Restaurants at a Crossroads: Economic Pressures and Declining Spend Hit Hard

As goes Main Street, so goes the overall U.S. economy. By the numbers, roughly 99% of businesses in the U.S. are small businesses — and they account for about 44% of GDP. They employ half of the private sector workforce, and $1 out of every $3 spent by consumers is spent at smaller firms. And 90% of the more than 1 million restaurants in the U.S. are small businesses.

Restaurants are a tough corner of the small to medium-sized business (SMB) neighborhood. And that reality has been reflected in the latest reading of the Fiserv Small Business Index, which is based on card, cash and check transactions in-store and online for 2 million small businesses. Sales data in the index is equivalent to payments data and is collected in real time.

The index shows that foot traffic has been strong at restaurants but sales have not been keeping pace. Spend actually decreased in January, by 1.7%, from a year ago.

“The average ticket size is decreasing,” said Prasanna Dhore, chief data officer at Fiserv, “and this is probably due to inflationary pressures” as consumers stretch their dollars. In fact, as he observed, restaurants grew sales 2.3% through all of 2024, but adjusting for inflation, sales were actually down 1.8%.

“Margins are getting squeezed,” Dhore said, “because there’s only so much cost that they can pass on to the consumers.”

Changing consumer behavior is also impacting the restaurant industry. Faced with rising prices, consumers are prioritizing nondiscretionary items and cutting back on discretionary spending.

Within the restaurant sector, Dhore said, this shift translates to customers opting for lower-cost menu items as they try to stretch their dollars. While foot traffic remains relatively steady, the reduction in spending per visit suggests that this cost-cutting strategy may eventually lead to a decrease in overall foot traffic as well.

“It’s a monthly index,” Dhore told Webster, “but we have the capability to look at it for any period, including weekly and daily … you swipe a card and we know what’s happening.”

Right now, spending on services is the main contributor to growth — a category that makes up 70% of spending and includes 23 subsectors including restaurants.

The General Tone

For restaurants and for a slew of the other sectors, Dhore said, the uncertainty of tariffs looms — and again, the question of just how much in added costs can be passed along to end customers. But the general tone among smaller businesses across the 34 sectors tracked by Fiserv is one of optimism.

The real-time data, Dhore said, can yield benefits to various stakeholders, as its granular right down to metro area. The company is sharing spending data with the U.S. Chamber of Commerce Foundation to better understand the impact natural disasters, including recent wildfires and hurricanes. These insights are being used by the Chamber to educate policymakers, guide investments, and inform philanthropic support to boost small business recovery.

“What we’re seeing is that consumers are pivoting to [spending on] nondiscretionary items from discretionary items,” he told Webster. “There’s a lot of things that can happen. Complexity means that a small reaction somewhere may have a huge impact somewhere else. It’s the local businesses that play a major role and truly hold the pulse of the local economy.”

Elsewhere, Fiserv’s insights are helping financial institutions evaluate SMB credit risk. For instance, Dhore said, the data shows that small businesses whose sales have increased more than 20% over the prior six months have default rates 30% below the industry average. Similarly, businesses where sales have decreased more than 20% in the prior six months have default rates 53% higher than the average default rate.