In the latest sign of the industry’s struggles, traffic from the restaurant sector declined over the third quarter. Stocks from the sector had become the favorite of investors over the last few years, but they have fallen out of favor recently due to a number of factors. These include rising costs, higher restaurant prices and the changing tastes of consumers.

However, long-term trends favoring eating out over eating at home are still in place. Moreover, operators willing to evolve and stand out in a competitive market will continue to reap profits. For interested investors, stocks of restaurants with strong fundamentals and sufficient capacity for innovation continue to be strong bets.

Rising Costs, Prices Hurt Sector

According to market research company NPD Group, footfall at U.S. fast food restaurants declined by 1% in the third quarter. This was the first fall in traffic experienced in five years.

Additionally, total restaurant visits also declined by 1%. A variety of reasons contributed toward such a contraction. These include higher restaurant prices, changing consumer preferences and a rise in costs, including rents and prescriptions.

According to recently released government data, the price of eating out has risen substantially this year. In contrast, data from October’s CPI release shows that the cost of groceries has declined by 2.4% on a yearly basis. This is the largest fall in food prices recorded over 12 months since the Great Recession ended in 2009. A worldwide glut in farm produce and expanding herds of livestock are responsible for the sharp fall in food costs.

Innovation, Long-Term Trends Hold the Key

Another major reason for the decline in traffic has been the changing taste and preferences of customers. Firstly, healthier menu options are being favored. More importantly, innovation and distinctive offerings are being rewarded with higher patronage.

For instance, McDonald’s Corp.’s (MCD – Free Report) plans for 2017 have been greeted with much enthusiasm by industry watchers. The fast food major is planning to introduce new variants of its iconic Big Mac and fries. It will also launch a mobile based ordering service to boost traffic.