How will high gas prices affect restaurants?

Gas prices are soaring, which could hurt restaurant sales. But how much? | Photo: Shutterstock.

More than a few industry analysts viewed gas prices as a likely industry tailwind this year, which along with larger tax refunds would provide a boost to fast-food restaurants that need whatever help they could get.

You can cross it off the list now. Oil prices have spiked in the aftermath of the U.S. attack on Iran, which has driven up said gas prices. According to AAA, gas prices are up 16% over the past week and are now 13% higher than they were a year ago. 

The true impact of higher gas prices on restaurant sales can be overstated. But the psychological impact of this spike, coupled with its timing, could prove particularly frustrating for restaurants this year. 

Higher gas prices take money out of people’s pockets, which can have a temporary impact on sales, particularly among lower-income diners.

The average American uses 25 to 30 gallons of gas per month, according to federal data, and that number remains below its 2018 peak. The recent increase means the average American will spend another $14.43 more for gas prices. That’s about the amount of a fast-food meal these days. 

But that also pales in comparison to other increases consumers are experiencing. Consider: Rent costs increased 2.4% in January, according to federal data, so the average renter pays another $38.40 per month, or well over twice the higher gas charges. Yet that was hardly accompanied by the type of concern we see with gas prices. 

And indeed, historically only major spikes in gas prices tend to have substantive impacts on restaurant sales. 

In this case, however, the higher gas prices are coming at the wrong time. Consumer confidence, which took a major hit last year from tariffs and then from the government shutdown, was showing signs of recovery. A gas price spike would certainly have an impact on consumer confidence, which is now a major factor in restaurant sales.

In addition, higher gas prices will offset the higher tax returns. The Big Beautiful Bill was designed in part to increase the size of tax refunds Americans may get, which can lead to another temporary improvement in restaurant sales. 

But the same people that would spend such refunds are the same people that would be moved by higher gas prices. While the gas price spike may be temporary, that temporary spike would come just as those consumers are receiving their refunds. 

The higher gas prices also come just as concerns about overall inflation are easing. The prices will most certainly change that trajectory, while adding another cost burden to a group of consumers that were hurt most by the post-pandemic inflationary environment. 

Then there’s the impact all this could have on the broader economy. 

The U.S. economy has remained surprisingly resilient despite the lingering impact of generationally high inflation from 2021 to 2023. Yet there are some signs of weakness. The job market has weakened—and no single statistic is as vital to a healthy restaurant industry than the number of people who are gainfully employed.

The stock market, meanwhile, could also be a factor. The Iran attack and subsequent spike in oil prices have increased volatility on Wall Street. The S&P 500 Index is now down more than 2% so far this year. 

A strong stock market had been one of the economy’s major backstops, helping higher-end consumers feel wealthy to keep spending. If that falters, then may well lead to a true economic slowdown.