New Data Shows Chargebacks Could Be to Blame for High Restaurant Prices
Food and beverage merchants face steep competition and tight margins. According to data from Toast, a point-of-sale system for restaurants, average food and beverage operating margins range between 3% and 5%.
Those slim margins leave little room for error. Even one episode of inventory spoilage or closure due to inclement weather per month can cause a restaurant’s margins to swing into the red. More calamitous events, such as a food safety fine or legal action from a patron, can erode months of profit.
Since covid, many restaurants have pivoted their operations to accommodate third-party delivery services, which helps provide additional revenue. The transition from exclusively brick-and-mortar models into hybrid formats that simultaneously service pickup and delivery orders through online channels and mobile apps has obvious upsides: more customers, greater geographic reach, and the ability to support several dining modalities at once (i.e., in-person, to-go, and delivery). But with more card-not present transactions come new risks, which threaten narrow profit margins.
Card-not-present transactions, meaning neither the payment method nor the cardholder is physically present at the point of sale, are naturally more prone to fraud than the in-person, card-present payments. It’s more difficult to ascertain that the cardholder is who they say they are when they conduct a transaction remotely. It also opens the door to cardholder misuse of the dispute process, an issue 38% of merchants say has impacted the price of their goods or services, according to our internal survey data.
Chargebacks: An Underdiscussed Threat
First-party chargeback misuse (or “friendly fraud”) presents a far greater threat to merchant revenue than the prospect of an unauthorized transaction.
Friendly fraud happens when an authorized cardholder uses their own card to make a purchase and then files an invalid chargeback after the fact to get their money back. It’s a significant threat to merchants in virtually every vertical; according to our data, 74.4% of merchants across all industries express “moderate” or “significant” concern about friendly fraud. A similar proportion, 73.7%, say the problem has gotten worse over the last three years.
Google search interest in friendly fraud hit an all-time high this year. Food and beverage merchants who aren’t aware of the problem are falling behind the curve…and risk being affected by friendly fraud without knowing it.
Restaurants that accept mobile, to-go, and delivery orders are highly susceptible to friendly fraud. And, the merchant doesn't know there is an issue until they receive a chargeback notification from their acquirer.
Here are just a few common examples of first-party chargeback misuse in the food and beverage industry:
- A customer ordered a meal, wanting to try something new, but didn’t like the item chosen.
- A customer uses a third-party delivery service, but the delivery takes too long and the item is cold upon arrival
- A customer disputes their bill because they want a free meal; a “digital dine-and-dash,” if you will.
This is having a profound effect on operators in this space. Although anecdotal, the array of headlines in recent years about popular and otherwise successful restaurants that were forced to close their doors due to excessive chargeback activity testifies to the scale of the problem:
Honest Diners Are Paying the Price
Restaurants are the obvious victims of friendly fraud. Every time a merchant receives a chargeback, it results in lost revenue, lost product, and wasted labor. The merchant also gets hit with a chargeback fee, additional scrutiny from their payment processor, and if enough chargebacks are levied, the inability to process card payments altogether.
Dining establishments that receive occasional chargebacks may choose to absorb those costs themselves. This means even tighter margins for restaurants. Increasingly, however, food and beverage merchants are choosing to pass the costs of friendly fraud onto customers. Our data reveals that 38% of merchants now say that chargebacks influence the cost of their goods and services, up from 32.5% in 2024.
“Fraud of any kind is going to eventually hit consumers in the form of higher prices for goods and services. That includes honest shoppers who play no part in causing the problem.”
– Monica Eaton, Founder and CEO, Chargebacks911
This means higher menu prices, smaller portion sizes, and steeper delivery and service fees for restaurant patrons. Behind the scenes, it may mean other cost-cutting measures, such as a slimmer front- and back-of-house crew, which may lead to slower service and longer wait times.
Merchants can expect friendly fraud to get worse over time. The culprit? The rise of so-called “chargeback culture,” proliferated by unscrupulous social media influencers and forum posters who legitimize invalid chargebacks as a “hack” for free stuff.
Friendly fraud-induced price hikes are often permanent, since restaurants have little incentive to adjust prices downwards once higher prices are set. These steeper prices are universal; they affect all diners, including the vast majority of customers who play no part in causing the problem.
There are longer-term issues here, too. Merchants who pass costs onto diners may be able to preserve margins temporarily, but establishments that raise prices too often (or by too much) risk becoming uncompetitive. After all, operators in the food and beverage space have little pricing power: customers can readily patronize other establishments or stop dining at a particular location entirely, resulting in virtually nonexistent switching costs for diners within the restaurant marketplace.
What results is the potential for a vicious cycle. Restaurants that raise prices in response to friendly fraud risk angering customers, who switch to competitors, leading to further lost revenue. And, as restaurants that are no longer able to compete close their doors, the array of choices for customers gets smaller. In other words: everyone pays the price when chargeback fraud occurs.
Why It’s Hard for Restaurants to Fight Back
What Operators Can Do
Fighting chargebacks is an uphill battle, especially for food and beverage establishments. A tactical focus on best practices that move the needle, however, can help restaurants take a proactive, fraud-aware stance against friendly fraud. Restaurant merchants can:
This whitepaper offers a glimpse at the broader body of data compiled as part of the 2026 Chargeback Field Report. View the full report for additional insights on the state of chargeback management in 2026.
