Restaurants Face Tough Choices as Inflation Drives Menu Price Increases
In a challenging economic landscape, restaurant owners across America are grappling with a difficult reality: raise prices or sacrifice profit margins. According to a recent survey by Toast, a restaurant management software company, improving profitability ranks as the top concern for operators heading into 2025. The survey of 712 restaurant decision-makers revealed inflation (20%), marketing (16%), and hiring (16%) as the most significant business pain points. Perhaps most telling is that nearly half of all respondents (48%) indicated they plan to increase menu prices if inflation continues to be a factor. The situation appears particularly dire when considering data from the National Restaurant Association, which estimates that the average restaurant needs to raise prices by 31% to maintain a modest 5% profit margin. As Chad Moutray, chief economist for the Association, noted, “Raising menu prices is typically a last resort for restaurant operators, but with the rising costs of food and labor, their operating math still has to work.”
Small business owners like Michael Brafman, who runs The Sandwich Board in New York City, are feeling the pressure firsthand. Brafman explains the basic economics of the restaurant business: “Whatever product you have, you divide it by .3, and that’s what the product should cost to the consumer to operate at that healthy margin.” The challenge emerges when rising costs push prices beyond what consumers are willing to pay. During the recent egg crisis, Brafman reluctantly added an extra dollar to his egg sandwiches, which he describes as “very marginal, but people were concerned.” The sandwich shop owner recognizes the delicate balance between maintaining profitability and keeping prices reasonable: “You can only get away with charging so much for an egg sandwich… Nobody’s spending $17 on an egg sandwich just so you can keep your margins.” This predicament is what Brafman aptly calls “a game of chicken” – pushing prices too high risks driving away customers, but absorbing costs threatens the business’s survival.
For newer establishments like The Sandwich Board, which opened just last year, price increases present an especially difficult challenge. Brafman has witnessed alarming spikes in the cost of core sandwich ingredients, noting that “proteins are increasing exponentially – eggs, dairy, meat, poultry.” He cites a particularly dramatic example: “When a steak per pound goes from $7 to $11, that’s an unrealistic price increase.” The consequences of passing these costs onto customers could be devastating for his business model, which relies on repeat customers. “I have people who come here repeatedly per week, and that’s the fear,” Brafman explains. “How many times will they stop coming because the cost is prohibitive?” This concern highlights the existential threat inflation poses to small restaurants that depend on loyal, regular clientele who might be forced to cut back on dining out when prices climb too high.
Similar trends are playing out across different segments of the restaurant industry. John Loeffler, innkeeper and chef at The Inn at Gristmill Square and Waterwheel Restaurant in Virginia, has observed dramatic price increases even at his higher-end establishment. He points to beef, “a huge, huge seller” at his restaurant, as an example: a whole loin of certified Angus ribeye that cost $14.75 per pound in June now commands $17.99. Such significant increases in key ingredients force restaurant owners like Loeffler to make difficult decisions about their menus and pricing strategies. The escalating costs of premium ingredients create a particularly challenging scenario for upscale dining establishments, which must balance price increases against the expectations of their clientele, who anticipate exceptional quality and experience.
With three decades of experience in the restaurant business, Loeffler has developed a nuanced approach to profitability that extends beyond simple mathematics. “I think about margins less than percentages,” he explains, suggesting that his focus is on the overall business sustainability rather than rigid profit targets on each item. This perspective often leads him to absorb some of the rising costs rather than passing them all on to diners. For Loeffler, maintaining the quality of the dining experience takes precedence, even if it means accepting slimmer margins on certain dishes. The veteran restaurateur recognizes that value perception encompasses more than just the food itself – it’s about the entire experience and how guests feel about their decision to dine out.
At its core, the challenge facing restaurant owners reflects a fundamental question about the industry’s purpose and relationship with customers. As Loeffler eloquently puts it: “At the end of the day, we’re in the business of taking care of people, nourishing them, making them feel good… and making them feel good about spending money. That’s our job.” This philosophy underscores the essential dilemma restaurants face as inflation continues to drive up costs: how to balance financial sustainability with their commitment to providing value and satisfaction to diners. The coming years will likely see restaurants experimenting with various strategies – from menu engineering and portion adjustments to enhanced service elements – as they strive to create experiences that justify higher prices without alienating cost-conscious customers. For diners and restaurant owners alike, navigating this new economic reality will require adaptation, understanding, and perhaps a renewed appreciation for the value of the dining experience beyond just the food on the plate.
