Food service and QSR: margin pressure and the next operating model

What has moved in the last eighteen months

Labour first. Employer National Insurance rose to 15% in April 2025, with the per-employee threshold cut to £5,000. In April 2026 the National Living Wage for over-21s went up 4.1% to £12.71, with the 18 to 20 rates rising to £10.85, with further rises expected in 2027. For a sector where, as The Caterer reported, roughly half the workforce is aged 16 to 24, those youth rates bite hard. UKHospitality estimated the sector had already lost around 100,000 jobs between the October 2024 Budget and December 2025.

Property next. In the latest business rates revaluation, rateable values for restaurants and cafes rose 14%, according to UKHospitality figures reported by The Caterer, with pubs up 30%. While there is some relief announced on business rates, a lot of damage is already done.

Then the shock nobody budgeted for. After the conflict in the Middle East began in late February 2026, the ONS reported UK manufacturers' input prices up 8.3% in the year to September 2026, with crude oil up 51%. Logistics UK reported diesel up 36% in the year to April 2026. Packaging Gateway reported in May that polyethylene and polypropylene prices had risen by more than 30% since late February, to around four-year highs.

And packaging fees. Grocery Gazette reported in May 2026 that coffee cups, soup containers and juice cartons faced an average 19% rise in EPR charges later in the year, with plastic packaging charges up 15%. For QSR, where packaging is part of the product, that is a direct hit to cost of goods.

Food itself has been the one partial relief. ONS figures showed food inflation easing to 1.7% in June 2026, and domestic food producer prices were down 1.3% on the year in September. The IGD has warned that energy costs from the Middle East conflict are likely to feed through to food prices in the coming months.

What it means for the P&L

Demand isn't rescuing anyone. Lumina Intelligence forecasts the UK service-led restaurant market will grow just 1% in turnover in 2026, with outlet numbers falling 0.9% to 25,915. Begbies Traynor's red flag data for the second quarter of 2026 showed critical financial distress among hotels and accommodation businesses up 26.6% on a year earlier.

So the margin has to come from inside the operation, and most of it sits in a handful of places.

Packaging has become a specification problem as much as a purchasing one. Weight, material and recyclability all drive the EPR fee. A lighter clamshell, a mono-material cup lid, or dropping a carrier bag for single-item orders can cut fees and resin cost at the same time.

Distribution and delivery frequency deserve a hard look. Many estates still run delivery schedules designed when diesel was much cheaper. Consolidating drops, rebalancing ambient and chilled frequencies, and reviewing whether every site really needs daily delivery all reduce cost to serve. They also cut back-of-house receiving time, which matters when labour is the biggest line.

Menu complexity is the third. Each extra SKU adds stock, waste, forecasting error and training time. With labour this expensive, the operations cost of a slow-selling item is higher than most menu engineering models assume.

The operating model that comes next

The QSR model of the last decade assumed cheap labour, cheap fuel and growth in sites to spread fixed cost. None of those assumptions hold well right now.

The operators who come through this period in better shape will probably share some traits. They will know their cost to serve by site and by channel, including delivery aggregators. They will treat packaging as a designed component with a carbon and fee cost attached. They will run leaner supplier bases with clearer performance data, rather than spreading volume thinly. And they will plan labour around demand forecasts that are actually trusted by site managers.

None of this needs a large systems programme. Most of it starts with getting the data that already exists in EPOS, supplier invoices and the distributor's drop records into one view.

At a restaurant group, prep was done at every site by hand, with wide differences in yield and waste between kitchens. Moving three high-volume items to central preparation and fixed portion packs brought food cost down by around two points of sales. It showed in the weekly figures within about eight weeks, without losing product quality or service levels.

Where to start this quarter

Pull a site-level cost-to-serve view covering delivery, waste and packaging. Run your top ten packaging items through the EPR fee logic and the latest resin prices. And ask your distributor for drop-level data before your next rate review, because any conversation about fuel surcharges goes better when you know your own numbers.

Our free Margin Diagnostic gives a quick first read on where your margin might be leaking.