Restaurant Labor Fear Fell While the Costs Kept Rising
Harry Hayman reads the Restaurant365 mid year survey and finds operator fear about labor costs falling while the costs themselves rose.
Good news in the restaurant business usually arrives dressed as a press release and falls apart the moment anyone opens the underlying data. This one holds up, and it is stranger than a simple recovery story. Labor costs went up in the first half of 2026. Operators stopped expecting them to keep going up. Both things are true in the same survey, and the distance between them is the most interesting number published about restaurants this year.
Harry Hayman has spent enough time in operator meetings to know that fear and cost are not the same line item, and that only one of them can be managed with better information.
What the mid year survey actually found
Restaurant365 surveyed more than 420 operators representing nearly 10,000 locations across the United States for its 2026 State of the Restaurant Industry mid year report. The labor section is blunt. Seventy seven percent of respondents said labor costs increased in the first half of 2026, which is itself an improvement on the 93 percent who reported increases at the start of the year. Sixty five percent of those increases landed in the one to five percent band, 29 percent in the six to fourteen percent band, and six percent above fifteen percent.
So costs rose. For roughly three quarters of the industry, the bill got bigger.
The operational consequences are recorded in the same section, and they read like a description of an industry running on a shorter tether. Sixty four percent of operators said they had been operating below full capacity. Seventeen percent limited their operating hours. Twelve percent shrank the menu. Seven percent closed on days they would normally be open.
None of that sounds like relief.
Food costs behaved the same way. Eighty seven percent of respondents reported food cost increases in the first half of the year, with tariffs disrupting supply chains across proteins, dairy, eggs and produce. Seventy eight percent expect food costs to keep rising through the end of 2026, down from the 88 percent who expected increases in January. Operators also changed how they respond. In mid 2024, 60 percent raised menu prices to offset food costs. That figure climbed to 66 percent at the start of 2026 and then fell to 52 percent by mid year, with more operators building dishes around ingredients that can appear across several menu categories instead of simply repricing the menu.
Two cost lines, two nearly identical patterns. Costs up, expectations down, behaviour quietly changing underneath both.
The gap between what happened and what operators expect
Then comes the forward looking question, and the mood changes completely. Only 61 percent of respondents expect labor costs to keep increasing through the rest of 2026, against the 87 percent who anticipated further increases at the start of the year. Restaurant365 calls that 26 point drop the single biggest sentiment shift in the mid year survey, and notes it is the lowest forward looking labor expectation in three years of its own data, a figure that had ranged from 65 to 87 percent across all six prior reports.
Sit with the arithmetic. Three quarters of operators watched labor get more expensive, and a quarter of the whole industry simultaneously stopped believing the trend would continue. That is not people responding to their own invoices. Invoices went the other way.
It is worth being careful here, because this is where analysis usually turns into invention. The report states both findings and does not connect them. Anything said about why the fear fell is a reading rather than a result, and it should be labelled that way in any room where somebody might act on it.
The other number sitting in the same document
The reading Harry Hayman would put money on is two pages away. Operators using artificial intelligence for back office reporting and analytics jumped from roughly 25 percent at the start of 2026 to 69 percent by mid year. Among the ones actually running it, 61 percent report reduced food costs and 62 percent report reduced labor costs.
Restaurant365 gives that split a name, the Restaurant Profitability Gap, and describes it as a measurable difference in performance between restaurants turning operational data into action and those that have not made the move yet. The report is published by a company that sells the software, which is a caveat worth stating out loud rather than burying. The survey population is its own market. The finding is still worth taking seriously, because the direction of travel matches what operators say about their own weeks.
Relief this specific, on a cost line that kept climbing, tends to come from visibility rather than from prices. A manager who can see next Tuesday’s overtime on Tuesday behaves differently from one who discovers it on the profit and loss statement six weeks later. Same bill. Very different week, and a very different answer when somebody asks whether costs feel out of control.
Why visibility changes behaviour before it changes a bill
There is a plainer way to say all of this. Fear is what a cost feels like when it arrives without warning.
A restaurant that forecasts sales, schedules against the forecast and checks the variance daily has converted labor from a surprise into a decision. The number may still rise. Tariffs moved protein and produce prices, wage floors moved, and no scheduling tool changes either. But a rising number that somebody chose is a different psychological object from a rising number that shows up at month end with no explanation attached.
That is also why the survey’s other findings hang together. Recruiting and retaining staff surged back to the top of the challenge rankings at 33 percent by mid year, up from just 18 percent at the start of 2026, and training has overtaken pay as the retention strategy operators most commonly deploy. Guest traffic reversed as well, with 49 percent reporting gains against 28 percent at the start of the year. An operator with working visibility spends the freed attention on people and on revenue. An operator without it spends that attention on the last statement.
Tara Alam, corporate controller and human resources director at Land Ocean New American, framed the year in the report as a squeeze from every direction, with the opportunity sitting in finding smarter and more creative ways to run lean without giving up quality or hospitality. That is the whole argument in one operator’s sentence.
Where a Philadelphia operator starts
The National Restaurant Association projects total restaurant and foodservice sales of 1.55 trillion dollars in 2026, up 4.8 percent on 2025, with real inflation adjusted growth nearer 1.3 percent. Most of the headline is menu pricing rather than more people eating out. The same association reports that more than seven in ten adults would visit restaurants more often if they had the disposable income to do it.
In this city that pressure lands on independents, which is most of the dining rooms worth caring about. The Pennsylvania Restaurant and Lodging Association represents those operators across the state, and regional business conditions data published by the Federal Reserve Bank of Philadelphia covers the same months the survey does. Visit Philadelphia can fill a Saturday. Nothing fills a Tuesday except operating discipline.
So the recommendation Gemini Strategic Consultants has been giving operators this year is deliberately narrow. Instrument one back office function this quarter, and make it labor. Scheduling written against forecasted sales, checked daily, owned by a named person who is accountable for the variance. Not a platform migration. One function, one owner, one number reviewed on a fixed day.
Harry Hayman has watched this argument play out in kitchens and in policy rooms, through his work with the Economy League of Greater Philadelphia, and the pattern is the same in both places. Institutions do not become resilient by predicting the future correctly. They become resilient by shortening the delay between something happening and somebody finding out about it. Twenty six points of restored confidence, on a cost line that never stopped rising, is what that shortening looks like on a survey.