Transforming a black hole into a showcase for Italian food
Proposals for Italian commercial catering which continues to lose money despite overtourism.
Despite the global restaurant market being valued at $3.24 trillion in 2023 and expected to double by 2032, profitability remains a mirage for many restaurant chains. While brands like Starbucks post multibillion-dollar profits, others, like Autogrill, struggle with prohibitive fixed costs and negative margins. One of the few sectors with disruptive demand, especially after Covid, that manages to lose or even fail. But how does McDonald's guarantee 44% ebitda and Starbucks 17%? But also the ebitda of Haidilao Chinese chain is 16%, Saiziria 10.8% and Mos 11.2% Japanese, as well as Darden 15.2% and Wendy 25% in the USA. All these chains are indicated by investment banks with valuations ranging betweenstrong buyand thebuy.
But what determines these dramatic variances? Are restaurant chains truly profitable or are they financial black holes? What are the levers to make them profitable? Can Italy afford an entire industrial sector, listed among the country's strategic assets, on the verge of bankruptcy? Let's try to understand the determinants of the crisis in the sector to understand how to intervene.
The rapid growth of the sector is fueled by urbanisation, the increase in disposable income and the convenience sought by everyone but also by young people. Quick service restaurants (QSR) are the ones that are growing the most because they have a low product cost and are fast. Nonetheless, even within this category profitability varies drastically. Regional dynamics play an important role: while North America leads in market size, European chains struggle with high operating costs and Asia-Pacific is the fastest growing region despite being the largest in size.
One of the most significant homogeneous indicators for understanding distances is thecost of goods sold(COGS), which represents around a third of the total cost worldwide. The data analyzed shows how COGS is well managed within the sector, with almost identical percentages between the main chains.
But it is the other cost components that make the business so distant between Italy and the rest of the world.Labour, ancillary services and depreciation or rent dramatically affect the bottom line.The total management cost, therefore net of the cost of the product, is the real terrain where the profitability of companies is at stake. However, despite these favorable margins, there is a stark contrast in actual profitability levels. The largest Italian restaurant chain, Autogrill, recorded a net loss of 19.9 million euros in 2023 despite a very, very strong market position, largely due to high fixed costs.
Naturally the type of format determines the public's expectations and willingness to spend, but can the costs and quality of the service be consistent? Apparently not. There is a minimum level of fixed cost to operate which in countries like Italy does not allow reaching a profit. The rentals of the locations suffer the values expected for luxury and the taxation on the cost of labor doubles the weight on the meals served. Our legislative system has never addressed the problem of labor costs and locations, so in the end a cappuccino and a croissant compete with Cartier jewels and Cucinelli sweaters in terms of absorption of fixed costs on the total cost of the product. Different choices are made in countries like Spain where work in hospitality is tax-free and the contribution part is borne by the state and regions. There are those who consider catering in urban development plans as an indispensable service by limiting or compensating rents that would otherwise make earning impossible.
The strength of fast-food chain restaurants is based on high customer turnover, standardized menus and cost efficiency. Brands like Starbucks and Yoshinoya benefit from strong branding, economies of scale and pricing power that help increase margins and revenue per store. Starbucks, for example, generates around €874,000 per outlet, while Haidilao, a premium hotpot chain in China, achieves a much higher figure of €5.5 million per outlet, thanks to its service-based business model and premium positioning.
Full-service restaurants, on the other hand, operate with higher labor and service costs, which can limit profitability. Unlike Quick Service Restaurants, they rely on experience-based dining rather than efficiency. Saizeriya, a full-service restaurant chain based in Japan, has profitability problems despite maintaining a relatively stable gross margin (Olive Garden, its American restaurant chain counterpart, is experiencing the same situation). The pricing constraints of the Japanese market force menu prices to be reduced, making it difficult to absorb the increase in service costs while maintaining competitive prices (just like Olive Garden).
The net result is that the only companies that earn in Italy are the independent operators who work in the business and are used or forced not to do the math or to make strong compromises on management (the bar owner works 18 hours straight without thinking too much). But when you industrialize the model this flexibility disappears and chains face significant financial challenges, with weak performance across the industry. While some brands have shown some resistance, many continue to seek profitability and battle operational inefficiencies. As seen in the table, only some managed to maintain a positive EBITDA.
De Santis, the historic sandwich shop of the Moratti family, systematically lost from 2015 to 2023 – (-20% of EBITDA) on a turnover of 4.5 million. Sorryhas recorded some improvements after the 10 million euro investment in May 2023, but profitability remains a mirage. While revenues grew at 5.95% CAGR, EBITDA improvedfrom -24.98% in 2022at -6.94%in 2023, still highlighting inefficiencies.California Bakery,despite having reached 8.33 million euros in revenues (+29.01% CAGR) in 2023, it remains profoundly unprofitable, with an EBITDAat -26.14%,a slight improvement compared toat -32.91%of 2022. After the 2019 bankruptcy (8 million euros in debt), Ten Food & Beverage acquired the brand in 2021, introducing vegan options, street food and new locations in Lugano, Bologna and Serravalle.Temakinho, once a leader in the Japanese-Brazilian fusion industry, has accumulatedlosses of 12 millionof euros before being acquired by Mutares, but itsEBITDA of -3.34%in 2023 reflects ongoing difficulties due to declining margins and increasing expenses. Grom, despite an EBITDA of 6.06%, recorded a CAGR of -8.67% in revenues, showing the tiredness of the formula.
This challenge extends beyond a few names. Panini Durini will close all of its locations in 2024, marking the collapse of what was once a growing brand.Caffè Napoli,despite expansion efforts, it has struggled with inconsistent performance. Although revenues grew from 1.22 million euros in 2020 to 2.44 million euros in 2023, the CAGR remains negative (-3.95%). Profitability was fluctuating, withan EBITDA that fluctuated from -44.48% in 2020 to 9.90% in 2023.Although 2023 marks a return to positive EBITDA, the brand has not yet demonstrated consistent financial stability.The Piadineria,despite achieving 11.09% growth in turnover, it recorded a -13.94% decline in EBITDA, indicating growing pressure on margins.
As the table illustrates, while some brands sustain revenue growth, the majority of Italian restaurant chains struggle to maintain profitability. With rising costs and increasing competition in the market, restructuring, cost cutting and business model adjustments will be necessary for these brands to achieve long-term sustainability.
Table 1 presents the financial performances of some Italian restaurant chains from 2019 to 2023.
It is curious to note that even luxury chains such asMarchesi 1824,a high-end pastry shop owned by the Prada Group, show the complexities of premium positioning in the restaurant sector. Despite the strong awareness and attractiveness of the brand and a 31% increase in revenues in 2023 (reaching 26 million euros), it recordedan operating loss of 4.9 million euros.Although Prada estimates double-digit revenue growth for 2024, this case highlights the challenge of balancing branding, pricing and operational efficiency in luxury foodservice.
Profitability in the chain restaurant industry is neither guaranteed nor impossible. Success depends on the ability to control operating costs, leverage branding and strategically position the business model within a competitive landscape.Several key lessons emerge from the analysis of the financial data of the main brands:
Cost controlbeyond cost of goods sold – While food costs remain relatively stable across all chains, service costs, labor expenses and depreciation have a significant impact on overall profitability. Managing these costs efficiently is key to profitability.Operational efficiencymatters – Brands like Starbucks and Haidilao excel through economies of scale, digital transformation and premium pricing strategies. These factors allow them to maintain strong margins despite rising costs.Customization of the format and operating model by sector– QSRs succeed through high revenue and efficiency, full-service restaurants depend on pricing power andtravel chainssuffer due to fixed costs. Adapting to industry-specific challenges can help improve financial results.Customization of the operating model by region– North American brands benefit from scale and brand strength, while European brands face higher costs and slower market expansion. Asian brands, on the other hand, achieve profitability through localization and premium service models.
Although the challenges facing the chain restaurant industry are considerable, the future is not without opportunities.Integrating technology, AI-driven analytics and automation into kitchen operations is already helping brands reduce reliance on labor and optimize supply chains. Digital ordering platforms and loyalty programs are further improving customer loyalty, while sustainability efforts, such as the expansion of plant-based menus and waste reduction initiatives, are becoming key differentiators.
Ultimately, restaurant chains are neither black holes nor automatic profit generators. Their financial success depends on their ability to address complex challenges and capitalize on opportunities for innovation and growth.Brands such as Autogrill, Miscusi, De Santis and Marchesi 1824 demonstrate how operational efficiency, premium prices and strategic adaptability are not sufficient to guarantee profitability.As the industry continues to evolve, adaptive and flexible chains that invest in efficiency, technology and customer-centric strategies are best positioned to gain.
The road ahead may be challenging, but for those willing to adapt, the opportunities are considerable.