Food Price Trends: Why Costs Are Rising & What to Do About It (2024)

Food Price Trends: Why Costs Are Rising & What to Do About It

The restaurant industry is facing one of its biggest challenges in recent years: a steady rise in food prices. In fact, since 2019, food prices have increased 28%. From burgers and bowls to simple sides like fries and soda, the cost of common menu items are climbing due to several complex factors.

With inflation, labor expenses, and supply chain issues all in play, it’s critical to navigate these increasing costs carefully to maintain profitability while delivering value to customers. 

In this article, we’ll break down the driving forces behind today’s rising food price trends, and explore how your restaurant can adapt to minimize the impact on your bottom line.

Key takeaways

• Food prices have been increasing due to inflation, labor expenses, fuel costs, and supply chain disruptions, all of which impact restaurant profitability.

• While raising menu prices is one option to combat rising food costs, some restaurants have introduced service charges and simplified menus to avoid passing all costs onto customers.

• Inventory management software and POS systems can help you track and manage your costs, sales, and profits much more accurately and effectively, allowing you to automate time-consuming tasks.

• Sourcing ingredients locally and seasonally can reduce transportation costs and create unique menu offerings, helping mitigate price hikes.

• Building partnerships with suppliers and buying in bulk can help you lock in more stable prices and maintain consistency in your menu prices.

What are the latest food price trends?

Toast’s Restaurant Trends Report provides valuable insights into the ongoing rise in food prices at US restaurants. According to the report, the average cost of several popular menu items, such as tacos and burgers, has been steadily increasing.

Burgers, bowls, and noodles/ramen were the priciest quick-service restaurant (QSR) options, while tacos, fries, and hot dogs remained the most affordable choices:

• Tacos: Highest price increase at +5.9% year-over-year (YOY).

• Sandwiches/wraps and burgers: Both increased +4.6% YOY, costing an average of $11.26 and $11.45, respectively.

• Bowls: Up by +4.6% YOY, with an average price of $12.98—the highest among QSR items.

• Burritos: Saw a 4.3% increase YOY, averaging $10.74.

• Fries: Increased by 4.4% YOY, now costing around $6.04 per order.

• Soda: Price rose +4.6% YOY, averaging $3 per drink.

• Salads: A smaller increase of 2.7% YOY, costing about $11.42.

• Dumplings and hot dogs: Had the lowest price hikes, with dumplings up +3.8% and hot dogs only +1.9% YOY.

These rising costs are driven by a variety of factors, including inflation, increased labor expenses, and supply chain disruptions. In the following sections, we'll explore how these pressures are contributing to the continued rise in food prices and what this means for both restaurant owners and diners.

5 factors impacting food price trends

Overhead expenses

Overhead costs—such as rent, utilities, insurance, and equipment maintenance—are key components that restaurant owners must account for when setting menu prices.  As overhead rises, so do the costs of running a restaurant, and these costs are usually passed on through higher menu prices.

Rent and utilities

The cost of rent, especially in urban areas, has seen a steep rise in recent years. Restaurants located in cities where real estate prices have surged must absorb these higher rent costs, and the only way to do so is by increasing their menu prices. 

Higher utility costs, including electricity and water, are also contributing factors. With more energy-intensive equipment and higher energy rates, these expenses are directly reflected in what customers pay at the table.

Insurance and compliance costs

Insurance premiums have risen due to various factors, including increased liability risks and new regulations. 

Additionally, compliance with health, safety, and environmental standards often requires restaurants to invest in new equipment or training. These overhead increases necessitate price adjustments to ensure profitability.

Gas prices

Fuel prices have a significant ripple effect across the food industry, and they contribute directly to food price increases. Rising gas prices lead to higher transportation costs for getting food to restaurants, and those costs get passed down the chain.

Impact on delivery services

When gas prices rise, third-party delivery services may add new fees or adjust pricing to cover the increased fuel costs. 

These added costs are often passed on to customers, making delivery orders more expensive. This can discourage customers from choosing delivery, which in turn can reduce order volume and impact your restaurant’s bottom line.

Cost of local and imported ingredients

Whether your restaurant sources ingredients locally or internationally, the cost of transporting food is a major factor. 

When fuel costs rise, local suppliers may be forced to increase their prices, and long-distance transport becomes even more expensive. This directly contributes to higher prices for dishes that rely on either locally farmed or imported ingredients.

Labor costs

The cost of labor has risen significantly in recent years, adding to the overall cost of running a restaurant. In fact, restaurant operators expect up to a 5% increase in labor costs in 2024 alone.  Higher labor costs, driven by wage increases and staffing challenges, directly influence food prices as restaurants seek to cover these additional expenses.

Staffing challenges and wage increases

Minimum wage increases and a competitive job market have pushed many restaurants to raise wages in order to attract and retain staff. 

Additionally, labor shortages have led restaurants to offer bonuses or other incentives, further raising their operating costs. All these additional costs get passed down to the consumer through higher menu prices.

Impact on operational hours

With fewer staff available, some restaurants have had to reduce their operating hours. While this can reduce overall labor costs, it limits the restaurant’s ability to generate revenue. 

To make up for this shortfall, some restaurants have raised prices or added service fees to ensure they remain profitable.

Supply chain disruptions

According to Bayer, not only is 23% of the food produced globally traded internationally, but the global food system accounts for 10% of the world’s GDP. 

However, with Covid-19, natural disasters, and other incidents, the global food supply chain has faced major disruptions in recent years. These disruptions have contributed to the scarcity and rising cost of raw ingredients, which ultimately leads to higher food prices.

Weather-related events

Extreme weather events, such as droughts, floods, and wildfires, significantly impact agricultural output. According to Climate.gov, there were 28 weather and climate disasters in 2023, surpassing the previous record of 22 in 2020. 

As these incidents cause crops to fail or become more difficult to harvest, the supply of essential ingredients shrinks, driving up prices. Restaurants must then pay more and pass those increases onto their customers.

Geopolitical issues

Geopolitical tensions and trade restrictions can also play a role in supply chain disruptions. 

When trade routes are blocked or tariffs are imposed, the cost of importing certain ingredients rises. This affects restaurants that rely on imported goods and often leads to higher menu prices for dishes featuring those ingredients.

Monetary policy and inflation

Government stimulus measures, an increased money supply, and supply chain disruptions during the pandemic era contributed to record levels of inflation, which has directly affected food prices. As Harry Nitzberg summarizes for the Bureau of Labor Statistics:

“After the onset of the COVID-19 pandemic, import inflation in the United States reached a level not seen since the 1970s. Some attribute the import inflation to stimulus packages issued by the federal government, while others attribute the import inflation to supply issues in trade partners.”

With inflation, the purchasing power of both restaurants and consumers declines. Restaurants face higher costs for everything from ingredients to equipment, and consumers get less for their money when restaurants raise prices to keep up with rising costs and shrinking margins.

How do restaurants manage rising food prices?

To combat the increasing costs of overhead, labor, fuel, and supply chain disruptions, it’s crucial to closely monitor your expenses to keep gross and net profit margins healthy. 

While raising menu prices is a common approach to cover these rising costs, it’s not the only solution. Here are some strategies your restaurant can use to manage food price increases without alienating customers.

Higher menu prices

Adjusting menu prices can be an effective way to balance rising expenses, though it’s essential to do this carefully. 

Rather than raising prices across the board, try to increase prices selectively, adjusting only high-demand or high-cost items. This can help maintain customer satisfaction while still improving profitability.

For example, following California’s fast food minimum wage increase to $20 an hour, chains like Chipotle and Starbucks raised the prices of select items by as much as 7% to 8%. Meanwhile, fast food franchises like Taco Bell and Burger King have raised prices by 3% and 2%, respectively.

Service charges and surcharges

Some restaurants now add service fees or surcharges to offset rising costs. Fuel surcharges, delivery fees, or even sustainability charges for eco-friendly packaging are common. These charges allow restaurants to address specific expenses directly and transparently, helping customers understand why they’re being charged extra and what it covers.

For example, Tria, a Philadelphia-based wine bar, imposes a 20% service charge on every check. They explain:

“We intend for our team to make a living wage. The service charge and increased minimum wages make all the difference when business is slow due to inclement weather or pandemic-related dining restrictions.”

Smaller portions or simplified menus

By offering fewer options or smaller portions, you can reduce waste and streamline kitchen operations, which can lower labor and ingredient expenses. 

However, it’s important to balance these changes with perceived value to avoid disappointing customers.

For example, Marrakesh, a Moroccan restaurant located in Philadelphia, offers a limited, multi-course menu for a fixed price, keeping costs and sales more stable.

Menu engineering and strategic pricing

Menu engineering focuses on high-margin items by adjusting the layout, descriptions, and positioning of dishes to guide customers toward profitable choices. 

By highlighting signature items or introducing combos and bundles, you can make high-margin choices more appealing.

Red Robin's "Bottomless Fries" is a clever example of menu engineering that entices customers to choose high-margin items. By pairing burgers with unlimited fries, Red Robin creates an impression of added value, which makes customers feel they’re getting more for their money. 

This offer encourages customers to select burger meals over lower-margin options, as they associate the endless fries with a fuller dining experience.

The Bottomless Fries not only make the meal feel like a better deal, but also give customers a reason to linger and potentially order additional items, such as drinks or desserts. This strategic pricing move enhances customer satisfaction while subtly increasing the restaurant's average check size.

Seasonal and local ingredients

Sourcing seasonal and local ingredients can reduce dependency on costly imported items and lower transportation expenses. 

Building a menu around what’s fresh and affordable locally can also create a unique, authentic experience for customers, who may be more understanding of slight fluctuations in menu items or pricing.

For example, featuring regularly rotating food and beverage menus, ABC Kitchen in New York City showcases organic ingredients and works with local farmers and suppliers

Supplier negotiations and bulk buying

Negotiating with suppliers and buying in bulk can help lock in more stable prices, particularly for high-use ingredients. Forming partnerships with local farms or co-ops and buying in bulk can help your restaurant secure better rates and maintain consistency in both supply and cost.

You might also think about joining a group purchasing organization (GPO), which can give your restaurant access to discounted rates on essential items by leveraging the collective buying power of multiple businesses.

For example, Tom Schmidt, co-owner of the restaurant chain Salt + Smoke, worked with a GPO and said:

“We are now saving 20-30 cents per pound on chicken each year, so over hundreds of thousands of pounds per year, the savings are wildly impactful.”

Technology and waste reduction

Leveraging technology, such as inventory management software, helps you track usage patterns and reduce waste by adjusting purchasing to match demand accurately. 

By minimizing food waste, you can reduce costs and make better use of each ingredient, ultimately improving your bottom line.

Combat rising food price trends with technology

Rising food prices are the result of a complex interplay of factors, including higher overhead, labor costs, fuel prices, supply chain disruptions, and inflation. Therefore, it’s essential that you have the right tools to track all of your costs and easily analyze your data.

Fortunately, Toast’s comprehensive POS system has all of the features you need to maximize profitability, like inventory management, cost analytics, payroll, tip management, and much more.

To discover all the ways Toast can help you manage rising food price trends, be sure to check out all of the amazing features!