The everchanging landscape of the restaurant industry
Local Restaurants Under Pressure: Rising Costs, Changing Habits, and the Road Ahead
Local restaurants are an essential part of our communities, providing jobs, unique dining experiences, and a place for connection. However, today’s restaurants face mounting challenges: rising costs, evolving dining habits, and the dominance of delivery platforms like DoorDash and Grubhub. To survive, they’re not just adapting to the present—they’re planning for the future.
The Cost Crunch: Rising Expenses Across the Board
Local restaurants operate on razor-thin margins, and rising costs are squeezing their profitability further.
Labor Expenses
Labor costs account for 40% of revenue, up from 30–35% in previous years, due to minimum wage hikes, competitive job markets, and higher payroll taxes. For example, a restaurant earning $1 million annually spends about $400,000 on wages and benefits. Labor costs are expected to increase another 5% in 2024, compounding the challenge.
(Produce Blue Book)
Food Costs
Wholesale food prices remain 35% higher than pre-pandemic levels, with essential ingredients like beef, poultry, and dairy seeing significant increases. Independent restaurant owners report raising menu prices by 10–25% over the past two years to keep up.
(Restaurant.org)
Utilities and Rent
Energy costs and rent now consume about 10% of revenue for most restaurants. Urban locations face steeper rent increases, further straining budgets.
The Hidden Costs of Delivery Services
Food delivery platforms like DoorDash and Grubhub offer convenience for consumers but come at a steep cost to restaurants.
DoorDash Takes 25%: Restaurants lose 25 cents of every dollar earned to DoorDash on delivery orders.
Grubhub Takes 30%: Even steeper, Grubhub takes 30% of each sale.
For a $40 order placed through Grubhub, the restaurant only receives $28, before accounting for food costs, labor, and other expenses. Many customers are unaware of these fees, which devastate restaurant margins.
To offset these costs, some restaurants raise delivery prices or implement service fees, while others invest in direct online ordering platforms to bypass third-party fees.
(Business Insider)
Evolving Consumer Dining Habits
Delivery services and changing lifestyles have reshaped how and when people dine.
Increased Use of Delivery Services
Delivery platforms have changed the way consumers approach meals:
Breakfast: Consumers increasingly order breakfast delivery, particularly among remote workers.
Lunch: Work-from-home trends have shifted lunch from dine-in to delivery.
Dinner: Dinner delivery dominates, especially for families seeking convenience at the end of the day.
(Emerald Insight)
Reduced Dine-In Traffic
Higher menu prices (up 4.1% year-over-year) and tighter budgets are causing customers to dine out less frequently. When they do, they’re seeking value-driven options like meal deals or smaller portions.
(James Beard Foundation)
Future Trends for Restaurants
As restaurants navigate these challenges, they’re also preparing for the future. Key trends include:
Technology Integration
Contactless ordering and payments, AI-driven personalization, and automated kitchens are helping restaurants streamline operations and improve customer experiences.
Growth of Ghost Kitchens
Delivery-only kitchens with lower overhead costs are on the rise, allowing restaurants to focus on delivery without a traditional dining space.
Sustainability
Eco-friendly practices, such as locally sourced ingredients and biodegradable packaging, are appealing to environmentally conscious diners.
Health-Focused Menus
Restaurants are expanding plant-based and wellness-oriented offerings to meet growing consumer demand for healthier options.
Diversified Revenue Streams
From meal kits to catering and cooking classes, restaurants are finding new ways to generate income outside of traditional dining.
(Food & Wine, EatingWell)
Impact on Restaurants and Consumers
For Restaurants
Profit Margins Are Shrinking: Margins, typically 4–6%, have fallen to 2–3% for many establishments.
Operational Adjustments: Restaurants are streamlining menus, reducing hours, and focusing on takeout to cut costs and boost efficiency.
For Consumers
Higher Prices: Expect to pay more for dine-in and delivery as restaurants pass on rising costs.
Smaller Menus: Limited options help restaurants control waste and costs.
More Fees: Service charges or higher delivery prices are becoming more common.
Conclusion
Local restaurants are adapting to survive in an increasingly complex environment. Rising costs, the dominance of delivery apps, and shifting consumer habits are reshaping the industry. For diners, supporting these establishments goes beyond ordering delivery—it means understanding the challenges restaurants face and choosing to dine in or order directly when possible.
The future of dining lies in innovation, efficiency, and community connection. By embracing new technologies and trends while maintaining their unique identity, restaurants can continue to thrive, even in the face of adversity.
Sources
Produce Blue Book - Labor Cost Increases Expected in 2024
National Restaurant Association - Rising Food Costs
James Beard Foundation - State of the Restaurant Industry
Business Insider - The Delivery Reckoning
Emerald Insight - Impact of Delivery Services on Dining Habits
EatingWell - Rising Restaurant Prices
Food & Wine - Counter Service Restaurants and Future Trends