Chain restaurants are hit by tariffs and inflation. How do they control costs?

By Jaclyn Diaz, Alana Wise

Affordable, familiar and reassuring are the features that make American chain restaurants a near-ubiquitous presence throughout the country; it is almost as if they are baked into our roadside culture.

Despite well-documented financial struggles, a tough economy and shifting diet trends, these restaurants withstand time.

This series explores why these places have such strong staying power and how they stay afloat at a time of rapid change.

Go back to read our first piece on how these restaurants trigger nostalgia and pull that lever to bring diners in.

Every time you sit down at a chain restaurant and order a sizzling platter of fajitas or pull apart a cheesy bar of fried mozzarella, you are participating in one of the final stages of a lengthy production process that restaurants have to have down to the penny.

Tariffs and inflation have put a strain on chain restaurants, but experts say that they have been able to survive through a deeply regimented system of managing costs and consistency on a massive scale.

“Every food business is a manufacturing business, and you have to look at it that way,” says Stephen Zagor, a restaurant industry expert and adjunct professor at Columbia Business School.

“I don’t care if it’s the nicest, chef-driven restaurant, it’s a manufacturing business, and that chef is head of manufacturing,” he continued. “And how manufacturing businesses succeed is repetition and standardization and limiting waste.”

Take for example a plate of crispy chicken tenders and fries at your neighborhood version of a local chain.

Diners expect to be able to enjoy the same version of that menu item regardless of if they’re in Topeka, Kan., or Honolulu. And restaurants need to be able to deliver it at roughly the same cost to produce and a similar price to charge consumers.

“You make money in the restaurant business on how you buy, and it’s understanding your inventory, your turnover, limiting your waste, understanding the specifications of the products,” Zagor says.

“Maybe you don’t buy pre-made patties anymore because it costs money because there’s labor built in. Maybe you buy the ground beef yourself. Maybe you change the specification of ground beef. Maybe you buy a different type of onion. Maybe instead of buying a giant tomato, you buy Roma tomatoes,” he adds.

An industry feeling pinched

Casual sit-down restaurants bank their appeal on charging reasonable prices for an experience elevated from fast food, while not quite as costly as a fine dining experience. That can look like a steak dinner with two sides for under $30, like at Texas Roadhouse, or Never Ending Pasta Bowl meals for two for under $50 at Olive Garden.

But across the board, the food sector has been plagued by rising costs driven by supply chain issues, environmental factors and tariffs imposed by the Trump administration.

Since the COVID-19 pandemic made its way on American shores in 2020, grocery prices are up 29%, according to the Bureau of Labor Statistics. The cost of dining out has risen at a similar pace – up 33% over the same period.

“It’s sort of been this convergence of factors in the restaurant sector that really have compounded on one another,” says David Ortega, a professor of food economics and policy at Michigan State University.

“When we look at just the nature of prices, prices just generally tend to increase over time. And that’s a good thing when those price increases are moderate, because that’s a sign of a healthy economy,” Ortega says. “But what we saw, especially in 2022, is that prices were rising double digits year-over-year.”

To stay afloat, that can mean restaurants increase their menu prices to handle increased costs.

Texas Roadhouse CEO Jerry Morgan tells NPR his company is facing increased wage pressure, higher utility costs and a host of other increased expenses. “Everything is more expensive,” he says. According to financial disclosures, the company (which is doing well financially) increased menu prices around 1.7 percent at the beginning of the fourth quarter of this year.

And Applebee’s offered its All You Can Eat menu this year for $15.99 — up $3 from when it was offered for $12.99 in 2022.

But, like other leaders of the nation’s biggest chains, Morgan said Texas Roadhouse’s goal is not to pass increased costs heavily on to the consumer. So that often means cutting menu items that underperform.

John Peyton, the CEO of Applebee’s parent company Dine Brands, tells NPR, “We’ve got 105 items on the menu. It’s been that way since COVID when we reduced from about 135 or 140. It’s great for operational simplicity in the kitchen and it’s our best selling, highest yielding items.” And if the company wants to add something, they take another item off the menu, he said.

Sysco’s system

The top food distributors in the United States are Sysco Corporation, US Foods and Performance Food Group.

At Sysco’s massive facilities, like the Houston headquarters, cases of pre-cut vegetables and pallets of non-perishables fill some shelves stretching more than 50 feet high, ready to be shipped out to restaurants across the country.

Part of the company’s work involves helping restaurateurs get the best bang for their buck.

Are the prices of this type of lettuce on the rise? Sub it for another.

Tariffs hitting beef particularly hard? Create a chicken entree instead.

“This is where the magic happens, in terms of menu creation, analysis of the menu, what’s most profitable for them, what’s going to drive more foot traffic into their restaurants,” says Ryan Forth, president of the South Texas region for Sysco.

Outsourcing to maintain prices

One key way to stay on top of that is to turn to large national food distributors to find and produce cost-effective menu options.

But the tactic of using food distributors to keep costs low has been criticized.

Reporting from the Outlaw Ocean Project found that Sysco’s Chinese seafood suppliers used North Korean forced labor.

Sysco tells NPR that as soon as they learned of those allegations they immediately stopped working with those suppliers. And they claim they have some of the industry’s leading human and labor rights rules for its suppliers.

Sysco’s position in the industry continues to expand. Since 2017, Sysco has gone on to acquire at least eight food service, equipment and food providers. And it acquired 50 percent stakes in two Latin American food service providers in 2020.

But that consolidation has led to another criticism.

Adam Chandler is a journalist who has written extensively about American dining culture and has also worked in both mid-range and high-end restaurants.

“A lot of these restaurants use the same food providers in a way that makes them almost indistinguishable from the other, and a lot of the food is pre-cooked or pre-prepared,” Chandler says.

“That’s sort of how they manage to cut costs, ensure uniformity and also make sure that things get prepared quickly enough to serve a lot of people. So if things were slower and more expensive, I don’t think people would eat at these restaurants.”

In response to this critique, Greg Keller, executive vice president of national sales & specialty businesses for Sysco, says the company’s goal is to meet the needs of customers and their patrons by offering “variety both in product assortment and price. Consumer preference and prevailing food trends will often influence the products our customers select and thus, the menu options on offer at restaurants.”

He adds that the foodservice industry has a host of regional food distributors throughout the country that restaurant owners can turn to as an alternative.