Restaurants Challenged to Manage the Cost/Inflation Margin Squeeze in 2026 

The U.S. restaurant industry enters 2026 ready to prove its resilience once again, hoping to be on the winning side of a bifurcated economy despite surging operating costs, divergent consumer spending with “value” the big differentiator, and compressed profit margins. 

Led by food and labor, restaurant operating costs are 30 percent ahead of 2019 levels. While operators have increased menu prices in kind – 31 percent since 2020 – it’s fallen short of the need.  Indeed, operators can expect dining-out inflation in the three  to four percent range this year. Profit margins are tight, averaging three to five percent. 

There’s no one solution to navigating through a fraught business environment. But managers will be well-served by focusing on the investments that distinguish their organizations, whether that’s employees, the guest experience and the technology that drives much of it. 

Here’s what to expect in 2026.

The Profit Squeeze

These days, inflation is driving sales more than real traffic is. Guests are less inclined to dine out, and when they do, they are motivated by value – not just the experience, but price points, too. 

As the industry adapts to evolving market dynamics, including food, beverage, and labor costs that together represent 70 percent of restaurant expenses, operators are getting strategic. With food and beverage costs projected to moderate to a 3.3 percent increase (down from 3.9 percent in 2025), many are finding innovative ways to optimize their largest expense categories and maintain profitability even as 89 percent anticipate continued labor cost growth.

Risk management costs are another concern, rising premiums for certain lines of liability insurance. Underwriters are looking for rigor in how restaurants manage protocols for workplace violence and liquor liability, which was up by as much as 20 percent as 2025 came to a close. Property rates are stable or softening where catastrophe risk is less severe, though operators in regions with the biggest exposures must be ready for stricter underwriting and higher rates.

Those that boost their investment in technology may reap the benefits of lowered operating costs and improved return on investment. Artificial intelligence has an outsized role to play, whether in AI powered phones for predictive ordering or voice recognition to enhance customer service. Operators are cautioned to tighten their cyber risk management protocols given the greater exposures that accompany tech dependency. 

Labor Crunch Raises Costs, Constrains Growth 

Recruitment and retention is a critical concern for 77 percent of restaurant operators in 2026, but the pain is not being equally shared. Quick serve and fast casual establishments are actually 3 percent ahead (140,000 jobs) of pre-pandemic numbers, while full-service establishments are 3 percent below (173,000).

Aggravating the situation are demographic trends. For example, there are fewer young (16- to 19-year-olds) workers interested in these jobs to balance rising retirement rates. Current immigration policies are another concern: unauthorized workers comprise some eight percent of leisure/hospitality employment.

Offering improved benefits that focus on the individual employee’s life/work needs can be an important differentiator. It’s particularly valuable to focus on employee wellness, with solutions that attend to mental and financial health as 60 percent to 70 percent of restaurant staff experience anxiety, depression and high levels of stress.  

Leveraging employee data through analytic resources like persona analysis is instrumental for modernized benefits programs that help stabilize staffing

Risk Management in a Challenging Insurance Market

The insurance landscape is driving change across the industry. As carriers tighten their underwriting standards and policy terms, they are interested in seeing specifically how restaurants are managing risk mitigation plans, especially their protocols for workplace violence and harassment and active shooter incidents. 

According to National Institute for Occupational Safety and Health (NIOSH), research shows that 64 percent of restaurant workers have experienced workplace challenges. Leading operators are stepping up with comprehensive training programs that equip teams with de-escalation techniques and confidence-building skills. These investments not only strengthen insurance positioning but also create safer, more supportive work environments that attract and retain top talent.

Expanded use of technology raises another area of risk. In addition to adequate cyber insurance, staff training in security protocols is essential. And restaurants must thoroughly vet third-party vendors and their software, paying close attention to contractual details such as liability, the right to audit and breach notification requirements. 

Those clients that can demonstrate strong defenses will likely receive more favorable terms in their cyber coverage – and other lines, too. It makes having a strong relationship with knowledgeable brokers and risk advisors important for successfully navigating the challenges ahead.