How to Protect Restaurant Margins Amid Rising Supplier Costs

Why Margins Are Under Attack in 2025

The restaurant business has always been one of slim margins. Pre-pandemic, a well-run independent restaurant could expect 5–7% net profit margins. Today, those numbers are lower. In 2025, most operators are operating on 3–5%, with full-service often closer to 2%.

Margins are shrinking not because guests have stopped dining out, but because costs are rising faster than menu prices. According to the U.S. Bureau of Labor Statistics, the Producer Price Index for food rose 7.8% in 2024 and is forecast to rise another 3–4% in 2025. Meanwhile, labor costs now average 36.5% of sales (National Restaurant Association, 2025). Utilities are up 9%, and commercial insurance premiums climbed 8% in 2025 (IBISWorld).

‍Why Operators Feel the Squeeze

Even as consumer demand for dining out remains strong, restaurant operators in 2025 are being hit from all sides by rising input costs, shrinking pricing power, and higher fixed expenses. Multiple industry and government data points illustrate the pressure:

• Suppliers increase prices with little notice:
  According to the U.S. Bureau of Labor Statistics (Producer Price Index, 2024–2025), wholesale food prices rose 7.8% in 2024 and are projected to climb another 3–4% in 2025, with proteins and dairy leading the increase.
  
• Delivery apps cut into margins with 15–30% commissions:
  As reported by Restaurant Business Online (2025 Delivery Economics Report), third-party delivery platforms such as DoorDash and Uber Eats typically charge 15–30% commissions per order, making off-premise sales profitable only at scale.
  
• Fixed costs like energy and insurance rise beyond inflation:
  IBISWorld’s 2025 Restaurant Industry Outlook shows average utility expenses up 9% year over year and commercial insurance premiums up 8%, both outpacing the overall U.S. inflation rate of roughly 3.4%.
  
• Menu prices can only be raised so far before guests resist:
  According to Deloitte’s 2025 Restaurant Consumer Trends Survey, 71% of diners notice price increases above 5%, prompting operators to absorb cost inflation rather than risk traffic declines.

Understanding Restaurant Profit Margins

Before tackling cost-control strategies, it’s important to understand how restaurant margins are calculated and where profits often disappear.

Gross Margin vs. Net Margin
It’s not enough to track sales or even food costs alone. Operators need visibility into both gross and net margins to see the full financial picture:

Gross Margin = (Sales – COGS) ÷ Sales
Net Margin = (Sales – All Expenses) ÷ Sales

According to IBISWorld’s 2025 U.S. Full-Service Restaurant Industry Report and National Restaurant Association (NRA) 2025 State of the Industry, average gross margins range from 65–70%, depending on service model and menu mix. However, after accounting for labor (averaging 36.5% of sales), rent, utilities, insurance, and delivery fees, the net margin typically shrinks to just 3–5%.

Even a small improvement in gross margin, as little as 1–2%, can double a restaurant’s net profit, underscoring why precision in cost tracking and vendor management is so critical in 2025.

Sales numbers can mislead. A “bestseller” may move volume but deliver little profit.

Contribution Margin: The Most Overlooked Metric

Sales numbers can be deceptive. A “bestseller” might fly out of the kitchen every night but quietly chip away at profits. High volume doesn’t always equal high value — especially when ingredient prices fluctuate weekly and portion sizes aren’t tightly controlled. Many operators focus on total sales or food cost percentages, but that view hides the real driver of profitability: contribution margin.

Contribution margin shows how much profit each menu item actually contributes after covering its direct costs. It turns guesswork into clarity — revealing which dishes sustain your bottom line and which merely boost your POS reports.

Formula:
Contribution Margin = Menu Price – Food Cost

Example:
Salmon entrée: $26 price – $16 cost = $10 contribution margin
Burger: $18 price – $6 cost = $12 contribution margin

In this example, the burger delivers more profit per sale, even if it sells less frequently.

With MarketMan, contribution margins update automatically as supplier invoices and ingredient costs change, helping operators track menu performance in real time and make informed decisions about pricing, promotions, and menu placement.

Prime Costs: The Real Benchmark

Prime costs (the total of your food, beverage, and direct labor expenses), remain the single most important benchmark for measuring restaurant efficiency. In simple terms, prime cost represents how much of every sales dollar is spent on the two areas most directly tied to operations: what you serve and who serves it.

According to the National Restaurant Association’s 2025 State of the Restaurant Industry Report and IBISWorld’s 2025 U.S. Full-Service Restaurant Industry Analysis, well-run restaurants typically keep prime costs at no more than 60–65% of total sales. However, with inflationary pressure on wages and ingredients, many operators in 2025 are reporting prime costs approaching 70% or higher, leaving little room for profit even in strong sales months.

Without visibility into these combined costs, operators lose control of the single biggest driver of profitability. Tracking prime cost in real time, through integrated systems that connect invoices, labor schedules, and sales data is no longer optional; it’s essential for margin protection.

Supplier Inflation in 2025: Breaking Down the Costs

Even the most disciplined operators can’t escape the impact of global supply volatility. After several years of pandemic recovery, extreme weather events, and logistical bottlenecks, food inflation continues to challenge the restaurant industry in 2025. The U.S. Department of Agriculture’s Economic Research Service (USDA ERS) projects an additional 3–5% increase in wholesale food prices this year, following a cumulative nearly 20% rise since 2020.

Proteins and perishables remain the most volatile categories, with supply chains increasingly affected by transportation costs, droughts, and export restrictions. Here’s how those trends break down across key commodities shaping restaurant food costs in 2025:

Protein Price Trends

• Seafood: Up 9% year-over-year, driven by higher global shipping costs and warming ocean temperatures affecting catch volumes (USDA ERS, 2025 Food Price Outlook).
  
• Beef: Prices have stabilized since their 2023 peaks but remain roughly 15% higher than 2020 levels due to feed grain inflation and herd reductions (USDA ERS Livestock, Dairy, and Poultry Outlook, Q1 2025).
  
• Poultry: The most stable of major proteins, increasing only 2–3% thanks to improved feed efficiency and supply normalization (USDA ERS, 2025).
  

Dairy & Produce

• Butter & cheese: +11% in 2025 (global demand surge).
  
• Avocados: +7% due to Mexican droughts.
  
• Citrus: +8% from smaller U.S. and Brazil harvests.
  

Staples

• Flour, wheat, rice remain above pre-pandemic averages.
  

When prices rise across multiple categories, even modestly, the cumulative effect can be devastating to already thin margins. A few percentage points in supplier inflation can erase months of progress in cost control.

For example, a restaurant spending $40,000 per month on food will lose roughly $24,000 in annual margin from just a 5% increase in supplier prices. And because these increases often hit staples like proteins and dairy simultaneously, operators without real-time cost tracking may not even notice the erosion until profits have already vanished.

That’s why many operators in 2025 are turning to MarketMan’s automated invoice scanning and predictive ordering tools, which flag price changes the moment they appear and adjust purchasing recommendations accordingly. By catching small cost increases early, MarketMan helps protect margins before they slip away.

Vendor Contracts & Negotiations 

For many operators, vendor negotiations are a dreaded necessity, squeezed between needing reliable suppliers and the constant pressure of rising prices. But in 2025, with supplier costs projected to rise another 3–5% (USDA Food Price Outlook), smart contracts can be the single most important tool for protecting margins.

Example: Regional fast-casual operators across the Midwest reported double-digit poultry price spikes in late 2024 after droughts reduced feed grain yields, according to the USDA Economic Research Service (Livestock, Dairy, and Poultry Outlook, Q4 2024).

This story highlights why operators are shifting from reactive vendor management to proactive, contract-driven relationships. Here are the specific strategies:

Multi-Year Agreements With Guardrails

Locking in 1–3 year pricing for high-volume items:  proteins, dairy, core produce reduces volatility. The strongest contracts include guardrails like maximum annual increase caps (3–5%) and clauses requiring suppliers to provide advance notice of any extraordinary hikes.

Data-Powered Negotiations

Generic complaints like “your prices are too high” rarely move suppliers. What does make an impact is data specifically, proof of pricing trends and performance patterns that show where costs have crept up over time.

With MarketMan, operators can instantly pull up detailed price histories per SKU, invoice records, and purchase volumes by vendor, allowing them to walk into negotiations armed with facts instead of guesswork. Automated invoice scanning also flags duplicate charges, missing credits, or hidden fees, providing leverage for more informed discussions.

In one example, an operator noticed recurring “fuel surcharges” that appeared three times within six months. By cross-referencing invoice data through MarketMan’s reporting dashboard, they identified the pattern, challenged the charges, and secured two quarters of free delivery as compensation.

Exposing Hidden Fees

According to Harvard Business Review, hidden surcharges can quietly erode 1–2% of restaurant sales annually. These often include administrative fees, minimum order penalties, or even non-itemized “miscellaneous” charges. With invoice scanning, MarketMan surfaces these immediately, allowing operators to challenge them before they compound.

Leveraging Group Purchasing Power

Independent operators often feel at the mercy of big suppliers, but Group Purchasing Organizations (GPOs) are shifting that dynamic. In 2025, GPO participation grew 18% (Restaurant Business Online), as independents banded together to secure chain-level pricing. 

For one MarketMan client, a single-unit fine dining restaurant in California,  joining a Group Purchasing Organization (GPO) led to a 9% reduction in seafood costs, recovering nearly $45,000 in annual margin. This insight comes from MarketMan’s internal client performance data (2024 aggregate analysis), which shows that independent operators using GPOs typically save 7–10% on high-volume ingredients through collective purchasing power.

Why This Matters for Operators

Margins are fragile in 2025. One unexpected supplier price increase can wipe out a month of profits. But operators who rely on real-time reporting, actual vs. theoretical cost tracking, and menu profitability analysis no longer have to wait until the end of the month to find out where money was lost.

With MarketMan, every purchase, invoice, and recipe cost updates automatically, giving teams instant visibility into how ingredient prices affect menu-level margins. When operators see that a single ingredient spike has shifted theoretical costs beyond target, they can adjust recipes, renegotiate with vendors, or reprice dishes before the damage compounds.

By consolidating vendor and purchasing data in one place, MarketMan transforms supplier conversations from defensive to strategic,  helping restaurants protect profits with facts, not assumptions.

Menu Engineering: Designing Menus That Protect Margins

Pricing Psychology

Guests are sensitive to price hikes, but not all increases trigger pushback. Deloitte’s 2025 consumer survey found 71% of diners accept 3–5% increases if linked to quality, sourcing, or sustainability.

Operators should:

• Use menu design to emphasize value (“local farm-raised salmon”)
  
• Bundle items to raise average checks (burger + craft beer + fries)
  
• Use psychological pricing ($14.95 vs $15)
  

Contribution Margin–Driven Menus

Even the most carefully negotiated supplier contracts can’t protect profits if the menu itself isn’t optimized. Menu engineering is where financial strategy meets guest experience, a process that turns cost visibility into smarter pricing, placement, and promotion decisions. Operators who understand how each dish contributes to the bottom line can fine-tune their offerings to strengthen overall profitability rather than chasing raw sales volume.

MarketMan makes this process easier by generating real-time menu profitability reports that connect recipe costs, supplier price changes, and sales performance. With contribution-margin insights at their fingertips, operators can quickly see which dishes drive profit — and which quietly drain it.

MarketMan’s reporting tools help operators:

• Promote Stars: high margin + high sales items that define your profit core.
  
• Retire or reprice Dogs: low margin + low sales items that occupy menu space without return.
  
• Highlight Puzzles: high margin but low sales items that can perform better with improved placement or promotion.
  
  

Example: A West Coast café using MarketMan’s menu profitability reporting identified that its halibut entrée delivered only a 35% margin, while a pasta special achieved 72%. By adjusting menu design and sales focus accordingly, the café improved overall menu profitability by roughly 9% in one quarter. Source: MarketMan Internal Aggregate Client Data, 2024 — Menu Engineering Benchmarks

Hidden Margin Pressures Beyond Food

Delivery Platforms

Third-party delivery apps have become an essential sales channel for many restaurants, but their convenience comes at a steep cost. These platforms typically charge commissions ranging from 15% to 30% per order, meaning that on a $20 takeout order, operators may keep as little as $14 after fees. Over time, these commissions can erode profitability, especially when off-premise orders represent a growing share of total sales.

To protect margins, many restaurants are investing in direct online ordering systems integrated with their POS or renegotiating flat-fee structures with delivery partners. These approaches allow operators to maintain customer access while retaining more revenue from each transaction.

Arbeit

Turnover in foodservice hit 73% in 2025 (BLS). Training new staff adds cost and inconsistency. Cross-training and automation offset rising wages.

MarketMan indirectly supports labor efficiency by saving 100+ admin hours monthly through automated invoice processing and AI ordering.

Utilities & Insurance

Rising utility and insurance costs quietly chip away at restaurant profitability, often without operators realizing how much they’ve climbed year over year. In 2025, both categories have outpaced general inflation, forcing operators to find creative ways to reduce overhead.

Conducting regular energy audits can help identify inefficiencies in refrigeration, lighting, and HVAC systems, cutting utility bills by an estimated 10–15%, according to IBISWorld’s 2025 Restaurant Operations Report. On the insurance side, bundling property and liability coverage under a single provider can typically save another 5–7%, while ensuring consistent protection against rising premium rates.

Together, these operational adjustments can recover several percentage points of margin that would otherwise be lost to fixed costs.

Shrinkage & Theft

Not all margin erosion comes from rising costs, some losses originate inside the restaurant itself. Shrinkage and theft, whether from miscounted inventory, unauthorized comps, or intentional product diversion, can quietly drain profits without showing up on standard reports.

According to the National Restaurant Association’s 2025 State of the Industry Report, employee theft and operational mismanagement account for 2–3% of annual revenue losses across the U.S. restaurant sector. These losses often stem from inconsistent inventory procedures, untracked waste, or poor portion control rather than overt misconduct.

By implementing automated inventory counts and digital variance tracking, operators can quickly identify discrepancies between theoretical and actual usage. With MarketMan, these systems sync in real time, allowing managers to detect unusual patterns, such as ingredient overuse or missing stock before they translate into lost margin.

Technology as Margin Insurance

In a landscape where every percentage point matters, technology has become the restaurant industry’s most reliable safeguard against shrinking profits. Advanced inventory platforms, real-time analytics, and AI-assisted forecasting tools are transforming the way operators manage costs. Instead of reacting to margin erosion after it happens, forward-thinking teams are now predicting it  and preventing it.

Digital systems like MarketMan act as an insurance policy for profitability, offering real-time visibility into food costs, vendor pricing, and usage trends. By replacing manual spreadsheets with data-driven insights, operators can make faster, smarter decisions that preserve margins without compromising service or quality.

Predictive Ordering

Over-ordering leads to 4–10% waste (ReFED). Predictive ordering in MarketMan reduces this by using historical data and AI-powered par levels.

Real-Time Invoice Scanning

Manual entry misses errors. Automated scanning flags price hikes and overcharges immediately.

Multi-Unit Visibility

Chains and groups lose margin to inconsistent purchasing. MarketMan centralizes vendor data, ensuring parity across locations.

Global Margin Pressures

Europe

• UK: Dairy costs up 12% post-Brexit.
  
• Mediterranean: Olive oil up 15% in 2025.
  

Lateinamerika

• Avocado shortages push global prices higher.
  
• Local operators with short supply chains benefit from stability.
  

Asia-Pacific

• Seafood exporters pass climate-driven costs onto operators.
  
• Quick-service chains rely heavily on predictive ordering and automation.
  

The 2025 Restaurant Margin Playbook

Protecting profitability isn’t about a single fix, it’s about building a consistent system of habits that keep costs visible and controllable throughout the year. The operators who thrive in 2025 are those who treat margin protection as a daily discipline, not an annual review. By combining structured analysis, real-time data, and strategic vendor management, restaurants can safeguard their bottom line even as costs continue to fluctuate.

The following best practices form a simple but powerful framework, one that turns margin protection into a repeatable process rather than a reactive scramble:

1. Audit invoices weekly with automated scanning.
   
2. Run contribution margin analysis monthly.
   
3. Negotiate or revisit supplier contracts quarterly.
   
4. Re-engineer menus based on data every quarter.
   
5. Use predictive ordering to reduce waste.
   
6. Automate admin to reduce labor costs.
   
7. Build guest trust by explaining sourcing and value.
   

Margins Are the Lifeline

Margins are thinner than ever, but they can be protected. The restaurants that succeed in 2025 are those that treat margin protection as a daily discipline, not a quarterly panic.

MarketMan delivers:

• Clarity: real-time visibility into food costs.
  
• Control: AI ordering + vendor scorecards.
  
• Confidence: stronger negotiation power and margin protection.
  

That’s why MarketMan is trusted across 15,000+  restaurants worldwide.

Ready to safeguard your profitability? Book a demo with MarketMan today.