The National Restaurant Association just released its 2026 State of the Restaurant Industry report, and the headline number sounds great: $1.55 trillion in projected sales. Record territory. The industry will add 100,000 jobs and employ 15.8 million people.
Then you read the rest of the report. 42% of restaurant operators said they were not profitable in 2025. 60% reported softer customer traffic. Food costs are more than 35% above pre-pandemic levels. 98% of operators cite labor as a top concern.
Record sales. Record pain. Both at the same time. That’s the 2026 restaurant market.
The Two-Restaurant Economy
The $1.55 trillion figure represents about 1.3% real growth after inflation. That’s barely above flat. The industry isn’t booming. It’s being propped up by price increases and spending from higher-income consumers while a huge portion of operators are underwater.
This is a K-shaped market. The operators who have their food costs dialed, their labor model figured out, and a clear value proposition for their customer base are doing well. Some are thriving. But nearly half the industry is losing money, and the gap between the top and bottom is getting wider.
For buyers, this creates opportunity. For sellers, it determines leverage. And for anyone trying to put a number on what a restaurant is worth, it’s the most important context in the market right now.
The Five-Headed Cost Squeeze
The NRA identifies five simultaneous cost pressures hitting operators:
Food costs remain the loudest alarm. 82% of operators reported higher average food costs in 2025. 68% said tariffs specifically drove food or beverage costs higher. Beef, poultry, and produce are all elevated, and the NRA’s own data shows average food costs running 35% above where they were before the pandemic.
Labor costs consume roughly 35% of revenue for the average restaurant. California’s $20 minimum wage for fast food (effective 2024) set the floor, and other states continue raising theirs. 75% of operators plan to hire this year but expect serious difficulty finding experienced managers and cooks. The pool is shrinking: the 16-to-24-year-old population, which has historically been the industry’s core labor pipeline, is getting smaller.
Insurance premiums are climbing across the board, with liquor liability policies up as much as 20% in some markets by the end of 2025.
Energy costs and credit card processing fees round out the squeeze. Swipe fees are now the third-largest operating expense for most restaurants, behind food and labor. 66% of operators say their processing fees have increased in the past two years. The NRA points out that U.S. swipe fees are the highest in the industrialized world, with two companies controlling 80% of the market.
Any one of these pressures is manageable in isolation. All five at once is why 42% of operators are in the red.
What Separates the 58% From the 42%
If nearly half the industry is losing money, the other half is making it work. The question for anyone in the deal market is: what separates the two groups?
From what I see in SoCal, it comes down to three things.
Cost discipline that goes beyond cutting corners. The profitable operators aren’t just watching food cost percentages. They’re renegotiating supplier contracts quarterly, managing waste at the prep level, and running labor models that flex with volume instead of carrying fixed headcount through slow shifts. It’s not glamorous work. It’s the work that determines whether you make money.
A clear concept that holds pricing power. The operators who can raise prices without losing traffic have something their customers can’t easily replace. That might be a specific cuisine done at a level nobody else in the market matches. It might be a location and atmosphere combination that commands a premium. The generic middle is where traffic is dropping. 52% of consumers say they want experiences they can’t replicate at home. If your restaurant doesn’t offer that, you’re competing on price, and competing on price in this cost environment is a losing game.
Off-premises integration that actually works. More than half of average restaurant traffic now comes from off-premises channels: delivery, takeout, curbside. The operators who’ve built that into their model from the ground up are capturing revenue without proportionally increasing their real estate and front-of-house labor costs. The ones still treating delivery as an afterthought are paying 30% commissions to third-party platforms and wondering where the margin went.
The Broker’s Read
When I sit down with a seller, the first thing I want to understand is which side of this divide they’re on. A restaurant generating consistent cash flow in a market where 42% of operators can’t manage that is a premium asset. The scarcity of profitability is itself a valuation factor.
For buyers, the NRA report is both a warning and a roadmap. The warning: don’t buy revenue. Buy cash flow. A restaurant doing $2 million with 10% margins is a different asset than one doing $2 million at breakeven, even though the top line is identical.
The roadmap: the cost pressures are known quantities. Beef isn’t coming down until 2028. Labor will keep climbing. Insurance and processing fees aren’t going to suddenly get cheaper. Any acquisition model that doesn’t stress-test against these realities is built on hope, and hope isn’t a financial strategy.
The industry will do $1.55 trillion this year. The operators who earned their share of that are worth more than they’ve ever been. The ones who didn’t are the reason the buy-side pipeline stays full.