The Perfect Storm: How Rising Wages Are Reshaping the Restaurant Industry

"The restaurant industry is experiencing its most dramatic shift in labor economics since Ray Kroc standardized the QSR model in the 1950s," said Luke Fryer, Founder and  CEO of Harri, which released its first-ever 2025 Wage & Labor Cost Index. Based on a study of 300 QSR locations, including McDonald’s, Wendy’s and Burger King, the research offers analysis of the growing disparity in restaurant labor costs and its impact on operational viability across U.S. markets.

Fryer sheds light on the "perfect storm" brewing and offers Modern Restaurant Management (MRM) magazine readers insights into how restaurants can navigate these turbulent times. His analysis covers key challenges from wage disparities and franchising implications to the vital role of technology in building a sustainable future for the industry.

What is the perfect storm you see brewing for the restaurant industry and what factors are fueling it?

The phrase “perfect storm” describes restaurant operators' situation as they grapple with rising wages and labor costs. If the forces at play don’t ease up, we’ll continue to see operational failures throughout the industry.

We launched our first-ever Wage and Labor Cost Index research this year, analyzing data from 300 QSRs nationwide. We found that while menu prices vary only 38 percent across markets, wages fluctuate up to 90 percent. Key locations like Denver and Los Angeles are the most unstable, with wage-to-price ratios exceeding 164 percent. 

What's fascinating is how market forces are superseding regulatory minimums, like Philadelphia, where market-driven wages exceed the statutory minimum by 164.40 percent. This gap suggests a fundamental shift in how operators approach labor cost management. The data clearly shows we're in uncharted territory.

Is there anything that can be done to prevent this?

Prevention isn't the correct term here. This transformation is already underway. The question is how restaurants can understand, adapt and thrive.

Prevention isn't the correct term here. This transformation is already underway. The question is how restaurants can understand, adapt and thrive.

I can speak to what we’re seeing at Harri. The most forward-thinking operators are shifting focus from minimum wage compliance to comprehensive market rate analysis. In some states, like California, the minimum wage has increased to $20. This means the traditional $3-4 difference between minimum and market wages is compressing. 

What is now more important than ever for restaurant operators is managing labor costs effectively. This means finding the balance between optimizing labor deployment in efficient ways and ensuring the guest experience is terrific. 

What is the potential impact on entrepreneurs interested in franchising, particularly in locations with wage compression and acceleration?

The Wage and Labor Index report does not suggest that franchise owners can’t or won’t be successful. We work with franchisees in some of the fastest-growing and most successful franchise systems – they’re seeing tremendous success despite these pressures. But the variations we see in markets are dramatic and warrant your attention. In Denver and Los Angeles, market wages significantly exceed selling prices, 121.16 and 115.14 percent, respectively. This is an immense labor cost pressure for restaurant operators to manage. 

In contrast, markets like Philadelphia and Las Vegas show lower ratios, 86.91 and 81.76 percent, suggesting a more balanced relationship between labor costs and pricing, enabling more flexibility. Franchising within your community may not be as reasonable as in other markets.  

Keeping your attention on the wage compression phenomenon that will continue to evolve throughout the nation will be particularly challenging for franchise models. 

Keeping your attention on the wage compression phenomenon that will continue to evolve throughout the nation will be particularly challenging for franchise models. 

Franchise models may have previously been synonymous with standardization, but our data suggests success now requires market-specific approaches to operations. Franchisees must leverage more sophisticated data analytics for wage and pricing optimization, particularly in high-pressure markets.

The good news is that there are still markets where the math works quite favorably. Franchisees who choose locations strategically and implement the right operational frameworks can still achieve attractive returns, but it requires a much more nuanced approach than in the past. 

How can technology help address key restaurant challenges such as rising costs and staffing turnover?

A people-centric solution is a necessity. Restaurant operators are quickly evolving into technologists for the front and back of the house and every step in between. 

Technology must solve real problems, not just create shiny objects. As a former restaurateur myself, we design solutions at Harri with an operator's perspective, focusing on practical innovations that directly impact profitability.  In tandem with rising wages and labor cost control concerns, we’re hearing operators struggle with the sky-high turnover rates that have long been an accepted part of doing business.  So, these are two critical areas our teams are innovating:

First, we're tackling turnover at its source by embedding engagement directly into the clock-in process. We’re able to capture real-time feedback on what employees need and how they feel within the flow of work. This intelligence allows managers to address issues before they lead to resignations—fixing the leaking bucket instead of filling it faster.

Technology must solve real problems, not just create shiny objects.

Second, AI-powered labor management is revolutionizing cost control. Advanced forecasting algorithms now predict demand with remarkable precision, while intelligent scheduling ensures optimal staffing levels every time. These applications deliver significant efficiency gains by placing the right people in the right shifts while respecting business needs and employee preferences.

The most effective restaurant technology doesn't just add complexity—it simplifies operations while improving the employee experience and controlling costs. This is core to our vision at Harri.

What changes should restaurant operators consider to have a more efficient and hopefully profitable business model?

I can offer a few considerations for operators, based on the conversations we’re having every day. 

Labor is typically the most significant cost on a restaurant's P&L, but also the most controllable. Especially now, with wages going up, finding good people getting harder, and compliance becoming a minefield, you've got to optimize how you deploy your team.

This isn't just about scheduling. It's about using data and automation to make smarter decisions on labor: thinking about the forecast, what tasks need to be done, what skills you need, and of course and what it costs. 

The QSR industry is undergoing a profound transformation driven by today's economic pressures.

The bottom line is that these changes are about getting the right people in the right place at the right time while keeping them happy and engaged. That's how you control costs, maximize revenue, and build a stronger, more stable team.

What do you think future restaurants will look like in the face of all these realities?

The QSR industry is undergoing a profound transformation driven by today's economic pressures. Two critical shifts are reshaping how successful brands operate:

First, operating model efficiency has become paramount. Leading restaurants rapidly integrate intelligent technology solutions that empower management with real-time, data-driven decision-making capabilities. AI-powered forecasting and scheduling tools are already delivering unprecedented precision in labor cost control—a trend that will only accelerate as these technologies mature.

Second, forward-thinking operators are finally addressing the frontline turnover crisis by developing a deeper understanding of the modern employee mindset. Without solving this fundamental challenge, efficiency gains become meaningless—cost savings simply walk out the back door with departing staff. Top-performing restaurants now apply the same analytical rigor to employee sentiment as they've historically dedicated to customer satisfaction. This strategic shift is yielding remarkable improvements in retention metrics, particularly during those critical first 90 days of employment.