Restaurants & Hotels Are Budgeting For Higher Costs In 2026. What You Need To Know.
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The hospitality industry faces a tough year ahead. Rising labor costs, tariffs on imported goods, construction expenses, and changes in tax policies are forcing restaurants and hotels to rethink their budgets for 2026. Business owners and leaders must understand these challenges clearly and prepare practical strategies to manage expenses without sacrificing service quality or profitability.
This article breaks down the key cost drivers and offers a step-by-step guide to creating an accurate budget that anticipates these pressures. It also highlights how the Vanguard F&B Thynk Tank can support your budgeting process and help you navigate the financial challenges ahead.
Understanding the Rising Labor Costs in Hospitality
Labor costs are the largest expense for most restaurants and hotels, often accounting for 30% to 40% of total operating costs. In 2026, these costs are expected to rise significantly due to several factors:
Minimum wage increases: Many states and cities have scheduled wage hikes for 2026, pushing hourly rates higher.
Labor shortages: The hospitality sector continues to struggle with staffing shortages, leading to increased wages and incentives to attract and retain workers.
Employee benefits: Rising healthcare premiums and benefits costs add to overall labor expenses.
Overtime and premium pay: With fewer workers available, overtime hours are increasing, further driving up payroll costs.
What Business Leaders Need to Know
Plan for at least a 5-10% increase in labor costs compared to 2025.
Focus on employee retention to reduce turnover costs, which can be as high as 30% of an employee’s annual salary.
Invest in training and cross-skilling to improve productivity and reduce the need for overtime.
Consider technology solutions like scheduling software and automation to optimize labor use.
Tariffs and Their Impact on Supply Costs
Tariffs on imported goods remain a significant factor affecting the cost of food, beverages, and equipment. For example:
Tariffs on certain food imports from Asia and Europe have increased by 5-15% in 2025.
Equipment and furniture tariffs have added 10-20% to construction and renovation costs.
These tariffs often lead to higher wholesale prices, which restaurants and hotels must absorb or pass on to customers.
How to Prepare for Tariff-Driven Cost Increases
Review your supply chain to identify products affected by tariffs.
Negotiate with suppliers for better pricing or alternative sourcing options.
Adjust menu pricing strategically to reflect increased ingredient costs without alienating customers.
Consider local sourcing to reduce dependency on imports and avoid tariffs.
Construction Costs Are Climbing
Many hotels and restaurants are investing in renovations or expansions to attract guests and improve service. However, construction costs have surged due to:
Material price increases: Steel, lumber, and concrete prices have risen 15-25% in the past year.
Labor shortages in construction: Skilled labor scarcity has pushed wages higher.
Supply chain delays: Longer lead times increase project timelines and costs.
Budgeting Tips for Construction Projects
Get multiple bids from contractors to ensure competitive pricing.
Include a contingency fund of at least 10-15% for unexpected expenses.
Plan projects well in advance to avoid rush charges and delays.
Use durable, low-maintenance materials to reduce long-term upkeep costs.
No Tax on Tips: What It Means for Your Budget
One positive development for hospitality workers is the continued exemption of tips from federal income tax withholding. This policy helps employees keep more of their earnings, which can improve morale and retention.
What Business Owners Should Consider
Ensure payroll systems correctly handle tip reporting to comply with IRS rules.
Educate staff about tip policies to avoid confusion and disputes.
Factor in tip income when setting wages and budgets, as it affects overall labor cost calculations.
Use tip data to forecast labor expenses more accurately.
How to Create an Accurate Budget for 2026
Building a realistic budget requires a clear understanding of all cost drivers and a flexible approach to managing them. Follow these steps:
Gather historical data on labor, food, beverage, utilities, and maintenance costs.
Adjust labor costs based on expected wage increases, overtime, and benefits.
Analyze supplier contracts to estimate the impact of tariffs and inflation on ingredient prices.
Include construction or renovation expenses if planned, with contingencies.
Factor in changes in tax policies, such as tip exemptions.
Build in a buffer for unexpected expenses or market shifts.
Review and update the budget quarterly to reflect actual performance and new information.
Practical Example
A mid-sized restaurant expecting a 7% wage increase and 10% rise in food costs should:
Increase labor budget by 7%
Increase food and beverage budget by 10%
Add 5% contingency for unexpected expenses
Monitor supplier prices monthly to adjust purchasing plans
How Vanguard F&B Thynk Tank Can Help
Budgeting for 2026’s challenges requires data, insights, and expert advice. The Vanguard F&B Thynk Tank offers:
Access to up-to-date industry data on labor trends, tariffs, and construction costs.
Customized budgeting tools tailored to your restaurant or hotel size and location.
Expert guidance on managing cost pressures and improving operational efficiency.
Networking opportunities with other hospitality leaders to share best practices.
Using the Thynk Tank’s resources can help you build a budget that is both realistic and flexible, giving your business a stronger foundation to face 2026’s cost challenges.
