U.S. restaurant chains are relying on value-focused menus to attract diners as traffic recovery remains uneven and discretionary spending stays under pressure. While some brands continue to gain momentum through innovation and expansion, others face structural challenges tied to changing consumer habits.
BNN Bloomberg spoke with Danilo Gargiulo, senior analyst, U.S. restaurants, at Bernstein, about the outlook for the sector, the growing appeal of chicken-based menus and why valuations could recover if traffic trends improve.
Key Takeaways
- Value-focused menus are helping support same-store sales as consumers remain cautious with discretionary spending.
- Chicken demand continues to rise, driven by higher beef prices, delivery-friendly formats and greater menu innovation.
- International expansion is a key growth driver for global restaurant brands, particularly where store bases are newer.
- Pizza remains a slow-growth category, with legacy dine-in real estate limiting competitiveness in off-premise dining.
- Restaurant sector valuations are under pressure, but could rebound if traffic and consumer confidence improve.
Read the full transcript below:
LINDSAY: Yum Brands reported mixed fourth-quarter results, with strength at Taco Bell and KFC offset by continued weakness at Pizza Hut. Same-store sales beat expectations as diners leaned toward value meals, although adjusted earnings came in slightly below forecasts. Let’s get more on this from Danilo Gargiulo, senior analyst, U.S. restaurants, at Bernstein. It’s good to have you. Thanks so much for taking the time.
DANILO: Likewise. Good morning, Lindsay.
LINDSAY: If we dig into the numbers, Taco Bell U.S. earnings made up about 36 per cent of Yum Brands’ operating profits. How does that compare with the Canadian side of the business?
DANILO: Taco Bell is definitely on the positive side of the equation for Yum. Same-store sales continue to grow at about seven per cent, which shows the brand is firing on all cylinders. The increased level of innovation in 2025 is likely to continue into 2026. Even the partnerships launched over the past year are expected to ramp up further. Management feels confident that the trajectory they’ve set — including average unit volumes eventually growing to about $3 million — is achievable for the brand.
LINDSAY: Yum has several brands under its umbrella, including KFC. There’s been strength in KFC’s international business. What’s driving that?
DANILO: Internationally, the KFC story is about expanding in countries where the brand has had a more limited presence. If you break down the performance, KFC posted about four per cent systemwide sales growth, excluding currency effects. Roughly three per cent came from same-store sales, while about six per cent came from unit growth. That shows the real engine is development. The focus is on generating strong cash-on-cash returns and higher returns on investment for franchisees as the brand continues to expand globally.
LINDSAY: Why is KFC doing so well internationally compared with Pizza Hut or Taco Bell? Where is that strength coming from?
DANILO: First, KFC’s international stores tend to be newer, which gives them a stronger setup from a marketing and brand-imaging standpoint. They stand out more versus competitors. Second, the innovation and pricing strategy in international markets has been compelling. On top of that, the global chicken category has been growing strongly. In the U.S., competition in chicken has been more intense, and KFC likely underinvested in menu innovation and partnerships in recent years. That explains the performance gap between KFC’s U.S. and international businesses.
LINDSAY: Let’s talk more about chicken. Demand appears to be rising as beef prices climb. Is that what you’re seeing?
DANILO: In the near term, yes. Beef inflation has been higher, so operators are steering demand toward chicken offerings. Over the longer term, the chicken category in the U.S. has delivered nearly double-digit compound annual growth over the past decade. Chicken travels better for delivery, is perceived as healthier — a long-term consumer trend — and is more conducive to innovation. The protein itself is neutral in flavour, which allows for a wide range of sauces and cooking methods that attract new consumers.
LINDSAY: Pizza Hut is another brand investors are watching, and it’s clearly facing some challenges. What’s behind that weakness?
DANILO: Pizza is a structurally slow-growing category. Pizza Hut also faces a formidable competitor in Domino’s, which has offered very aggressive pricing for more than a decade. Historically, Pizza Hut was built around dine-in restaurants, and its real estate footprint isn’t well aligned with where demand is growing today, which is largely off-premise consumption. Competitors have developed capabilities over time that Pizza Hut has lagged on, and that helps explain its steady market share losses over the past decade.
LINDSAY: What do you see as the future for Pizza Hut if that trend continues?
DANILO: Management has been discussing strategic options, with a near-term focus on restoring profitability. That includes increased marketing support and closing underperforming U.S. locations, with about 250 store closures planned. The priority is maintaining franchisee profitability and putting the brand in the best possible shape ahead of a potential spinoff or asset sale.
LINDSAY: Interesting. We’ll have to leave it there, but thanks very much for your time today.
DANILO: Thank you.
LINDSAY: That was Danilo Gargiulo, senior analyst, U.S. restaurants, at Bernstein.
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This BNN Bloomberg summary and transcript of the Feb. 4, 2026 interview with Danilo Gargiulo are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
