Australia’s restaurant and café sector has always been resilient. It has survived pandemics, supply shocks, labour shortages, and shifting consumer behaviour. But in 2026, operators are confronting something different: three structural pressures arriving at the same time-each capable of reshaping the economics of running a venue.
These are not temporary headwinds. They are long-term cost and policy shifts that will influence staffing decisions, pricing strategy, lease negotiations, and ultimately whether venues remain viable.
Across the country, hospitality businesses are adapting quickly. But they also need clarity, coordination, and strong advocacy to ensure the policy environment recognises the realities of operating on margins that are typically below 3%.
Here are the two challenges restaurants and cafés should be watching right now.
Labour costs are rising faster than revenue
Hospitality is Australia’s most award-reliant major industry. Around 40–45% of workers in Accommodation & Food Services depend directly on modern award rates, compared with roughly 20–23% across the broader workforce.
That means when wage settings change, restaurants and cafés feel the impact immediately.
In 2026, operators are facing a convergence of labour cost pressures expected modern award increases of around 4.5–6%, the banning of junior rates for 18–20-year-olds and the introduction of Payday Super from 1 July.
Each of these changes individually would be manageable. Together, they represent a structural shift in employment costs.
For many venues, particularly cafés and casual dining operators employing younger workers, the junior rates case alone could significantly increase payroll expenditure. Add higher than inflation wage increases and compliance complexity under Payday Super, and labour costs begin rising faster than revenue growth.
This is especially challenging in a sector where automation options remain limited. Unlike manufacturing or logistics, restaurants cannot easily replace frontline staff with machines without compromising customer experience.
The result is simple: labour is becoming both more expensive and less flexible at the same time. That creates pressure on rostering decisions, trading hours, hiring pathways for young workers, menu pricing and investment confidence.
Hospitality has long been one of Australia’s largest employers of students, migrants, and young people entering the workforce. Policymakers must recognise that rapid structural cost increases risk reducing those opportunities.
The surcharge ban risks removing a critical pricing tool
Card surcharges have never been about profit. They exist because hospitality businesses operate on extremely tight margins while absorbing unavoidable payment processing costs. Removing the ability to recover those costs transparently does not eliminate them, it simply shifts them elsewhere.
Following the payments review led by the Reserve Bank of Australia, the sector now faces the cold reality that card surcharges are being removed entirely.
Operators now only have two options, absorb merchant fees directly, or increase menu prices across the board. And neither outcome improves affordability for customers.
In fact, removing surcharging often creates less transparency, not more. Instead of customers choosing payment methods with different cost impacts, businesses must embed those costs into base pricing.
That means debit card users subsidise credit card users, cash customers subsidise digital payments and menu prices rise even when payment costs vary.
For restaurants and cafes already managing thin margins, this removes one of the few remaining tools available to respond to rising input costs without blanket price increases. Removing surcharges entirely risks unintended consequences across thousands of small businesses.
Why these pressures matter together
Each of these challenges; increased labour costs and a change to payment rules would be significant on its own. What makes 2026 different is that they are arriving simultaneously.
Restaurants and cafés are already managing elevated food inflation, insurance increases, energy volatility, slower discretionary spending and flat Tourism, workforce shortages, apprenticeship incentive reductions and more red tape.
Layering structural wage increases and reduced pricing flexibility on top of these pressures creates a perfect storm for small operators. Restaurants and cafés make up more than 56,000 businesses and employ over 700,000. They are one of the country’s largest small-business sectors and a major entry point into the workforce. When hospitality struggles, communities feel it quickly.
What comes next for the sector
Despite these challenges, there are reasons for optimism.
Australian hospitality remains innovative, adaptive, and community-driven. Operators continue investing in technology, workforce development, sustainability, and customer experience. But policy settings matter.
To support long-term viability, the sector needs balanced wage decisions that reflect productivity realities, sensible payments reform that preserves pricing flexibility , fair and sustainable leasing frameworks, migration pathways that address workforce shortages and productivity investment support for small operators
Most importantly, the industry needs a seat at the table when decisions affecting its future are made. Because restaurants and cafés are more than businesses—they are social infrastructure. They create jobs, activate neighbourhoods, support tourism, and connect communities.
And in 2026, ensuring their viability has never mattered more.
By Wes Lambert
CEO, Australian Restaurant & Cafe Association (ARCA)
www.arca.org.au