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Photo: Jack Culbertson/Getty Images

U.S. restaurants have been a beacon of hope in the moribund brick-and-mortar retail picture, but they now face trouble of their own, analysts at ratings agency S&P Global warn.

What's happening: "Already, cracks are showing across our rated restaurant universe," Diya G. Iyer, S&P's primary credit analyst, wrote in a note to clients Tuesday. Iyer worries rising wages and increasing delivery costs will weigh on fast food restaurants while changing millennial dining preferences will hurt casual dining.

Details: Despite some improving brands, the rise of food halls and continued pressure on lower-income households this year will work against much of the fast casual and fast food sector, Iyer warns, where Pizza Hut, Wendy's and BossCo (parent of Checkers) have all been downgraded to CCC+ ratings with negative outlooks.

By the numbers:

  • "A new normal is unfolding," Iyer says, with U.S. restaurant sales increasing only 3.6% last year versus a compound annual growth rate of 6.4% between 1970 and 2019, according to the National Restaurant Association.
  • The most concerning development is that industry traffic hit a 9-year low with a 4% reduction in February, while the average cost of a check in restaurants hit a 10-year high, according to U.S. restaurant industry benchmarker MillerPulse.
  • Price increases look unsustainable given negative industry traffic since 2015.

Other worries:

  • Remodeling growth is expected to slow after years of capital spending on technology, especially in casual dining.
  • Restaurants will have to raise prices because of swine flu in China, which has slowed global pork supply.

Yes, but: S&P notes that there have been zero restaurant defaults in the last two years and only one a year in the years prior.

Watch this space: "We will continue to closely monitor refranchising efforts that McDonald's Corp., Wendy's, and other major players undertook in recent years," Iyer writes.

  • "The approach passes costs on to the franchise operators, improving margins and free cash flow generation at the franchisor level. But in our view, in some cases it causes potential for strife if mom-and-pop owners feel they shoulder too much expense to execute on the major transformations."

Go deeper: How fast food is pandering to the youths

Go deeper

Updated 3 hours ago - Politics & Policy

Coronavirus dashboard

Illustration: Eniola Odetunde/Axios

  1. Health: Most vulnerable Americans aren't getting enough vaccine information — Fauci says Trump administration's lack of facts on COVID "very likely" cost lives.
  2. Education: Schools face an uphill battle to reopen during the pandemic.
  3. Vaccine: Florida requiring proof of residency to get vaccine — CDC extends interval between vaccine doses for exceptional cases.
  4. World: Hong Kong puts tens of thousands on lockdown as cases surge — Pfizer to supply 40 million vaccine doses to lower-income countries — Brazil begins distributing AstraZeneca vaccine.
  5. Sports: 2021 Tokyo Olympics hang in the balance.
  6. 🎧 Podcast: Carbon Health's CEO on unsticking the vaccine bottleneck.

DOJ: Capitol rioter threatened to "assassinate" Alexandria Ocasio-Cortez

Supporters of former President Trump storm the U.S. Captiol on Jan. 6. Photo: Kent Nishimura / Los Angeles Times via Getty Images

A Texas man who has been charged with storming the U.S. Capitol in the deadly Jan. 6 siege posted death threats against Rep. Alexandria Ocasio-Cortez (D-N.Y.), the Department of Justice said.

The big picture: Garret Miller faces five charges in connection to the riot by supporters of former President Trump, including violent entry and disorderly conduct on Capitol grounds and making threats. According to court documents, Miller posted violent threats online the day of the siege, including tweeting “Assassinate AOC.”

Schumer calls for IG probe into alleged plan by Trump, DOJ lawyer to oust acting AG

Jeffrey Clark speaks next to Deputy US Attorney General Jeffrey Rosen at a news conference in October. Photo: Yuri Gripas/AFP via Getty Images.

Senate Majority Leader Chuck Schumer (D-N.Y.) on Saturday called for the Justice Department inspector general to investigate an alleged plan by former President Trump and a DOJ lawyer to remove the acting attorney general and replace him with someone more willing to investigate unfounded claims of election fraud.

Driving the news: The New York Times first reported Friday that the lawyer, Jeffrey Clark, allegedly devised "ways to cast doubt on the election results and to bolster Mr. Trump’s continuing legal battles and the pressure on Georgia politicians. Because Mr. [Jeffrey] Rosen had refused the president’s entreaties to carry out those plans, Mr. Trump was about to decide whether to fire Mr. Rosen and replace him with Mr. Clark."