Square has released its Fall Quarterly Restaurant Report, shedding light on evolving wage trends, tipping behaviors, and inflation impacts in the restaurant industry. The report draws from data across Square’s food and beverage sellers to analyze shifts in consumer spending, labor costs, and dining culture.

Full-Service Restaurants Face Higher Inflation Pressures

Since the onset of the COVID-19 pandemic, restaurants have grappled with inflation driven by rising labor costs, supply chain disruptions, and increased food prices. Square’s data reveals that full-service restaurants have faced steeper inflationary pressures than quick-service establishments.

Inflation peaked for full-service restaurants in April 2022 at 10.1%, compared to 7.2% for quick-service restaurants. While inflation has eased since then, with rates now at 4.3% for full-service and 3.6% for quick-service as of September 2024, challenges persist.

“Despite inflation easing, restaurants are continuing to face a number of challenges in their operations whether it’s fluctuating food prices, employee retention, or ballooning payroll costs. Many restaurants are grappling with how to balance these increased expenses while still offering affordability to customers. We’ve seen some restaurants lean on automation and other time-saving technology to keep margins under control,” says Ming-Tai Huh, Head of Food and Beverage at Square.

Wage Growth Outpaces Revenue Gains

Labor costs remain a key driver of rising expenses in restaurants. According to the Square Payroll Index, wages for full-service restaurant workers have increased by 73.9% since 2017, outpacing the 60.2% growth in wages for quick-service restaurant employees.

“The cost of labor is growing faster than revenues in some segments, compressing margins in an already tight sector,” said Ara Kharazian, Square Research Lead and principal developer of the Square Payroll Index. “This trend will likely continue. Restaurants are hesitant to raise prices on consumers, but we remain in a pretty hot labor market, so wage increases will have to come from somewhere if restaurants want to remain competitive.”

Tipping Behaviors Vary by State

Tips continue to play a significant role in restaurant workers’ earnings, accounting for 23% of their income in 2024, a slight increase from 22% in 2023. States like Wyoming (33%), South Dakota (31%), and Alaska (31%) saw tips make up the highest percentage of workers’ earnings, while states like Oklahoma, Mississippi, and Arkansas reported lower percentages.

Nationally, the average tip on restaurant transactions was 15.4% in 2024, down slightly from 15.5% in 2023. Virginia (17.16%), Iowa (17%), and Delaware (16.77%) recorded the highest average tip rates, while California (14%), Hawaii (14.17%), and Connecticut (14.75%) had the lowest.

Image: Envato

This article, “Square Report Highlights Wage Growth, Tipping Trends, and Inflation Impact in Full-Service Restaurants” was first published on Small Business Trends