More than 9 in 10 restaurant operators cite labor, insurance, energy, and payment processing fees as significant challenges to profitability.

by Compass Vermont

The Value Gap Widens

Vermonters are joining a national trend of eating out less frequently as the cost gap between restaurant meals and home cooking continues to widen. While this shift has been characterized in regional reporting as customers “ditching” takeout, the numbers reveal a more measured pullback driven by straightforward economics: restaurant prices are rising roughly twice as fast as grocery costs.

The pattern shows up clearly in Vermont’s tax collections. The state’s Meals and Rooms tax revenue came in 2.0 percent below targets for the General Fund and 4.0 percent below targets for the Education Fund, with collections from January through October 2025 running 1.0 percent lower than the same period in 2024. That decline occurred even as restaurant prices were climbing, suggesting Vermonters made significantly fewer restaurant purchases.

The Numbers Behind the Shift

According to the Bureau of Labor Statistics, food away from home rose 4.1 percent in the twelve months ending December 2025, compared to just 2.4 percent for food purchased at grocery stores. That gap represents a fundamental change in the value equation for many households.

The trend affects different types of restaurants unevenly. Full-service restaurant meals saw prices increase 4.9 percent, while limited-service meals and snacks—the traditional takeout category—rose 3.3 percent. For context, meats, poultry, fish and eggs at grocery stores increased 3.9 percent, making home-cooked protein dishes increasingly competitive with restaurant options.

Federal projections indicate the gap will persist. The Economic Research Service predicts food-away-from-home prices will rise 4.6 percent in 2026, while grocery prices moderate to a 1.7 percent increase—a difference of 2.9 percentage points.

Why Restaurant Costs Keep Rising

The restaurant industry faces cost pressures that grocery stores can more easily absorb or avoid. According to industry surveys, more than 9 in 10 restaurant operators cite labor, insurance, energy, and payment processing fees as significant challenges to profitability.

Energy costs hit the Northeast particularly hard. In 2025, utility gas services rose 10.8 percent and electricity costs increased 6.7 percent in the region. These back-of-house expenses get passed directly to menu prices, widening the cost gap even when wholesale food prices remain stable.

Labor markets remain tight, with national industry expectations to add 100,000 jobs in 2026 despite many operators reporting difficulty filling skilled positions. The scarcity has forced wage increases that flow through to final prices.

Vermont’s Compounding Challenges

Vermont’s restaurant sector faces additional headwinds beyond the national trends. The loss of Canadian tourism has emerged as what state economist Tom Kavet termed “a costly unforced error” stemming from federal trade and immigration rhetoric. Canadian visitors historically provided crucial revenue for Vermont restaurants, particularly during shoulder seasons. State economists identified the decline in cross-border traffic as a key factor in meals and rooms tax collections falling roughly 2 percent below targets.

Federal policy changes have also affected Vermont households’ dining budgets. The “One Big Beautiful Bill” expanded work requirements for the Supplemental Nutrition Assistance Program and removed utility deductions for many families, reducing disposable income for low-to-middle income households who traditionally drive the takeout market.

A proposed fast food wage bill introduced in February 2026 would raise minimum pay for workers at restaurant chains with more than 60 locations nationwide to $20 per hour by 2027. Industry analysts suggest this could further increase prices at limited-service establishments, traditionally the most economical takeout option.

Industry Adaptation and Survival Strategies

Despite declining transaction volumes, some Vermont restaurants are finding success through strategic pivots. Chico’s Tacos in Middlesex reported a 65 percent sales increase after relocating from Montpelier to a lower-rent location, demonstrating that overhead reduction can be more effective than price increases.

New concepts are emerging built around cost-conscious models. Instant House in Essex Junction offers a self-serve ramen bar that minimizes labor costs while providing an interactive experience. Poorhouse Pies is expanding its production kitchen and adding a café to meet demand for specialty quiches and pies, focusing on comfort food with local appeal.

Nationally, the restaurant industry is responding with menu strategies designed to justify premium pricing. The National Restaurant Association’s 2026 culinary forecast highlights trends toward smashed burgers, global comfort foods, and high-margin beverages—items that operators believe customers cannot easily replicate at home.

Technology adoption is accelerating as well. Industry reports indicate that 81 percent of consumers are likely to join digital loyalty programs, while restaurants increasingly use AI for demand forecasting and personalized offerings to reduce waste and optimize pricing.

What Happens Next

Vermont’s economic outlook for 2026 suggests the dining cost gap will persist. The Joint Fiscal Office projects that economic growth will be “extremely uneven,” with top income brackets benefiting disproportionately while middle and lower income households face continued pressure.

Meals and rooms tax collections are expected to remain volatile, according to state revenue forecasts, with the sector increasingly dependent on high-end tourism and corporate events rather than habitual local takeout consumption.

The restaurant industry remains optimistic about underlying demand. National surveys show that 7 in 10 consumers report they would use restaurants more frequently if they had more disposable income, suggesting desire for dining out remains strong even as ability to afford it has contracted.

Whether Vermont’s restaurant sector stabilizes or continues contracting will likely depend on three factors: whether the structural gap between restaurant and grocery inflation narrows, whether Canadian tourism recovers, and whether proposed wage legislation passes in a form that allows limited-service establishments to maintain competitive pricing.