Innovation has become a critical driver of competitiveness and service quality in the restaurant and café industry. Rapid technological developments and evolving customer expectations have encouraged food service businesses to adopt new service processes, digital technologies, and sustainability practices. This study conducted a systematic literature review (SLR) to examine innovation practices in restaurants and cafés and their effects on service quality and competitiveness. Twenty international and Philippine studies published between 2020 and 2025 were analyzed. The findings reveal that global restaurants increasingly adopt advanced technologies such as artificial intelligence ordering systems, robotics, blockchain-enabled supply chains, and digital customer engagement platforms. In contrast, Philippine restaurants and cafés primarily rely on cost-efficient innovations including social media marketing, mobile payment systems, delivery platform integration, and cloud kitchen models. Organizational tools such as benchmarking, service blueprinting, and lean management were also found to support innovation adoption in service industries. Guided by the Diffusion of Innovation Theory, the Resource-Based View, and the SERVQUAL model, the findings indicate that innovation significantly improves service efficiency, customer satisfaction, and business competitiveness. However, the study also highlights the limited adoption of formal research and development systems and patent-based innovation in the Philippine food service sector. The study recommends stronger collaboration between academic institutions and industry, policy incentives to support innovation, and the development of standardized frameworks for measuring innovation in service industries.