How Rising Costs and Shifting Consumer Habits Are Endangering the Future of Your Favorite Restaurants

Ike’s Chili in Tulsa, Oklahoma, is celebrating its 117th anniversary. This restaurant has weathered many storms, from the Great Depression to the recent challenges posed by the COVID-19 pandemic and rising inflation. Yet, 2025 is shaping up to be even tougher.

Len Wade, a managing partner at Ike’s Chili, expressed his concerns, saying, “Everything’s just going up. We need to manage costs better.” Food prices, especially for meat, are skyrocketing. For instance, hamburger prices have jumped nearly 21% compared to a decade ago—an alarming trend for restaurant owners.

Many local eateries are struggling. Customers, wary about the economy, are hesitant to spend more. “I want to raise my prices, but I don’t want to lose customers,” Wade added. He’s considering adjusting the menu to save costs, but worries that cutting corners could hurt quality.

It’s not just beef; other staples like coffee and cocoa have also seen price hikes. Recent data shows that food costs overall surged about 21% in just four years. This increase outstrips the broader rise in wholesale prices. As Chad Moutray, the chief economist for the National Restaurant Association, pointed out, restaurants often operate on slim profit margins—3% to 5%. If costs continue to rise, some may have to close their doors.

Labor costs are adding to these burdens. Since 2021, finding skilled employees has become a major challenge for small businesses. According to the National Federation of Independent Business, many restaurants now must decide whether to offer higher wages to attract staff or stick to minimum pay and face staffing shortages.

Wade recalled that during the mid-2000s, he’d get multiple job applications daily. Now, he’s lucky to receive a dozen in total over months. The ongoing crackdown on immigration has worsened the labor situation in the restaurant sector, with an estimated one million undocumented workers once employed in these establishments.

Interestingly, consumer behavior is shifting too. Sales at restaurants and bars have declined significantly, with the first six months of 2025 seeing the weakest growth in a decade, even weaker than during the pandemic lockdowns. Many households, particularly low-income families, are feeling the strain of high living costs and are choosing to eat out less frequently.

Ian Borden, CFO of McDonald’s, noted in a recent earnings call that low-income consumers are skipping meals. Executives at other chains are noting similar trends, highlighting a worrying shift in dining habits.

Michael Zuccaro, from Moody’s Ratings, explained that lower traffic in restaurants is now affecting not just low-income families but the middle class as well. “Consumers are under pressure, and if they feel prices aren’t justified, they might not return.”

Although these challenges loom large, some restaurants are seeing a silver lining. In places like Brooklyn, New York City, restaurant visits have surged, according to a recent Federal Reserve report. However, the Southeast experiences a different reality, with many restaurants reporting lower sales as consumers opt for home meals instead.

In conclusion, while some eateries are thriving, many others face a tough road ahead, balancing rising costs and changing consumer behavior. The future of dining out may hinge on how restaurants adapt to these challenges.

For further insights into the state of the restaurant industry, you can read the full Federal Reserve Beige Book report here.

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