The restaurant industry is navigating an environment marked by economic volatility, shifting consumer behavior, and technological advancements, according to Fintech firm Square’s latest report.
Drawing from transaction data across Square’s network of food and beverage sellers, the report offers a snapshot of how restaurants are adapting to challenges while capitalizing on new opportunities.
From declining tipping trends to the rise of online ordering and vegan alternatives, the research findings underscore the resilience and adaptability of quick-service and fast-casual establishments in a dynamic market.
One of the report’s most striking insights is the decline in tipping, reflecting broader economic pressures.
In Q1 2025, the average tip on food and beverage transactions was 15.17%, dropping slightly to 14.99% in Q2, aligning with waning consumer confidence.
Bars continue to see the highest tips, averaging 17.36% in Q1 and 16.96% in Q2, while cafés and quick-service restaurants (QSRs) reported lower figures, falling from 14.72% and 14.64% in Q1 to 14.57% and 14.2% in Q2, respectively.
Full-service restaurants also saw a dip, from 14.76% to 14.64%.
Ming-Tai Huh, Head of Food and Beverage at Square, emphasized the significance of tips, noting that they accounted for nearly 23% of restaurant workers’ income in 2024.
As consumers tighten their belts, this decline could impact staff earnings, prompting restaurants to explore alternative revenue streams to maintain employee satisfaction and retention.
Online ordering remains a key part of restaurant growth, with 78% of restaurant owners identifying it as their primary order driver, according to Square’s Future of Commerce report.
However, the report highlights the profitability trade-offs between first-party and third-party delivery platforms.
First-party ordering yields 64% higher profit margins, with Square’s platform enabling sellers to save an average of 30% compared to third-party services.
Despite higher costs, third-party platforms offer access to built-in customer bases and streamlined logistics, making them appealing for restaurants aiming to expand reach.
Balancing these options is critical as delivery rates rise, and restaurants must optimize for both profitability and customer convenience.
Consumer preferences are also shifting toward plant-based options, with oat milk emerging as a popular coffee add-on.
In states like New Mexico (48.6%), Maine (47.41%), and Oregon (45.94%), nearly half of coffee orders include oat milk, while traditional dairy strongholds like Wyoming (18.83%) and Mississippi (21.99%) lag behind.
The cost of oat milk add-ons has slightly decreased, from 67 cents in January 2025 to 65 cents in June, making it a more accessible choice.
This trend reflects a broader demand for vegan alternatives, pushing restaurants to adapt menus to cater to health-conscious and environmentally aware diners.
Operationally, QSRs and fast-casual restaurants demonstrate resilience amid economic uncertainty.
Sales growth for fast-casual concepts peaked at 9.3% in Q4 2024 but moderated to 0.9% in 2025, while QSRs maintained steady growth between 8.7% and 9.1%.
Labor margins have trended downward, indicating improved efficiency, likely driven by technologies like self-serve kiosks.
Fast-casual restaurants reported consistent margins between 17.4% and 21.2%, while QSRs saw a decline from 21.1% in 2024 to 18.8% in 2025.
EBITDA margins remain robust, at 18.9% for QSRs and 23.6% for fast-casual businesses in Q1 2025, highlighting the scalability of these leaner models compared to fine dining, which struggles with higher costs and lower consistency.
Square’s partnership with Paperchase, a hospitality accounting firm, provides deeper insights into profitability.
By combining transaction and financial data, the collaboration reveals how QSRs and fast-casual restaurants outperform fine dining in efficiency and adaptability.
As economic pressures persist, restaurants are leaning into technology—85% of leaders plan to invest in AI and automation—to streamline operations while maintaining hospitality.
However, consumer sentiment remains mixed, with 63% cutting back on restaurant spending, challenging operators to balance rising costs with value-driven offerings.
The restaurant report paints a picture of an industry at a crossroads, leveraging technology and consistent product development to thrive.
By prioritizing first-party ordering and optimizing operations, restaurants can navigate economic headwinds while meeting evolving consumer demands.