The Hidden Forces Shaping Restaurant Profits in 2025 (And How to Win)

Each year, the prestigious James Beard Foundation releases what it calls the Independent Restaurant Industry Report. This report is a compilation of data gathered by the Foundation and self-reported by over 350 restaurant leaders. The report provides insight into trends and makes recommendations for how restaurant leaders can best adapt. It’s absolutely essential reading for anyone serious about taking their restaurant to the next level.

This year’s theme is “Resilience and Reinvention”

And the report starts off with a banger right away. It’s an absolute key, a commandment of independent restaurants of all shapes and sizes that many choose to ignore at their peril.

“I could’ve made this at home” is, in my opinion, the worst thing a guest can say about your food.

Even “this is terrible” is better. Food being “bad” implies something has gone wrong. The sauce was burned. The shellfish has gone past its sell-by date. The new line cook forgot to add salt. People will often give “bad” another chance. Everyone has an off day.

But “I could have made this at home”? That’s an indictment against the very core of what you’ve served. It means your dish is uninspired. The technique is lackluster. The ingredients are of low quality. It means that you put out exactly what you intended to put out, and the guest was left unimpressed. To them, there’s no reason to try you again, they’ve already seen what you’re about.

An excellent reminder for all of us.

The report goes on to break itself down into 4 “trends”, the first of which we’ll be discussing here today:

• Overcoming Barriers to Increase Guest Spend

• Intentional Engagement to Deepen Guest Connection

• New Ways to Attract and Retain a Winning Team

• Increased Urgency to Test New Business Models

Costs are up, spend is down.

I don’t have to tell you that over the last few years food cost, labor costs, and every other cost of doing business has continued to climb. In response, more restaurants are turning to price increases. According to the report, in 2024, 81% of restaurant leaders said they’d raised prices. This year, 91%.

But this action isn’t without consequence.

According to CivicScience, dining is the leading category in which Americans are cutting back on their spending. In Q3 of 2024, 59% of respondents said they were cutting back on dining out.

Of course, increasing menu prices are far from the only reason Americans are cutting back on dining out, but it is a factor. According to the James Beard report, restaurants that increased prices by 15% or more were more likely to report a decrease in profits and fewer guests.

Guest lifestyles are changing, are you keeping up?

On top of this, guest demands have increased. Along with affordability, chef respondents to the report ranked “customization” as the most common guest desire. Specifically, 56% said they’ve been seeing an increase in customization requests such as smaller portion sizes and gluten free options.

These observations align with the data. A 2023 study surveyed 2,000 American adults regarding gluten sensitivity. 5.1% of respondents claimed that they had gluten sensitivity, even though only 1% of the population is actually diagnosed with the condition. Further, the reported symptoms and causes from respondents were inconsistent with symptoms and causes of medically recognized intolerance. This suggests that this sensitivity is likely driven at least partially by societal trends. Regardless of the medical veracity of the claim, more and more diners are eating out with this sensitivity in mind, something that can’t be ignored.

Then there’s the portion size request. According to Gallup, 15.5 million adults (that’s SIX percent of the population) are on some form of GLP-1 weight loss drug. A study from Cornell showed that the decreased appetite of these users also affected the rest of their household. Grocery spending decreased by up to 8.6% after at least one member of the household started a GLP-1. It stands to reason that this would extend to restaurant spending as well.

The final lifestyle change I’ll note here is alcohol consumption. 47% of respondents to the James Beard survey said that they’ve seen a “noticeable change” in alcohol sales. This, too, aligns with the data, especially with regard to young people. According to Gallup, there has been a nearly 14% drop in adults under 35 who say they drink at all over the last 20 years. And those who do drink, are drinking less. None of these trends should be waved aside, but given the percentage of profits that come from alcohol for many restaurants, this one is too big to ignore.

I’ve argued with more than a few restaurant leaders about how true the sudden surge in allergies is, but here’s the truth: it doesn’t matter. Arguing with a guest about whether they really have celiac isn’t going to endear you to them, and it certainly isn’t going to stop the other 5% of American adults who believe they have this sensitivity from asking you to accommodate them.

And you should.

We’re talking about significant portions of the population—significant portions of your customer base, that you’re choosing to alienate if you ignore this shift in lifestyle. You’re outright telling them “I don’t want your business”, and the landscape being what it is, you’re not in a position to be so choosy.

What do we do about it?

1.  Be more strategic about your price increases.
Have you ever heard of the Weber-Fechner Law of Pricing? I’ll do a full post on it at some point, it’s extremely good stuff. Basically, it says that consumers of all goods have a price in their head that they think they ought to pay for something, even if they’re not aware of it. It goes on to say that customers react more strongly when the actual price highly differs from that expectation as a percentage, not as an absolute dollar amount, even though customers are not walking around doing percentage calculations in their heads.

Example: I expect a plate of nachos to cost me about $10. If instead it costs $20 (100% increase), I’ll react strongly. I might not buy the nachos at all. (Who are we kidding, I’ll always buy the nachos). On the other hand, I expect a really good bottle of wine to cost me about $100. If instead it costs $110 (10% increase), I might not even notice—even though BOTH were $10 over my original expectation.

So what can we do with this information? As we increase prices, we can make sure we’re doing it in the places where guests feel it least. Where do guests expect prices to be higher? What prices are already high and can absorb modest increases without raising eyebrows? How can the offering be changed or re-presented to help adjust that initial expectation?

2.  Make sure every menu item has earned its place.
If there’s an item on your menu that doesn’t make you money, why is it there? I’m not asking you that because I think you should remove it. I’m asking you that because I think you should know the answer. Costco hot dogs lose them money. But it gets people in the door, and that’s a good business reason to keep a menu item.

3.  Re-think add-ons.
A weak business mind will look at the list of lifestyle changes above and say, “how difficult, everything’s always changing, it’s so hard to keep up.” A strong business mind will look at the list of lifestyle changes above and say “how easy, a list of what people want? I’ll just give it to them.”

As demand for appetizers, dessert, and alcohol wanes, test new add-ons such as mocktails, low-calorie sweets, chef-tastings, and upcharged plant-based options. Keep in mind the pricing principles we talked about above to supercharge this tip.

4.  Flex your unique value.
This is a fantastic way to increase that expected cost we talked about above. Where do I expect to spend more (and where do I tolerate higher prices)? McDonald’s, or a locally owned farm-to-table burger restaurant that uses premium ingredients and flame grills burgers to order in full view of the dining area?

Think about what you bring to the table. What sets you apart? Do your guests know all of those things? Make sure they do. Empower Front of House with guides, bullets, and strategies that enable them to effectively communicate the value of the experience to guests: dish uniqueness, novel/surprising/complex preparation techniques, a story. Communicate everywhere (including social media) the restaurant’s ethos, staff stories, and craftsmanship. It creates connection, increases perceived value, and establishes individuality—all of which helps people justify paying more.

Next week we’re going to dive into Part 2 of the James Beard report. What did you learn from the first part, and what are you going to change because of it? Shoot me an email at Kris@GetAFreshPerspective.com and let me know, I read every one.

If you want to read ahead, you can download the James Beard Report for yourself free here: https://www.jamesbeard.org/2025-independent-restaurant-industry-report