MW Why chains such as Chipotle and Chili's could have a better 2026 than their rivals
By Bill Peters
Tax breaks and easier comparisons could help the fast-casual and sit-down chains that draw wealthier diners, analysts say. M&A and weight-loss drugs are also things to watch.
Chipotle Mexican Grill is among UBS's top restaurant picks for 2026.
Last year was tough on restaurants. But UBS analysts say new tax breaks and a lower bar to clear could make 2026 more forgiving, particularly for the sit-down chains and fast-casual players that draw wealthier customers.
The analysts, in a note dated Monday, said last year's legislation known as the "Big Beautiful Bill" - which cut trillions of dollars in taxes but also put bigger constraints on some public assistance -would benefit higher-income consumers. Weaker results from last year will make it easier to put up sales growth this year.
Lower interest rates could also help spur more mergers and acquisitions, they said, and the rise of GLP-1 weight-loss drugs could also be something to watch.
Against that backdrop, the analysts said they liked names such as fast-casual Mexican chain Chipotle Mexican Grill Inc. $(CMG)$ and drive-thru coffee chain Dutch Bros. Inc. (BROS). They also upgraded Brinker International Inc. $(EAT)$, the parent company of Chili's, to buy, while downgrading Sweetgreen $(SG)$ to neutral.
"We expect an improved restaurant sector setup into '26 following significant pressures in '25, believing upside exists from effective stimulus benefits, easy comparisons and attractive valuations," they said.
"That said, we expect underlying macro pressures (lower income, younger, Hispanic consumers) will linger, representing a potentially weaker [second half]," they said.
They said the tax cuts, which President Donald Trump signed into law last summer, would help sales trends, "with our analysis indicating upper-income consumers will benefit most and casual diners &?fast casuals will realize the biggest sales lift based on customer exposures." Still, they said, lower-income shoppers would be likelier to suffer from cuts or steeper requirements for benefits like SNAP and Medicaid.
Wall Street expects the legislation to help the retail industry more broadly. However, many economists remain worried about slower hiring and a volatile trade backdrop.
The UBS analysts on Monday said the restaurant-industry stocks that they covered were trading at a discount compared to the broader S&P 500 Index SPX. Same-store sales should improve somewhat this year, they said, though they added that the gains would likely stay in the low single digits.
Still, foot traffic to restaurants will likely stay negative, they said, and after raising prices in prior years, restaurants have less room to push them higher without cutting more significantly into demand.
In 2025, consumers remained wary about spending too much on restaurants as they dealt with higher prices elsewhere. Demand among low-income shoppers in particular faltered. Price boundaries in the industry have blurred.
McDonald's Corp. $(MCD)$ and other fast-food chains discounted aggressively in an effort to win back consumers they lost after hiking prices in years past - a response to the pandemic's disruptions to the job market and broader global supply shocks. Fast-casual chains like Chipotle, Cava Group Inc. $(CAVA)$ and Sweetgreen ran up against the phenomenon of the "slop bowl" - as well as thinning patience for expensive salads. Some casual-dining chains, like Chili's, also ventured into the discount fray, but fared better than their industry peers.
As for their specific picks, the UBS analysts said strong foot traffic, new menu items - including food - and expanded mobile ordering should boost Dutch Bros., even as its larger rival, Starbucks Corp. $(SBUX)$, tries to turn itself around. For Chipotle, they said, new limited-time offerings, improvements to its loyalty program and a catering pilot project were potential positives.
Brinker, they said, would benefit from a turnaround at Maggiano's, which the company also owns, and "sustained sales momentum at Chili's supported by an industry-leading value proposition." Chili's offers a deal with a drink, appetizer and entree that starts at $10.99.
The analysts said that at Sweetgreen, they expect that "store traffic will take time to inflect positively as macro pressures are likely to persist and consumer spending remains depressed, particularly among younger consumers."
-Bill Peters
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(END) Dow Jones Newswires
January 06, 2026 16:34 ET (21:34 GMT)
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