The U.S. casual dining industry’s economic difficulties in 2025 have continued into this year.
The industry faces rising labor and product costs due to inflation, supply chain instability, changing consumer attitudes toward dining out and unsustainable debt obligations that have forced restaurant chains to close locations and, in some cases, file for bankruptcy.
One major issue is rising labor and food costs, which have risen 35% over the past five years from 2019 to 2025, according to the U.S. Bureau of Labor Statistics. According to the National Restaurant Association, rising costs have led to higher menu prices, which increased an average of 31% from February 2020 to April 2025, according to the Bureau of Labor Statistics.
Higher prices are discouraging consumers from dining out during uncertain times as more companies begin announcing layoffs across industries.
Last year, restaurant chain On The Border Mexican Grill & Cantina, which had about 120 stores at the beginning of 2025, closed or vacated 40 underperforming stores on February 24, 2025, due to rental and/or financial performance issues.
On The Border subsequently filed for Chapter 11 bankruptcy on March 4, 2025, with plans to sell its assets to its pre-petition bridge lender.
Restaurant operator FAT Brands said it plans to close 32 Smokey Bones, Yalla Mediterranean and Johnny Rockets restaurants this year and file for Chapter 11 bankruptcy protection on January 26, 2026.
“The Chapter 11 process will provide us with the opportunity to strengthen our capital structure to support our ideas and ensure they remain at the forefront of the industry,” FAT Brands CEO Andy Wiederhorn said in a statement.
“We plan to use this process to engage with key stakeholders around value maximization initiatives and will proceed with caution and firmly safeguard and protect the interests of our stakeholders,” Wiederhorn said.
Additionally, popular casual dining chain Bahama Breeze said on February 3, 2026 that it would close 28 locations as the company’s owner, Darden Dining Inc., will permanently close 14 restaurants and convert the remaining 14 restaurants to another brand.
Not all restaurant chains that close locations file for bankruptcy. In some cases, chains consolidate locations without having to file for bankruptcy.
One example of consolidation is Bristol Bar & Grille, the iconic casual-dining chain in Louisville, Ky., which said in a Facebook post that it will close its former Highlands location on Bardstown Road on March 15, citing declining customer traffic and the loss of late-night dining culture.
