Inflation

Inflation is Straining Restaurant Operations

Steadily rising costs have been a defining characteristic of the restaurant business environment during the last several years. Restaurant expenses rose sharply across all major categories since 2019 – led by significant gains in both food and labor costs. 

At the same time, operators were also contending with sharply higher expenses for utilities, occupancy, supplies and credit card swipe fees – all of which registered double-digit percent increases since 2019. 

Overall, the National Restaurant Association estimates that total expenses for an average restaurant jumped 36% between 2019 and 2026. That puts continued pressure on margins, which means operators need to be focused on improving efficiency and productivity across their operations while identifying opportunities to manage costs.

The charts below illustrate the impact that these higher input costs would have on an average restaurant’s bottom line. As would be expected, the impact varies significantly depending on a restaurant’s current sales compared to pre-pandemic levels.

What You Need to Know 

The average restaurant runs on very low profit margins. As we look at the different scenarios keep in mind:

• Food and labor costs are the two most significant line items for a restaurant, each accounting for approximately 33 cents of every dollar in sales.
• Other expenses – such as utilities, occupancy, supplies, general/administrative, repairs/maintenance and credit card processing fees – combine to represent about 29% of sales.
• This leaves a pre-tax profit margin of roughly 5% for a typical restaurant, which means significant cost increases are not sustainable for most restaurants.