Challenges and Opportunities in the Restaurant Industry
Course Number 1564
27 Sessions
Exam
Note: Andy Pforzheimer (Harvard College ’84) is the co-founder and former CEO of Barteca (Barcelona Wine Bar and bartaco). He is currently a board member of US Foods and multiple privately-owned restaurant groups.
Course Overview
Uniquely within the HBS EC curriculum, this course is industry specific. Despite its pervasiveness and intimate consumer interaction, the restaurant industry has been lightly studied academically. And yet its entrepreneurial and management learnings have broad application beyond restaurants. Sited within General Management, this course explores exactly that.
We will run the gamut from planning for the first restaurant to scaling to leadership of multinational chains, and evaluate opportunities inherent in typical restaurant business models as well as those created by disruptive changes affecting and shaping the industry.
Michael and Andy will co-teach the course using written cases, as well as “live” cases with protagonists facing real-time challenges. We will draw on industry executives, HBS alumni active in the industry, industry investors, and well-known chefs and restaurateurs.
Background. 9 in 10 consumers say they enjoy going to restaurants and half of consumers consider restaurants to be an essential part of their lifestyle. Restaurants are an important source of employment: the industry is the 2nd largest private employer in the US, employing over 15 million people in 2023, with over 60% of adults and 70% of millennials in the US having worked in the restaurant industry at some point in their life and 1 in 3 Americans having their first job experience in a restaurant.
Restaurants have provided significant management and ownership opportunities for women and minorities. Restaurants are also big business. In 2023, US restaurant industry sales exceeded $1 trillion representing a $3 trillion economic impact and approximately 4% of the US gross domestic product. While scaled restaurant operations are frequently featured, interestingly approximately 70% of restaurants are single unit operations. Restaurants have also attracted significant interest from venture capital and private equity and the industry has spawned a number of “unicorns.”
We hope to engage not only with students interested in the restaurant industry, but also those interested in food and sustainability, applications of technology and, given the labor-intense characteristic of restaurants, the complex interaction of food and labor costs with consumer value. The course may also appeal to future consultants, investment bankers and venture capital/private equity professionals, as well as to students interested in general management, particularly regarding an industry subject to hugely disruptive forces and spawning compelling investment opportunities.
Course Content
Restaurant Economics. We will do a deep dive into the levers of financial management of restaurants – examining both revenue and cost strategies.
Compensation and Workforce Management. The execution of restaurant/dining experiences requires a focus on both hospitality and profitability – how can cultures be developed to deliver both consistently? Among the most significant challenges facing the industry are the decreasing availability, increasing cost, and high turnover in the labor force. We will examine the responses of the industry to these issues, especially in light of increasing concerns about how to bridge the gap between consumer willingness to pay/perception of value and the hurdles restaurants face in trying to pay living wages.
Menu Management. Chefs and restaurateurs often say they offer what their guests want to eat but many are also interested in the healthiness and sustainability of their offerings. We will examine whether and how chefs lead or follow trends, how they distinguish trends from fads, what drives their selection of menu items and how they manage their supply chain.
Crisis Management. We’ll consider the critical issue of food safety and the crisis management implications when a foodborne illness strikes.
Disruption/Technology. We will examine how restaurants are assessing, adopting, affording and maximizing the utility of technological changes such as mobile ordering, delivery and advanced loyalty programs. We’ll also consider the rapid growth of “ghost kitchens” and how restaurateurs are developing asset light models providing consumers with increasing choices among brick-and-mortar restaurants and delivered meals.
Growth and Scale. This module will examine the factors that have traditionally determined profitability and valuation. It will consider growth potential and exit strategies for successful restaurants and emerging chains, including the advantages and disadvantages of franchising, institutional investment and leverage. We will consider the challenge of scale – how to achieve it and how to manage it once achieved. In addition, how founders consider a partial or complete exit and the criteria they established for a possible sale, as well as how the markets evaluate a public restaurant company and the factors that drive valuation.
Franchising. How does it work? When does it make sense from both investment and brand perspectives? Recent HBS alums have pursued franchising of quick-service restaurant brands – we’ll study both the challenges and opportunities they encountered. We’ll also view franchising from the franchisor perspective, including when a franchised brand faces unexpected challenges.
Grading will be based on class participation (40%) and a final exam (60%). Cross registrants will be accepted.
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