Ruggeri said “additional menu-price hikes and the lack of discounting and promotions could deter customers if the macroeconomic environment worsens. We believe that Brinker is facing near-term challenges and will need several quarters to implement a turnaround.”

In a November 2 note, Gonzales said Chili’s needs to work on its marketing program: “Chili’s offers compelling price points on its ‘3 for Me’ platform, but has relatively low customer awareness.”

Read the original article on Business Insider