As the political winds shift this January, it’s sure to have long-reaching effects that will impact the restaurant and hospitality industry. Unprecedented times could await us, as the new administration “renegotiates the world,” in the words of economist Eric Weinstein.

The policies of a transformed Congress and a new administration will impact labor, commodities (in particular, energy), credit market moves, ocean freight and the strength of the dollar. Even if we end up in a new golden age of business, getting there could be a little…messy.

So how do we know what to expect so we can prepare for the year ahead?

Read on to learn more about some of the key themes for 2025 that could impact the restaurant and hospitality industry:

Key Themes for 2025

  • Government regulation: The expectation that the new administration will ease or eliminate regulations that impeded markets’ ability to act independently should have a positive impact on overall domestic production and operating costs. This should lead to lower overall domestic food manufacturing and production costs by the second or third quarter of the year.
  • Energy: Domestic energy production is expected to increase as regulations are restructured and rebalanced. As a result, we may see some energy costs drop in the first and second quarters. This will lead to lower production and transportation costs, resulting in lower costs for end-user goods.  Petroleum-based products should be favorably impacted, as most raw material contracts have formulas based on the input costs.
  • Import tariffs: Some of the posturing around import tariffs will be realized as leverage points as the administration begins to take over and implement its agenda.  Tariffs could have both a positive and negative effect on the cost of goods, depending on the production capabilities of goods in other countries. It is likely we may see some cost increases on durable goods and equipment manufactured overseas, with no domestic or other international alternatives. However, if used properly, tariffs can lead to more domestic production and demand for workers.
    We believe the impact of tariffs will be minimal on actual goods required to run restaurants and hotels. They may temporarily drive the costs of some durable goods higher, putting a strain on consumer spending habits and discretionary spending.
    The key will be the balance of implementation and pure posturing for domestic leverage.  Some of the implemented tariffs will be partially offset by lower transportation costs and, by late 2025 or 2026, could be negated by alternative production.  We do expect electronics, plastics and other computer/technology produced in the PRC to increase in costs as it will take time for manufacturing to ramp up domestically or in other parts of the world that are not impacted by tariffs. Potential shifts in the strength of the dollar could either offset or exacerbate other inflationary pressure on imports, such as operating supplies and equipment from Asia, and near-shored commodities, such as produce.
  • Food inflation (away from home): Though food inflation has begun to ease over the nearly double-digit rates we saw over the past two years, the base cost of food remains substantially higher. It will take time to see pricing fall back to 2019 levels.
    The commodity markets, including beef, pork, and poultry, may see a slight reset as they typically do during the end of inflationary cycles.  Imported seafood may be most affected by tariffs, initially, though importers will likely need to absorb some or all the tariff impact if their primary market is the U.S.  Since many of the countries that will likely be most impacted by tariffs are heavily reliant on U.S. consumption and demand, the impacts to our cost of goods may be minimal, if any.  Overall, we expect commodity pricing to settle and see some overall commodity price reductions and leveling.
  • AI-driven personalization and operations: Generative AI will revolutionize both guest experiences and operational workflows in 2025 and beyond. Algorithms can analyze guest preferences in real time to personalize room settings, dining options and services. On the operations side, AI-powered predictive maintenance helps determine a critical tipping point that will help you reduce long-term costs: when to invest in either repairing or replacing assets. AI-driven procurement systems will also identify opportunities to optimize purchasing strategies, uncover cost-saving programs, and suggest cost-saving high-value substitutes for consumables and assets.
  • Labor markets: Overall unemployment remains low, however, the broader unemployment rate that reflects those no longer looking or working part time (underemployed) was around 7.7% in October 2024. This would suggest that there are enough workers if higher paying and desirable jobs are available.  This may put some pressure on the hotel and restaurant industry to increase hourly wages to attract good talent.
    The new administration’s immigration policies may also impact domestic produce costs if workers with temporary status (IRCA of 1986 establishing the H-2A/B) are no longer allowed to work in the U.S. However, this is not likely to be the case, as the temporary worker status has been in place and growing since the 1950’s.  If it is determined that there are more workers without proper visas, there could be some impact to the produce industry, and temporary shortages could occur. We don’t expect a major impact for an extended period as these visas are issued based on growing and harvesting seasons.