Kevin O’Leary explains why restaurants are shuttering across America — and why more will follow

June 18, 2024

From Red Lobster declaring bankruptcy to Applebee’s shuttering dozens of locations this year — big American restaurant chains are getting gobbled by inflation and declining foot traffic since the COVID-19 pandemic, says “Shark Tank” star Kevin O’Leary.

“The U.S. restaurant industry finds itself on the menu,” he wrote in a column for the Daily Mail.

Rising food prices, declining foot traffic

O’Leary says many restaurants haven’t truly recovered from the effects of the pandemic — for one, customers have become a lot more comfortable with ordering their meals straight to their doorsteps.

And with the transition to remote or hybrid work, folks aren’t getting lunch with colleagues as often, he says.

“This has been devastating to businesses that invested in brick-and-mortar locations,” O’Leary wrote. “Eateries in urban locations have been hit especially hard as their expensive locations are no longer receiving the footfall they need to meet rent.”

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Lingering supply chain issues from the pandemic, he says, have contributed to the rise in food prices. According to the U.S Department of Agriculture (USDA), from 2019 to 2023, the all-food Consumer Price Index surged by 25% — higher than other major categories, including housing and medical care. Supply chain issues contributed to the increase in food prices in 2020-21, the USDA says, while an avian influenza outbreak and the conflict in Ukraine bumped up prices in 2022.

O’Leary adds that inflation is leading many consumers to tighten their wallets and pull back on discretionary spending.

“In this economy, an ‘upscale McDonald’s’ is a luxury that many can’t afford,” O’Leary wrote.

What options do they have?

O’Leary notes while some restaurants have had to scale back or even declare bankruptcy, others are moving to less expensive locations or turning into commercial kitchens that specialize only in takeout.

Other chains, like Starbucks and McDonald’s, are now offering patrons $5 meal deals in an attempt to draw consumers.

Still, financial advisers say this pullback on spending could be a good thing — at least for the Americans reining in their budgets and making smarter spending choices.

“Americans need to reprioritize their cash flow in difficult times,” Andrew Herzog, a certified financial planner and associate wealth manager at the Watchman Group in Texas, told MarketWatch.

“McDonald’s and Starbucks will survive.”