Inflation was the primary culprit impacting the hospitality industry last year. Increases in food and operational costs prompted already-high restaurant menu prices to rise again last year.
“Restaurants considered a ten percent profit a reasonable rate of return when food costs were in the stratum of 25% to 35%. Now it’s tough for restaurants to keep them below 40%. That has to be passed along on a menu, but only incrementally,” cites a recent Forbes article.
But with less disposable income thanks to rising costs on just about everything, customers pushed back. National statistics report that people dined out less. And when they did go out, operators say they spent and tipped less.
THE GOOD: Texas Bucks A National Trend in Declining Traffic
While diners in Texas, indeed, feel the financial squeeze of inflation, it seems this hasn’t stopped them from visiting restaurants—even as 45% of Dallas operations reported raising prices last year. Though their patrons still balk at rising prices, higher-end restaurants tend to fare better than others.
“In fact, 93% of operators in Texas reported seeing an increase in guest traffic this year, with 38% reporting a significant increase in traffic,” TouchBistro notes in its 2025 Texas Restaurant Trends Report.
Texas’ positive restaurant traffic and its robust fine dining scene correlate to the state’s sustained economic and population growth, setting it apart from national trends. “But unfortunately, this doesn’t seem to have translated into higher profit margins across the board. In Dallas, average profit margins stood at 9.2%, while restaurants in Austin reported profit margins of 8.8%. All fall below the U.S. average of 9.8%,” says TouchBistro.
THE BAD: While Texas’ growth may be good for traffic, it also means higher real estate prices, more job competition
As the value of real estate rises, so do property taxes, maintenance and insurance costs. As a result, a significant number of Texas operators report higher rent eating into their bottom line. Finding new premises can be both risky and prohibitively costly.
As real estate, overall, becomes more expensive, staff often cannot afford to live close by the restaurant where they work. Add together the inconvenience and cost of commuting to work, plus a competitive job market where workers have more opportunities to choose from, and the picture only gets worse. Dallas restaurants report an average turnover rate of 32%, compared to the national turnover rate of 26%.
100% of Texas operators surveyed in TouchBistro’s Trends Report said that they are spending more on labor this year than last year. Shortages of staff have forced restaurateurs to pay higher wages and offer incentives such as medical packages and pension plans. Still, operators in Dallas remain short an average of 4.5 positions, Austin is short 3.7 positions and Houston is short 3 positions.
THE UGLY: The Battle to Stay Afloat Continues
Rising costs, reduced profits and labor issues drove operators in Texas and elsewhere to slow their growth plans last year. Closures and bankruptcies were rampant, especially among chain establishments.
Survivors implemented tactics that ranged from adjusting menus towards more affordable and shareable options to exploring new sales channels like catering and private events. Takeout and delivery revenue was an essential contributor to the bottom line for most. Others underscore the need to adapt to the changing landscape of restaurant marketing on TikTok, Facebook and Instagram.
A third of restaurateurs in Texas say they have or plan to implement new, time- saving tech such as QR code menus and QR code payments to boost productivity among existing staff. Others will turn to automation and AI to help with inventory and menu management.
THE FUTURE:
This year, while the Trump administration’s policies aim to reduce inflation and stimulate economic growth, their impact on the hospitality industry is complex. Tax cuts and deregulation could lower operation costs. Experts predict more mergers and acquisitions and more available capital in 2025. Companies that have been sitting on the sidelines will put their capital to use, especially if interest rates fall, they say. However, Trump’s tariffs and immigration policies could increase food costs and labor challenges. The overall effect will depend on the balance of these factors and how the industry adapts to the changing economic landscape.
THE BOTTOM LINE:
Amid uncertain times, SAVVY restaurateurs recognize excelling on customer service is the best way to deliver a strong value proposition. Exceptional service has become such a rarity that it’s the key differentiator above all else. In the end, the survivors will be those who prioritize customer satisfaction, create memorable experiences, and foster loyalty.
