In the current restaurant industry landscape, owners must navigate various challenges, including changing customer preferences and high competition. However, the biggest challenge for the U.S restaurant operators in 2026 is overcoming inflation. According to the NRA, both food and labor costs have gone up by 35% in the last five years. Both these costs are major components of the prime cost. Overcoming prime cost requires restaurants to adopt data-driven strategies, tech-powered operations, and employee-friendly practices.  

In this blog, we will discuss the fundamentals of prime cost, industry benchmarks, and effective strategies to minimize it.        

What is Prime Cost?  

Prime Cost is the sum of two major cost factors in the restaurant industry: COGS and labor costs.  

COGS (Cost of Goods Sold): COGS encompasses all direct costs incurred for selling food and beverage items, including raw materials, transportation, and other related expenses.  

Labor Costs: It includes all direct and indirect costs related to your workforce, such as wages, benefits, bonuses, training, uniforms, etc.  

Hence,  

Prime Cost = COGS + Labor Cost

Prime Cost % = (Prime Cost / Total Sales) × 100

This metric tells you the percentage of your sales utilized by food, beverage, and staffing.

Restaurant Prime Cost in 2026: Industry Benchmarks  

The industry benchmark for prime cost is around 60-65% of sales. However, the prime cost depends on the service type. For instance, a full-service restaurant will incur more prime cost than a limited-service restaurant. In any case, it is imperative to keep tight control of the prime cost and not let it go above average. For that, restaurants must ensure that both labor costs and COGS are below their industry averages. For instance, COGS must be less than 30% of sales.  

Why Minimizing Prime Cost Matters in 2026  

In 2026, with the rising minimum wages and ingredient costs, restaurants in the U.S. are struggling to maintain their average profit margin of 5%. Moreover, the restaurant industry deals with the highest turnover rate of over 70%. Because prime cost represents controllable expenses, it’s the first place owners and managers look when profitability tightens. If your prime cost is too high, there’s little left to cover rent, utilities, marketing, equipment, or profit.

Strategies to Control Prime Cost for Higher Profitability

Let’s check out some methods you can adopt to minimize the prime cost in your restaurant.  

Control COGS

According to the National Restaurant Association, as of November 2025, the food price index increased by 1.3% compared to the previous year. As food prices rise, it is becoming increasingly challenging for restaurants to maintain their COGS. Moreover, factors such as supply chain disruptions, climate, and transportation costs are not helping in controlling food costs.

Here are some strategies restaurants must focus on to minimize COGS.  

Portion Standardization

Restaurants can ensure minimum wastage by standardizing portions. They should document recipes and create an SOP for optimum ingredient usage and portion sizes.    

Real-time Inventory Tracking

Operators must regularly track their inventory to identify the items nearing expiry. Moreover, with inventory tracking, they can also evaluate ingredient requirements and avoid overstocking. However, manually tracking inventory can be time-consuming. You can adopt advanced tools that offer real-time inventory tracking.    

Renegotiate Supplier Contracts Regularly

In 2026, supplier loyalty alone isn’t enough. Restaurants that review pricing quarterly, consolidate vendors, or join group purchasing programs are better positioned to offset inflation.

Optimize Workforce Management

Average labor costs can amount to 25-35% of gross sales. Hence, it is vital to minimize labor costs by maximizing their efficiency. Due to poor workforce management, restaurants incur high costs in overtime and wages. On the other hand, a lack of staff on a shift can lead to poor service.  

Hence, restaurants must invest in digital workforce management tools that offer AI-based analysis for data-driven scheduling decisions. These tools analyze the past traffic patterns, employee productivity, and other data points to evaluate the exact shift requirements.  

Focus on Menu Development

Your menu must evolve with external factors, including customer preferences, ingredient costs, and preparation time. You must periodically analyze the menu to identify high-margin / low-margin items, best-selling / least-selling items, etc. You must also evaluate the preparation time for each time to calculate its ROI. For instance, if a complex dish with high preparation time is underperforming, you can decide against continuing with it. On the other hand, a small price rise in high-margin items can boost profits.    

Regularly Track Prime Cost

Operators must track prime cost regularly to identify areas of improvement before it is too late. Moreover, it helps you identify the reason for sudden spikes in prime cost, whether internal or external. Real-time tracking empowers managers to take corrective measures quickly.  

Ensure Employee Retention  

The restaurant industry has one of the lowest retention rates of 55%. It forces restaurants to spend considerable time and resources in training new employees, which increases labor costs. Hence, you must invest in training programs and courses to ensure the workers’ overall development. You should also implement a fair incentive program to reward employees for their hard work. Showing employees that you care can go a long way in increasing retention and, in turn, reducing labor costs.    

Embrace Technology

Adopting new-age digital tools can help you significantly minimize the prime cost. These tools give you 360-degree visibility into prime cost components through advanced data analytics. They also provide AI-powered suggestions to control costs by identifying unusual trends and operational bottlenecks. Another advantage of opting for an AI-native restaurant management platform is that it automates most operations, enabling you to minimize your workforce.        

Cut Down Prime Cost Significantly with NOVA  

NOVA restaurant management solution gives you every FoH and BoH tool you need to run your restaurant efficiently. It is an AI-native platform that automates most restaurant operations, creating a self-functioning ecosystem. Its advanced features and deep data analytics provide you with valuable insights to reduce the prime cost. Get real-time reports, including labor cost, employee productivity, and inventory costs, to make data-driven decisions.      

NOVA helps restaurants optimize:

Order Efficiency

NOVA is a one-stop platform consisting of FoH and BoH tools, including POS, kitchen display systems (KDS), and loyalty programs. Therefore, every order taken on the handheld POS reflects on KDS in real time, facilitating faster order completions and enhanced employee efficiency.  

Workforce Scheduling

With NOVA, payroll management is a cakewalk. NOVA enables you to track employee time, manage breaks and overtime, and assign shifts on a single platform. Optimize employee scheduling and significantly reduce labor costs.

Inventory Management

NOVA enables you to optimize inventory management with real-time inventory tracking. Control food costs with automated alerts and waste reports. Forecast demands based on AI-powered analytics and optimize ingredient usage.

Employee Onboarding

NOVA is an easy-to-use platform, designed specifically for the new generation of workers. Its intuitive user interface allows managers to onboard employees without extensive training, enabling you to cut training costs.  

Tip Distribution

NOVA’s tip manager automates tip distribution, preventing worker disputes. Distribute tips according to your preferred distribution models and ensure employee retention.  

Menu Management

The NOVA platform enables you to customize menus according to your business requirements. The AI-native solution helps you identify the best-selling items and update menu pricing in real-time. Add or remove items as per their ROI to reduce food costs.  

Want to see NOVA in action? Book a free demo now.

Conclusion  

With the rising inflation, operators must keep the prime cost in control. They must analyze their workforce management practices, working conditions, inventory sourcing, and management protocols to keep both labor and COGS below the industry benchmarks. In an era where margins are tighter than ever and customer expectations are evolving, minimizing prime cost can ensure long-term sustainability.

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