As labor and food costs keep climbing for restaurants nationwide, holding the line on menu prices has proven untenable for a majority of operators this year, according to a July report from Restaurant365 (R365), a leading restaurant management platform.
More than half are charging more for their food than they were six months ago, and pretty much everyone is scrambling to keep labor costs under control. Meanwhile, most operators expect the next six months to get even worse.
R365’s 2025 State of the Restaurant Industry: Midyear Report reflects input from 5,000-plus restaurateurs across the U.S. It’s a sobering analysis, especially in light of the uncertainty surrounding tariffs, which “continue to weigh heavily” on restaurant owners this year. For the remainder of 2025, the vast majority foresee their expenses rising still higher, the report found, while most expect tariffs to compound the burden.
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Here’s a look at key findings from the report:
Labor Cost Outlook
Eighty-nine percent of respondents said their labor costs have gone up again this year. Sixty-two percent reported an increase of 1% to 5%, while 27% saw an increase of 6% to 14%. And 11% said their labor costs are up by more than 15%.
Additionally, 73% said they expect those costs to keep rising over the year. Most respondents (82%) expect the increase to be in the range of 1% to 5%.
Food Cost Outlook
Ninety-one percent said their food costs are up, too. For half of them (51%), costs went up 1% to 5%, and 36% reported an increase of 6% to 14%. Thirteen percent said they have seen a hike of more than 15%.
Ninety percent think their food costs will continue rising; 59% estimated an increase of 1% to 5%, while 34% foresee an increase of 6% to 14%.
Tariffs
It remains unclear when more tariffs might go into effect—if at all—and which countries will be affected. But the possibilities are “adding another layer of complexity to an already challenging environment,” the report states. According to R365’s survey, 78% of restaurant operators expect tariffs to “affect their business this year.”
Sixty-four percent anticipate their food costs will rise between 1% and 10% due to tariffs alone, while 29% expect increases in the range of 11% to 25%. Seven percent are bracing for food cost hikes of 26% or more.
“These tariff-driven cost increases come on top of ongoing inflation and supply chain disruptions, making it harder than ever for operators to keep menus profitable without sacrificing quality,” the report states. “Some industry experts warn that these price hikes could cut profits for the average operator by as much as 30%, underscoring the urgent need for strategic adjustments.”
Proactive Measures
What kind of measures have restaurateurs been taking to maintain profitability? Fifty-six percent said they have raised their menu prices. Many are making changes with their suppliers/vendors (20%), and 18% are putting their focus on better tracking of inventory and waste.
To manage their food costs, restaurateurs are taking a more thoughtful approach to their menus, including highlighting dishes that deliver the highest margins. Additionally, the report recommends focusing on local and seasonal ingredients to keep food costs down—which will also rev up dishes with fresh and unexpected flavors.
“Simplifying the ingredient list and using versatile staples across multiple dishes makes order and prep easier—and helps cut down on waste,” the report advises. “Some places are also trying out plant-based options or smaller portion sizes, giving guests more choices and keeping costs manageable.”
Additionally, 31% of respondents are focusing on catering to generate more revenue, and 22% have their eyes on special events or promotions. Nearly 6% are looking at branded merchandise, and 4.39% are concentrating on pantry/grocery sales.
On the labor side, operators should consider forecasting and scheduling tools that use sales data to help nail down future staffing needs. That’s a lot better than continually bringing in more (or fewer) team members than you’ll actually need on a given night.
Cross-training is also becoming increasingly important. “Training employees to handle multiple roles adds flexibility and ensures coverage during busy times or unexpected absences,” the report notes.
Other Ideas for Controlling Labor Costs
- Automate tasks like scheduling and payroll to save managers’ time and prevent mistakes.
- Offer employee incentives tied to performance, which can boost morale and productivity and pay off in better customer service.
- Prioritize competitive wages for employees and recognize and reward high performers to strengthen loyalty.
- Focus on your restaurant’s culture, so employees feel safe and supported, and put a premium on work/life balance.
- Create and raise awareness of career path opportunities to retain employees and reduce turnover.
The report also recommends keeping team members engaged with ongoing training that’s customized to their interests. “Give them training they actually care about. Customizable courses let team members build the skills they’re most interested in, at a pace that works for them. It’s not just about checking boxes during onboarding—it’s about helping every hire see a real path forward. When people know how they can grow, they’re more likely to stick around.”
Add Stores or Stand Pat?
With the future mired in economic uncertainty, the report found that nearly half (46%) of those restaurateurs surveyed said they’re holding back on opening new locations in 2025—a 12% increase over R365’s state-of-the-industry report released at the beginning of the year.
But some operators are plunging ahead. Nineteen percent plan to open one new store, and 20% are looking at adding two to five locations. A smaller group—3%—are thinking much bigger: They’re looking to open six or more new stores this year.
As the report concludes, “The pressure in 2025 is coming from all angles—rising food and labor costs, tariffs, shifting consumer behavior, and persistent inflation. And it’s not just operators feeling the heat—consumers are watching their wallets too, making every dollar count. But if the first half of the year has shown us anything, it’s that the restaurant industry isn’t standing still. It’s adapting with sharper strategies, smarter tech like integrated inventory, labor and accounting systems, and a renewed focus on team development and guest experience.”
