Restaurants Face ‘Double Squeeze’ from Rising Wages and Tariffs

Despite being pinched by a “double squeeze” from internal labor costs and external market pressures forcing them to raise menu prices, 71 percent of restaurant operators have a positive outlook for the next year, according to Expert Market’s 2025 Food and Beverage Report, sponsored by Toast.

“This does seem like an unusual finding, in the light of the many economic headwinds our report highlighted – tariffs, inflation and labor costs are among many big issues the industry is having to deal with right now,” said Chris Maillard, Editor of Expert Market. “But those are things that operators can’t influence, so they’re concentrating on running their own businesses as sustainably as possible. The adrenaline rush of hustling, working hard and keeping customers coming in is keeping operators enthusiastic – and they think they can get through this in good shape. We very much hope that optimism is justified.”

Among the key findings: 

• 76 percent report that rising ingredient costs are having a significant effect on profitability. Rising ingredient prices can be attributed to a combination of inflation and tariffs. 

• 62 percent have acknowledged that they have had to raise menu prices to offset wage increases, which directly damages the customer experience.

• For 57 percent of businesses, wages are cited as having the highest cost impact on their operations.

•  47 percent of businesses stated tariffs directly led to increased menu prices for customers. US tariffs have also had an impact on ingredient prices and supply costs, with 41 percent reporting this. 

• 40 percent of businesses said the rising cost of utilities such as electricity, gas and water has also had a significant impact on their profitability.

• More than 25 percent of professionals named supply chain volatility as a major obstacle. 

“The restaurant industry has always worked on tight profit margins, so when there’s a rise in operating costs businesses have no choice but to pass that on to the customer,” added Maillard. “It’s not a great situation to be in, with a real risk of losing customers, but they’re backed into a corner at the moment.”

The reports suggests that successful operators are the ones who “control the controllables.”

“They’re focusing hard on day-to-day efficiencies like smart menu planning, staff rostering, ingredient pricing, stock control and all the other vital details of making a restaurant run in the leanest way possible,” said Maillard. “And they’re prioritising customer experience over back-office spend. Twenty six percent cite customer experience as the most important priority for long-term success; investment cuts are hitting people/HR hardest (53 percent).”

Additionally, operators are turning to technology to help handle challenges. Investment in software and technology is near-universal, with 98 percent of professionals investing over the past year (up from 83 percent in 2024) and 56 percent adopting employee scheduling software, according to the report. 

“Efficient rostering is always useful, both for employers’ efficiency and to give staff certainty and stability,” said Maillard. “Investment in software and technology is near-universal, with 98 percent of professionals investing over the past year (up from 83 percent in 2024) and 56 percent adopting employee scheduling software. While the F&B industry is always going to rely on a complex, fast-moving shift system, this technology can help staff keep track of their time far more easily than WhatsApp groups or calendars tacked to noticeboards.”

Operators should look toward prioritising customer experience and diversifying revenue streams as they head into the holiday season, Maillard offered.

“There has been an increased move towards diversifying the offering – new revenue plays include expanded off-premise (33 percent), retail and consumer packaged goods (27 percent), and experiential offerings (21 percent). The holiday season is prime territory for this, with consumers looking for food- or drink-related presents and take-home dishes or ingredients; holiday-themed experiences could also be a strong revenue driver.”

For revenue diversification, the report recommends considering expanded off-premise (takeout and delivery), retail and consumer packaged goods (CPG), and experiential offerings.

“Some operators are also testing subscription services, strategic partnerships and new brand concepts,” added Maillard. “Operators need to keep it disciplined, however, by choosing the few that fit their brand best, standardizing how they run, and reviewing their contribution regularly so each addition earns its place without adding unnecessary complexity.”