Why McDonald's and Domino's could win a recession, while Starbucks and Burger King could suffer

Consumers reduce their dining budgets or trade down to fast-food during recessions, analysts said.Getty Images

• During economic downturns, restaurants feel the pain first as consumers tend to eat out less.
• Some consumers trade down from casual-dining favorites to fast-food chains, analysts said.

A majority of Wall Street analysts have said the threat of a 2023 recession is real.

Typically during a recession, restaurants feel the pain first.

"People need to eat, but they don't necessarily need to eat at restaurants," Mark Kalinowski, a restaurant analyst with Kalinowski Equity Research, told Insider.

When times are tough, consumers either eat out less frequently or trade down from casual-dining favorites to fast-casual or fast-food chains because prices are lower and there's typically no tipping, Tim Powell, a restaurant consultant, said.

Convenience is also a factor. Consumers scrap driving several miles out of the way to a favorite local burger joint to save on fuel.

"Instead of going to In-N-Out, they will settle for McDonald's because it's closer, cheaper, and faster," Powell, the managing principal at the industry consultancy Foodservice IP, told Insider. "Believe it or not, convenient locations trump food prices in quick service when consumers have a hankering for a cheeseburger."

Insider scoured analyst reports and interviewed industry experts like Powell and Kalinowski to get insight on how publicly traded chains might perform in 2023.

Analysts think McDonald's, Papa Johns, Olive Garden, Taco Bell, Chipotle, and Domino's are set up for success during a recession. While Burger King and Chili's could struggle. Analysts are undecided or mixed on brands like Starbucks, Wendy's, and Cheesecake Factory and how they might fare during a recession.