As labor and food costs climb, restaurants are forced to redefine what value really means—for their customers, their teams, and their future.

For operators, inflation isn’t just squeezing margins—it’s forcing questions about strategy and what value means to restaurants and customers alike.

Restaurateurs have felt a 36 percent rise in labor costs and a 35 percent increase in food costs over the past four years, according to the National Restaurant Association. The unpredictable nature of tariffs—which the Association estimated could cost the restaurant industry $12 billion—isn’t helping.

For FAT Brands, food and labor inflation were in the 10 to 13 percent range as of late April, and the group has seen increases in both categories over the past year, according to chairman Andy Wiederhorn. For a while, eggs were a major driver, and poultry—especially chicken wings—had spiked, although those prices have come down. Beef is still relatively high because of a reduced herd size, which will likely take another year or so to recover, assuming no other disruptions like droughts, floods, or disease outbreaks, Wiederhorn says.

On the labor side, FAT Brands is seeing wage increases that go beyond ordinary cost-of-living adjustments, especially in California, which has the fast-food wage law that spiked the minimum wage for quick-service workers to $20 per hour.

Within the Golden State, Wiederhorn sees operators with thin margins closing stores—not just within his brands, but across the board. He wouldn’t be surprised if California sees record-level closures this year compared to prior years, as more businesses are pushed over the edge. The reality is, Wiederhorn says, operators have to raise prices to cover higher labor costs, but they’re not seeing enough traffic to sustain that pricing shift. They can’t offset the decline in foot traffic with price increases alone, and it becomes a vicious cycle.

“I’m a very vocal outspoken critic of jacking wages like the state did in California,” Wiederhorn says. “That hurts the operators and it hurts the consumers way more than it benefits the employees. I mean everyone wants their employees to make more money, but I just think that this is going to cost them money in their pocketbooks because the operators don’t have room in their margin to soak up an increase of up to 30 percent of the wages.”

Although labor inflation is burdensome, Harri CEO Luke Fryer says the worst possible approach is a wholesale reduction. He adds that an operator can’t do that effectively unless it’s handled in a strategic and data-informed manner. If a restaurateur thinks there’s excess in the employee department, any elimination must be based on clear data that tells them exactly when and where they can trim without negatively impacting the customer experience. When workers cut haphazardly, restaurant teams will be overstressed, which leads to higher turnover and more money being spent on training. Also, stores deliver a poorer product to guests.

Instead, Fryer says the focus should be on better labor deployment, including building smarter schedules, which starts with more accurate forecasting. A staffing model should be paired with demand forecasting to generate an optimal schedule. And it should be automated as opposed to using disconnected tools and systems that don’t talk to each other.

Other key factors are managing staff effectively and minimizing risk.

“This is the old adage—right people, right place, right time,” Fryer says. “What does that mean? It just means making sure that the people have appropriate skills. Have you been trained on the grill? Yep. And the appropriate qualification: how good are you at it? Like you’re a 1, which is really proficient, or a 4 who’s a trainee. Just make sure the best people are in the high-tension positions at peak times. Because if the right person’s not on the grill and on the drive-thru on Friday night at 8 o’clock, we’re backing up onto the freeway and we’re just leaving dollars on the table.”

Phil Kafarakis, CEO of IFMA, The Food Away From Home Association, says commodity inflation has improved, but is still a serious concern. Before the Trump administration’s policies, the cost pressures were mostly due to natural factors, such as input costs tied to harvest conditions. That means disruptions in coffee bean production in Africa, crop destruction, and similar issues. Kafarakis says many businesses have now absorbed those earlier hits. They raised prices to stay ahead of those natural cost increases and are continuing to monitor input costs closely. At the same time, they’re preparing for new challenges stemming from tariffs and the logistics of the global supply chain.

According to Kafarakis, brands are balancing food cost pressures and rising menu prices by offering customers more value for their dollar, like menu innovation or meal bundles. One example is Wingstop, which released a new Hot Honey Crispy Tender Box in April, featuring a popular flavor and the chain’s new and improved chicken tender product. Around the same time, the fast casual also offered an NBA Full Court Flavor Feast with six tenders, 16 wings, and a large fry, and a UFC Fight Night Bundle with 30 wings, large fries, and veggie sticks.

Another important trend: the more sophisticated brands—those that have invested in loyalty programs and technology—are leveraging those assets. If a customer is part of a program, they receive special discounts. Kafarakis say it’s happening a lot in quick-service restaurants and increasingly during the morning daypart.

“They’re still struggling and prices are up,” Kafarakis says. “They’ve got issues with prices being so high, which are affecting consumers, and that’s why consumers are shopping for value. The big whammy—it’s going to come later in the year, which is the big unknown around supply chains as it relates to tariffs.”

With Inflation Rampant, Value Becomes Paramount

While brands deal with rising food and labor costs, they must also show respect to a consumer that’s tightened their wallets after facing years of inflation from restaurants, groceries, and other areas of their lives. This has led to steep discounting throughout the quick-service industry as operators attempt to claw back traffic from lower-income consumers who are turning down visits otherwise.

Tim Fires, Circana’s president of global foodservice, says value is a much broader concept than it used to be. Traditionally, price and value have been seen as interchangeable, but they’re not the same. He explains that price is an important factor in creating value, however, Circana is seeing restaurants focus on the overall experience and the innovation behind it.

Value now means offering something that meets a wide range of consumer needs. For instance, if a customer is following a GLP-1 diet restriction or making dining decisions based on time of day, having menu items and portion sizes that align with those preferences is critical.

“There’s a lot of time worth spending on just understanding how the consumer is appreciative of the brand,” Fires says. “So we’re doing a lot of things related to how their experience was and what their wait time was. We call it brand health, but it’s around the consumer perception of what they got from the menu or from the experience that they had and the transactions that they had with that restaurant.”

Circana can’t always pinpoint exactly what aspect makes the difference—whether it was the service, the food, or the ambience—but the company does know that “treating myself” ranks among the top three reasons consumers choose to dine out. And in today’s environment, where consumers are constantly making trade-offs, choosing to invest in a meal away from home means the experience has to be worth it. A positive, memorable visit is what brings them back.

The company is seeing opportunities to enhance that “treating myself” moment in a few ways. One is through innovation around fan-favorite menu items or upgrading loyalty programs to deepen engagement. That doesn’t mean just rewarding customers with discounts or free items, but also enriching food and beverage and emotional return on investment at the same time.

“You really got to hone in on what value means and then make sure that you’re getting the message to the right household,” Fires says.

Quick-service chains also face stiff value-based competition from the casual-dining segment, which typically offers higher prices because of its added hospitality. Chili’s has blurred the lines with its 3 for $10.99 platform and its Big QP burger, which it claims has 85 percent more beef than McDonald’s Quarter Pounder.

“OK, $10.99, but you know you’re getting an 85 percent bigger burger, right? It’s like, what? Wait a minute,” Kafarakis says. “I’ll tell you this much, [Chili’s] margins aren’t getting the [crap beaten out of them] like everybody else because when you go in there, you don’t leave with a $10.99 check. We’ve got you margining up. You’re going to buy some appetizers. You’re going to buy one of those $6 or $7 margaritas. You might even get one of those $12 margaritas. That’s the other side of this— the reason they’re bringing in the traffic. They’re watching their mix so they know where the margin is, and now they’re going to spend some marketing dollars because they’re making money.”

It’s not just restaurants either. Convenience stores are part of the value wars too, Kafarakis says. The concepts are giving away free items and building core items with beverages. He recently visited a QuikTrip that had a chicken promotion—available on Tuesdays and Thursdays—for $4.99 up to $9.99 depending on the number of pieces.

“Now they do it Tuesdays and Thursdays, so everybody’s selective and you’re not going to give the whole thing away the whole time, but you’re going to try to condition some people to come in because you got a special,” Kafarakis says. “… People are underestimating what convenience stores are able to do.”

Wiederhorn says everyone seems to have a discount offer, which makes it difficult to stand out. He’s also observed pushback from franchisees who don’t appreciate how some value offers impact their bottom line.

He acknowledges that a shift away from discounting could certainly impact traffic—if fewer deals are offered, some brands might see a dip in visits. But he believes guests are demanding a great experience. That includes both the quality of the food and the interaction, whether that’s in the restaurant or through delivery apps.

The key is to deliver value at whatever price point you’re charging. If a brand is charging $6 for a cup of coffee, it has to be a high-quality, frictionless experience. That’s FAT Brands’ emphasis right now—ensuging every guest interaction justifies the price.

“I think that the value wars in terms of price are going to come to an end because the operators can’t afford it and it’s not working,” Wiederhorn says. “If everyone has a discounted deal out there, the customers have so many choices, it’s not driving more traffic to your brand. You’re not a standout winner with your value offering when everybody else has discounted programs also. So operators are going to quickly push back on franchisors, and corporate operators are going to say ‘Geez, this isn’t working.’ We’re not getting the meaningful movement in traffic by discounting. We need to go back to level set things, and I think you’re going to see that—if you haven’t already seen that. You’re going to see that throughout the course of this year, and they’re going to gravitate toward justifying the value with the guest experience. You got to have great food, you got to have great guest experience, and that’s how you justify value. It’s not by discounting.”

Source https://www.qsrmagazine.com/story/wage-hikes-food-spikes-and-tariff-tensions-whats-next-for-restaurants-in-a-volatile-market/

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