Survey insights from more than 420 operators representing nearly 10,000 locations — covering food and labor costs, guest traffic, staffing, AI adoption, and the widening Restaurant Profitability Gap.
01
The industry entered 2026 with cautious optimism — and the first half of the year has tested that optimism in measurable ways.
Operators have navigated a familiar but intensifying set of pressures — rising food and labor costs, uneven guest traffic, and consumers who are increasingly deliberate about where and when they spend their dining dollars.
According to the National Restaurant Association, total restaurant and foodservice sales are projected to reach $1.55 trillion in 2026, a 4.8% increase from 2025. But much of that headline growth is driven by menu pricing rather than traffic, with real inflation-adjusted growth closer to 1.3%. More than 7 in 10 adults say they would visit restaurants more often if they had more disposable income — yet lingering inflation and a cooling labor market are keeping household budgets tight, particularly for low- and middle-income guests.
This mid-year report also identifies an emerging Restaurant Profitability Gap, a measurable difference in business performance between restaurants that are using AI to turn operational data into intelligent action and those that have yet to make that move. The gap is showing up on the P&L in real and significant ways, and it is widening. As you will see in the data ahead, this is no longer a conversation about potential. It’s a conversation about results.
87% of operators reported food cost increases in H1 2026; only 61% now expect further labor cost increases in H2 — the lowest forward-looking reading in three years.
49% of operators now report traffic gains, up from just 28% at the start of the year. Only 31% report declines, down from 55%.
62% of operators expect guest traffic to grow in H2 2026; just 9% anticipate further declines.
Operators using AI for back-office reporting and analytics jumped from roughly 25% at the start of 2026 to 69% by mid-year. Among active AI users, 61% report reduced food costs and 62% report reduced labor costs.
Recruiting and retaining staff surged from 18% at the start of 2026 to 33% by mid-year as the industry’s number one challenge.
Training is now the top retention strategy operators have deployed — the first time training has ranked above compensation in recent memory.
02
Rising food costs remain one of the most persistent challenges facing operators — and the first half of 2026 has done little to ease that pressure.
Tariffs disrupted supply chains and drove up prices across proteins, dairy, eggs, and produce, forcing operators to make difficult decisions about how they price, staff, and operate.
Looking ahead, 78% of respondents expect food costs to keep rising through the end of 2026 — a 10-point improvement from the 88% who anticipated increases at the start of the year, suggesting cautious optimism is building.
Operators are responding to food cost pressure in more creative ways than in prior years. In mid-2024, 60% raised menu prices to offset rising food costs. That figure climbed to 66% at the start of 2026 before falling to just 52% today — the lowest point in three years. Operators are distributing their responses across four main strategies:
Tariffs and supply chain pressures have driven up costs across specific commodity categories in ways that are difficult for operators to predict or hedge against. Beef is facing particularly tight supply conditions, while citrus and other produce categories are feeling the effects of weather and trade disruptions. Many operators are responding by focusing on ingredient optimization — building dishes around items that can appear across multiple menu categories to reduce waste and stabilize margins. Others are leaning on seasonal or limited-time offerings that allow them to pivot quickly when ingredient prices shift.
As food costs continued to rise, operators were contending with another layer of financial pressure: labor. The forward-looking picture, though, tells a more encouraging story.
77% of respondents said labor costs increased in H1 2026 — a meaningful improvement from the 93% who reported increases at the start of the year.
The operational impact of labor challenges is showing up in real and visible ways. When asked how their businesses had been affected, operators painted a clear picture of an industry stretching to keep up:
The forward-looking picture on labor is the most encouraging data point in this entire survey. Only 61% of respondents expect labor costs to continue increasing through the remainder of 2026, well below the 87% who anticipated ongoing increases at the start of the year. That 26-point drop is the single biggest sentiment shift in the mid-year survey.
61% is also the lowest forward-looking labor cost expectation in three years of Restaurant365 survey data. For context, that figure has ranged from 65% to 87% across all six prior reports.
In response to higher labor costs, many operators are rethinking how they staff and support their teams. Four strategies have emerged as the most widely deployed:
Corporate Controller & HR Director, Land Ocean New American
04
Two forces dominated the H1 conversation: the cost environment and the ongoing difficulty of finding and keeping good people.
When operators ranked their biggest challenges in H1 2026, two forces dominated the conversation: the cost environment and the ongoing difficulty of finding and keeping good people. Food costs (29.7%) and recruiting and retaining staff (32.9%) together accounted for nearly two-thirds of all responses.
The return of staffing to the top of the challenge rankings is one of the most striking findings in this survey. At the start of 2026, just 18% of operators identified recruiting and retaining staff as their number one concern. By mid-year, that number jumped to 33% — a 15-point swing in six months.
The multi-year pattern makes this finding even more notable. Staffing ranked as the top challenge at 32% in mid-2024, eased to 24% by late 2024, climbed back to 32% at the start of 2025, dipped to 27% by mid-2025, fell sharply to 18% at the start of 2026 — and has now surged back to 33% today.
As operators look toward H2, the challenge landscape shifts. Sales volume rises as a projected concern, reflecting a broader shift in operator mindset — from cost containment toward revenue generation. Staffing and food costs remain near the top, but the growing prominence of sales volume signals that operators are increasingly focused on what is happening on the revenue side of the equation.
When asked about their single biggest operational priority for the rest of 2026, increasing sales came out on top by a wide margin at 48.65%, followed by enhancing guest experience (20.88%) and reducing costs (17.44%).
05
When asked what factors most influenced their traffic over the past year, operators pointed emphatically to a single cause. Economic conditions and inflation ranked as the dominant force at 61%, far outpacing marketing and promotions (11%), local events or tourism (9.8%), weather and seasons (7.8%), and menu changes or limited-time offers (5.2%).
06
With cost pressures showing no signs of letting up, operators are being thoughtful and strategic about where they put their dollars.
One of the most thought-provoking findings in this entire dataset is the gap between staffing as the industry’s number one challenge and staffing investment reaching a three-year low. In mid-2024, 35–37% of operators said staff enhancements were their top investment priority. That number has fallen almost continuously since then — dropping to 27% at the start of 2025, 17% by mid-2025, and now sitting at just 16% today.
One possible explanation: operators facing sustained cost pressure on food and labor are concentrating their limited discretionary investment on revenue-generating activities, deferring people investment in the belief that traffic recovery will ease pressure on the staffing side. Whether that trade-off pays off in H2 remains to be seen.
Back-of-house AI adoption has surged since the start of 2026 in ways that were not widely anticipated heading into the year. This is where the Restaurant Profitability Gap begins to take shape. Among operators who have made the move to AI, the returns are showing up directly on the P&L in ways that are widening the distance between them and those who have yet to act.
At the start of 2026, just over 25% of operators had implemented or were planning to implement AI for back-office operations. By mid-year, reporting and analytics alone shows 69% of operators either actively using or piloting AI — a nearly three-fold increase in six months. Scheduling and labor management and inventory forecasting each account for 12.5% of AI applications, followed by customer marketing and loyalty (12.24%), menu optimization (10.46%), and chatbots and customer service (10.46%).
In a separate Restaurant365 study focused specifically on AI adoption and outcomes, operators actively using AI reported meaningful results across the two largest expense lines on the restaurant P&L.
61%
62%
1 in 3
88%
Cost reductions of 6% or more move the conversation well beyond incremental gains. In an industry where net margins typically range from 5% to 15%, those reductions represent meaningful profitability improvements. The near-universal weekly time savings among AI users points to an operational efficiency lift that compounds across the business. For operators who have moved from curiosity to commitment, AI is already functioning as a margin protection tool — not a future promise but a present reality.
This is the Restaurant Profitability Gap in action. For the operators on the winning side of it, the margin protection is real, it is measurable, and there is no going back.
Still, a significant share of the industry has yet to make that move. When we asked the broader operator population in our 2026 State of the Restaurant Industry Mid-Year Survey, 38% of respondents said they are not currently using AI and have no plans to do so. For many operators, the more immediate priorities of managing food costs, staffing challenges, and traffic pressures are taking up most of the bandwidth. When asked about the specific factors holding them back:
The investment data and the adoption data tell the same story: operators are prioritizing back-of-house AI applications over front-of-house ones. In the investment survey, front-of-house AI ranked last among H2 investment priorities at 6.31%, while back-of-house AI came in at 9.09%. The applications seeing the highest adoption — reporting and analytics, scheduling, inventory forecasting — are all back-of-house functions with direct, measurable impact on the two largest cost lines on the P&L.
Despite significant industry conversation around guest-facing automation, operators are approaching that space with considerably more caution. As the technology matures and use cases become clearer, that balance may shift. But for H2 2026, the back of house is where the AI conversation is happening. For the operators already in that conversation, the Restaurant Profitability Gap is only going to widen. The question is which side of it you want to be on.
When operators using or planning to use AI were asked about their primary goal, improving operational efficiency came out on top by a significant margin. The pattern is consistent with the broader theme running through this year’s survey: operators are focused on doing more with less.
08
Staffing remains one of the most important and complex challenges operators are managing — even as other priorities have periodically moved to the forefront.
Finding good people, keeping them engaged, and building teams that deliver a consistent guest experience in a high-pressure environment is not getting easier. But the turnover data is trending in the right direction: 39% of operators now report turnover rates of 0–10% — the highest reading in three years of Restaurant365 data. That figure sat at 34% in mid-2024, dipped to 28% at the start of 2025, recovered to 37% by mid-2025, and has now reached a new high at mid-2026. At the same time, the share of operators dealing with 76% or higher turnover has dropped from 9% in mid-2024 to 6% today. Slowly but consistently, the industry is getting better at holding onto its people.
09
Strong training programs have always been a cornerstone of good operations, but they’ve taken on new urgency in 2026.
Shoulder-to-shoulder training remains the dominant approach at 54.94%, reflecting the hands-on, relationship-driven culture that defines the restaurant industry. The growth of this method over time is striking: in mid-2024, 40% of operators relied on it as their primary training approach. That climbed to 45% at the start of 2025, jumped to 60% at the start of 2026, and now sits at 55% at mid-year. The industry is doubling down on human connection as its primary training method even as digital tools become more widely available.
The reliance on shoulder-to-shoulder training makes sense, but it also has limitations. When experienced team members are pulled away from their primary roles to train new hires, it can create its own operational strain. That tension is pushing more operators to explore digital and mobile training tools that allow new employees to build foundational knowledge on their own time before stepping onto the floor.
Economics of uncertainty is always top of the list, but you have to work with what you can control. Training and food quality are what we can control to provide the best experience for our guests, and we’re going to continue to work on those items to position us at the top.”
When asked how many hours of training staff receive each week, the responses revealed a wide range of approaches across the industry. Nearly half of all operators — 46.41% — provide just 1–2 hours of training per week. 28.21% provide 5 or more hours, 18.21% provide 3–4 hours, and 7.18% provide no formal weekly training time at all. The variation suggests there is significant opportunity for operators to use training frequency as a competitive differentiator in retention.
Cross-training remains a significant gap across the industry. The largest group of operators (29%) reported that only 11–25% of their staff are cross-trained, and another 17% said the figure is even lower at 0–10%. Just 14% of operators have reached a point where 76% or more of their team can step into multiple roles.
10
One of the most encouraging findings in the entire survey is the dramatic drop in operators reporting less frequent dine-in visits. At the beginning of 2026, 43% of operators said guests were dining in less frequently. By mid-year, that number has fallen to 26% — a 17-point improvement that suggests guests are returning to the table more often than many operators expected heading into the year.
At the same time, guests are making more deliberate choices about when and where they sit down for a full dining experience, often reserving those occasions for visits that feel worth the trip and the spend. That behavioral shift is reinforcing the importance of guest experience as a competitive lever.
Of operators responding to the shift: 26% are expanding their non-alcoholic drink offerings, 18% are adding mocktail menus, and 6% are actively promoting low/NA options. 50% have no changes planned — representing a significant opportunity for operators willing to get ahead of the trend. Mocktails, craft sodas, botanical drinks, and zero-proof spirits have moved well beyond novelty status. Restaurants that develop creative and intentional non-alcoholic beverage programs now will have a meaningful advantage over those who wait.
11
Google Reviews and Search came out on top as the channel driving the most customer engagement and traffic, cited by 27.48% of operators. Loyalty programs ranked second at 19.08%, followed by Instagram at 18.32%, Facebook at 12.21%, TikTok at 7.12%, email marketing at 6.11%, and Yelp at 5.09%.
When asked how they use social media to drive traffic, promotions and discounts came out on top (33.68%), followed closely by new menu item launches (16.97%) and influencer partnerships (16.71%). User-generated content accounted for 13.11%, behind-the-scenes content for 6.31%, and 12.85% of operators are not yet active on social media — a significant missed opportunity in a market where consistent, modest social investment can meaningfully impact visibility and traffic.
The dominance of Google Reviews and Search is a reminder that reputation management is one of the most important — and often underinvested — areas of restaurant marketing. Every review left by a guest is a piece of content that shapes how the next potential guest perceives the restaurant. Operators who actively engage with their reviews, respond thoughtfully, and encourage satisfied guests to share their experiences are building a compounding asset that pays dividends over time.
Loyalty programs ranked second at 19%, speaking to the power of building direct guest relationships rather than relying solely on third-party platforms to drive traffic. In an environment where every guest visit is harder to earn, keeping the guests you already have coming back is one of the smartest investments a restaurant can make.
47% of operators currently generate 0–10% of their revenue from third-party delivery services. That number looks meaningfully different from where things stood at the beginning of 2026, when 62% said the same — a 15-point drop indicating that more operators are now generating a larger share of their revenue through these platforms. The fee structures and margin pressures that come with those platforms are becoming a bigger part of the financial conversation for a growing portion of the industry.
For operators where third-party delivery represents a larger share of revenue, the economics require careful attention. Platform fees can erode margins quickly, and the lack of direct guest data makes it harder to build the kind of loyalty that drives repeat visits. Many operators are responding by investing in direct ordering capabilities and loyalty programs that give guests a reason to come back through their own channels rather than a third-party app.
The delivery channel is not going away — for many restaurants it represents a genuine growth opportunity. The operators who will win in this space are those who treat it as one component of a broader revenue strategy rather than a primary driver, and who invest in the tools and relationships that keep guests coming back on their own terms.
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The restaurant industry enters the second half of 2026 with persistent challenges and genuine momentum. Cost pressures have not eased, but operators are adapting. Staffing remains difficult, but training investment and culture are showing real results. Traffic has improved dramatically, and a clear majority of operators now expect that improvement to continue.
The Restaurant Profitability Gap running through this data is not a warning about the future. It is a description of what is already happening. The operators on the right side of it are protecting their margins, saving time, and pulling ahead. The operators on the wrong side of it are managing the same pressures with fewer tools. The gap is widening with every passing quarter, and the window to act is open right now.
A few themes define where the industry is heading. Cost control has been the dominant conversation so far this year, but nearly half of all operators say increasing sales is now their top H2 priority — a signal that the industry recognizes the path to profitability runs through revenue growth as much as it does through expense management. The emergence of AI adoption, non-alcoholic beverage demand, and digital engagement as major survey themes tells an equally important story: the restaurant industry is evolving, and the operators paying attention to these shifts now are best positioned to capitalize on them.
62%
61%
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Whether it is building out a mocktail menu, investing in back-of-house AI tools, or simply showing up more consistently on Google Reviews — the opportunities to differentiate and grow are there for operators who are willing to lean in.
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