Despite moderating inflation rates, restaurant operators remain under significant financial pressure as labor, food and operating costs continue to outpace pre-pandemic levels, according to a new analysis from the National Restaurant Association.
The report found that total restaurant expenses have increased 36 percent since 2019, driven by higher wages, food costs, utilities, occupancy expenses, supplies and credit card processing fees. While operators have managed through several years of inflation and disruption, the association said elevated costs continue to weigh heavily on profit margins.
Baseline View
Prior to the pandemic, the cost breakdown for a typical independent restaurant looked like this:
- Food and labor costs were the two most significant line items, 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 – combined to represent about 29 percent of sales.
That left a pre-tax profit margin of roughly 5 percent for a typical restaurant, which means significant cost increases were not sustainable.
Since then, average hourly earnings for restaurant employees have climbed 41 percent, while wholesale food prices have risen 35 percent, according to the report. Operators have also been hit with double-digit increases in utilities, occupancy costs, supplies and payment processing fees.
The impact on profitability has been significant. The association reported that 42 percent of restaurant operators said their businesses were not profitable in 2025.
To illustrate the challenge, the report modeled the finances of a typical restaurant. If that restaurant's sales had remained at 2019 levels while costs rose at current rates, it would shift from a 5 percent profit margin to a pre-tax loss of nearly 29 percent of sales.
According to the analysis, restaurants must generate substantially more revenue simply to stay afloat. A restaurant would need sales growth of 29 percent above 2019 levels just to break even. To maintain the same 5 percent profit margin it achieved before the pandemic, sales would need to increase by 36 percent.
Menu price increases have helped many operators offset some of those rising expenses. The National Restaurant Association noted that average menu prices increased 36 percent between February 2020 and May 2026, roughly matching the sales increase needed for a typical restaurant to maintain its pre-pandemic profitability.
However, with consumer traffic softening in many segments of the industry, the association said operators cannot rely on price increases alone. Instead, restaurants will need to focus on improving efficiency, boosting productivity and carefully managing costs as they work to protect margins in an increasingly challenging operating environment.