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Eating out is one of life’s great pleasures—but for both diners and restaurant owners, that experience is becoming more expensive. With food costs up 29% from 2019-2024 and labor costs rising 31% since 2019, many restaurant owners are facing a critical challenge: How do you stay profitable without driving customers away?
Let’s take a look at key issues causing financial strain, and then let’s explore strategies that restaurants can use to combat food inflation in 2025 without alienating customers or slashing already-thin profit margins.
Key Issues Causing Financial Strain on Restaurants
Rising costs are squeezing restaurants, and the trend isn’t slowing down. Through 2025, the USDA predicts continued price hikes across key food categories:
- Beef and veal (+3.2%), fresh fruit (+2.4%), and pork (+1.2%)
- Sugar and sweets (+6.4%), nonalcoholic beverages (+4.4%)
- Eggs—the biggest concern—expected to soar by 41.1%
Beyond food inflation, tariffs on imports could cost the industry $12.1 billion and cut independent operators’ profits by 30%, forcing menu and pricing shifts.
Meanwhile, over 78% of restaurant operators reported an increase in labor costs, with 61% noting a rise between 1% and 5%.
And consumers? They’re more selective than ever. With budgets tight, diners are opting for trusted favorites over trendy spots, adding even more pressure on restaurants to deliver an experience worth the price.
How Restaurants Can Respond to Rising Prices
Adjusting menus is one way restaurant owners can respond to rising food costs—but how can restaurants adapt their menus without absorbing all the costs while at the same time not alienating customers? Here are some ideas.
Adapting Menus for Inflation
Smart Portioning: A Subtle Way to Save
With food costs on the rise, passing those increases directly to customers can lead to sticker shock. Instead, small, strategic portion adjustments—especially for high-cost items like beef or veal—can help maintain menu prices while still delivering a satisfying meal. Reducing servings by as little as an ounce can add up to significant savings across thousands of plates.
Optimize Costs with Simple Portion Control:
Consider a bustling restaurant that serves 300 dishes daily, each featuring a cut of beef priced at $0.60 per ounce. By reducing each serving by just one ounce, the financial impact can be substantial. Here’s a breakdown of the savings:
Equation for Daily Savings:
Reduction per Serving (in ounces) × Cost per Ounce Number of Servings per Day = Daily Savings
Calculation: 1 oz × $0.60 oz × 300 servings = $180 per day
This adjustment results in daily savings of $180, which totals $65,700 annually. Simple changes in portion control can lead to substantial financial improvements for your restaurant.
In some cases, chefs took it even further. Garrett Benedict, chef and owner of G-Love in Portland, Oregon, explained in a recent Eater article how he made a bold choice to serve a 4-ounce portion of pork instead of the typical 12-ounce cut, knowing the quality of the meat was exceptional. He found that when quality and care are prioritized, guests remain satisfied—even with a smaller serving.
This approach also helps combat food waste. If you’re noticing that half-eaten meals are coming back to the kitchen, slight portion tweaks can reduce waste, stretch ingredients further, and benefit both your bottom line and the environment.
Make Your Menu Work for You
When ingredient costs are climbing, it’s a key time to re-evaluate and streamline your menu. Every restaurant has high- and low-performing dishes, and now is the time to assess what’s worth keeping. Consider temporarily removing low performers or adjusting recipes to maximize efficiency.
You can also be mindful of what’s in season and how you might incorporate those ingredients into your menu. Suppliers can sometimes have a surplus during the growing season, resulting in lower prices, and you might even establish relationships with local producers and buy in bulk for more savings. Seasonal menus often result in less waste and can be easier to plan for, meaning less over-purchasing.
Look for flexibility in your ingredients. Can certain items be swapped weekly based on availability and pricing? Could a cost-effective alternative replace an expensive component without compromising quality? Small, strategic menu changes can reduce expenses while maintaining variety and guest satisfaction.
This small change can help your staff too. If your team is stretched thin due to short staffing, a more focused menu can ease kitchen operations, reduce prep time, and keep service running smoothly.
Swap Out Expensive Ingredients for Less Expensive Items
Swapping out more expensive ingredients for more cost-effective ones can help cut costs without sacrificing the quality of your dishes. For example, instead of using costly chicken breasts, chefs can use thighs to provide a flavorful yet economical menu choice. Similarly, replacing egg whites with aquafaba, or romaine lettuce with inexpensive cabbage, can offer significant savings. You might also consider bulking up dishes with grains and legumes, which tend to be on the less expensive side.
Of course, there may be no getting around some price increase. Sue Boyle, director of integrated marketing for the American Egg Board, commented that the costs of eggs may not decrease for some time given the particular strain of avian flu. In response, some pastry chefs and bartenders are getting creative by exploring a no- or low-egg approach to manage rising costs without sacrificing creativity.
Many dishes can be bulked up with grains and legumes for a more cost-effective menu option.
Raise Prices Incrementally
If you have to raise prices to make the bottom line work, do so gradually. A gradual, targeted approach to price increases can help offset rising costs without driving customers away. Instead of a sweeping 15% hike, for example, adjust prices on your most popular items to boost profitability while keeping overall check values reasonable.
Spreading increases over time—1% to 2% every few months—can also soften the impact. Monitor sales data to ensure price changes aren’t discouraging orders of high-margin items like drinks and desserts.
If gradual price increases aren’t enough, flexible pricing may provide an alternative. Instead of raising base prices, some restaurants let guests customize meals to control their spending. Nikita Khandheria, owner of Eria in Sausalito California, allows guests to customize their meals with add-ons, effectively letting them set their own price point. At her restaurant, someone on a budget can order a base omelet, while someone looking for indulgence can add truffle, caviar, or premium mushrooms at an extra cost. This approach ensures accessibility while still capturing higher spenders who want an elevated experience.
Supply Chain Optimization
Another way for restaurant owners and managers to combat rising costs is by reassessing their supply chain. If possible, investing in local sourcing can cut transportation costs, support local economies, and provide fresher, more seasonal ingredients.
Have other restaurants, delis, or bakeries nearby? Consider pooling your buying power to negotiate better prices on essentials. You may not be able to make this work with specialty items, but for simple goods like flour, sugar, butter, common veggies, and even protein, you may be able to negotiate lower rates with local vendors if you work together with fellow restaurateurs.
While these strategies may take time to show results, shifting toward local sourcing can build long-term resilience, helping restaurants navigate future disruptions from pandemics, trade conflicts, or weather-related issues.
Investing in local sourcing can reduce transportation costs and support sustainability.
Labor Management
Now onto the task of labor management. For some restaurants, automation can help lighten the labor load. While high-end establishments may prioritize full-service hospitality, casual and fast-casual dining spots may benefit from self-ordering kiosks, QR code menus, and automated prep equipment to reduce front-of-house labor needs without compromising service.
Beyond automation, digital scheduling tools can optimize labor allocation, reduce unnecessary costs, and improve efficiency. These platforms help managers better manage shifts, ensuring the right number of staff is on hand during peak and slow periods.
High turnover is another major challenge, with recruitment and training expenses adding up quickly. Couple that with the previous costs discussed, and it’s easy for any manager or restaurant owner to feel the strain. Retaining employees through better job satisfaction, wellness initiatives, and growth opportunities can make a significant impact.
Consider investing in:
- Competitive pay & benefits (healthcare, paid time off, profit-sharing models)
- Opportunities for advancement & training (mentorship programs, leadership training, or skill development)
- Employee perks (free meals, flexible scheduling, staff appreciation events)
Employee retention is key to managing rising labor costs. Investing in staff satisfaction and training can reduce turnover and improve service quality.
Understanding How Tariffs May Impact Menu Costs
The prices of essential ingredients like avocados, beef, pork, poultry, and canned goods went up after an increase in tariffs. And some restaurants raised their prices to help absorb the higher cost. For example, in response to a 25% tariff on Mexican imports in the first part of 2025 that affected staples like avocados, corn, limes, and tequila, Mexican restaurants in the San Francisco Bay Area adjusted their menus and prices.
This cost increase is particularly challenging for independent restaurant operators, who are already operating on thin profit margins, typically 3% to 5%, potentially leading to an estimated 30% profit loss.
How Does a 25% Tariff Become a 30% Profit Loss?
To understand the impact of tariffs, consider this simple example:
- Without Tariffs:
- A restaurant buys 10 avocados at $1 each.
- The guacamole sells for $20, generating a $10 gross profit.
- With a 25% Tariff:
- Cost per avocado rises to $1.25.
- Total ingredient cost increases to $12.50.
- Profit Impact:
- If the restaurant absorbs the extra cost, profit drops from $10 to $7.50— a 25% decline in profit.
Additional losses may stem from reduced customer traffic, increased operational costs, and higher fixed expenses like rent and utilities, resulting in a 30% profit loss.
Finding Opportunity Amid Rising Costs
The good news? Despite inflationary pressures, dining out remains a priority for many people: 64% of full-service customers and 47% of limited-service customers say that the overall dining experience matters more to them than the price—proving that restaurants delivering exceptional service, ambiance, and unique flavors can still attract loyal guests.
Restaurants are also deeply woven into American culture. Nine in 10 adults enjoy dining out because it allows them to experience meals they can’t easily replicate at home. This enduring love for restaurants highlights an opportunity: by adapting, innovating, and focusing on value, businesses can thrive even in challenging times.
9 in 10 adults love dining out for meals they can’t replicate at home—an inviting atmosphere keeps restaurants competitive despite inflation.
Staying Ahead: Empowering Your Restaurant’s Future
Navigating rising costs requires more than quick fixes—it takes strategy and deep industry expertise. For current and aspiring restaurant owners, education can be a powerful tool in managing financial challenges and making informed business decisions.
Programs like Escoffier’s Hospitality & Restaurant Operations Management, Food Entrepreneurship, and Culinary Arts can offer valuable insights into enhancing restaurant profitability, fine-tuning menu planning, and boosting operational efficiency.
FOR MORE INFORMATION ABOUT RESTAURANT MANAGEMENT AND ENTREPRENEURSHIP, TRY THESE ARTICLES NEXT:
- Restaurant Marketing 101: An Essential Guide
- How to Start a Food Truck
- How to Create the Right Atmosphere in Your Restaurant
This article was originally published on March 23, 2017, and has since been updated.
*Information may not reflect every student’s experience. Results and outcomes may be based on several factors, such as geographical region or previous experience.
