Challenges and Opportunities in the Restaurant Industry - Harvard Business School MBA Program

Challenges and Opportunities in the Restaurant Industry

Course Number 1564

Senior Lecturer Lena G. Goldberg
Visiting Lecturer Michael S. Kaufman
Spring 2020: Q3Q4: 3 Credits--24 classroom sessions
Three graded class exercises debriefed in class; Exam

Course Overview

This course examines the business parameters of restaurants and the various forces that are changing and disrupting the restaurant industry. We will consider management challenges confronted by restaurateurs ranging from entrepreneurs to such multinational chains as McDonald’s, and evaluate opportunities inherent in typical restaurant business models as well as those created by changes affecting and shaping the industry.

Background.  Everyone eats out. 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, with nearly 60% of adults 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 provide significant management opportunities for women and minorities: in 2018, 57% of first-line supervisors/managers of food preparation and service workers were women, 18% were African American, and 17% were of Hispanic origin. The number of women and minority owned restaurants has been steadily increasing.

Restaurants are also big business. The National Restaurant Association estimates US 2019 restaurant industry sales at nearly $863 billion representing a $2.5 trillion economic impact and approximately 4% of the US gross domestic product, with more than one million restaurant locations across the US, 15.3 million industry employees and a projected 1.7 million new restaurant jobs by 2026. While scaled restaurant operations are frequently featured, interestingly approximately 70% of restaurants are single unit operations. The industry has a 48% share of the US food dollar. Restaurants have also attracted significant interest from venture capital and private equity and the industry has recently spawned a number of “unicorns.”

Despite its pervasiveness and intimate consumer interaction, the industry has been lightly studied.  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 in an industry subject to hugely disruptive forces.

Content: An outline of the course as of June 2019 is as follows:

Economics and Growth will examine the factors that determine profitability and valuation, including actual and theoretical food costs, calculation of the “magic number,” and occupancy costs. 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 also consider the challenge of scale--how to achieve it and how to manage it once achieved.

Labor. 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.

Technology We will examine the increasing challenges restaurants face in assessing, adopting, affording and maximizing the utility of technological changes such as mobile ordering, order tracking, kiosk ordering with upsell capability, fully automated, self-service check-out,  fully integrated POS and kitchen queue systems, and advanced loyalty programs. Which changes are necessary and at what cost? We will also examine the role of technology in addressing issues of food safety.

Menus and Menus of Change. 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. A feature of this module will be a panel of celebrity chefs and a tasting menu that will be presented after the class concludes.

The Future. In our final module we will consider what the future might look like focusing on major disruptors in the industry, including the advent of robotics, delivery services, new entrants including virtual restaurants and delivery only, supermarket and convenience store offerings, and completely automated establishments.

Three classes will be devoted to exercises that students will prepare and submit in advance and debrief before industry experts who will participate in the class. These exercises will be graded.

Grading will based on class participation (35%), the three exercises (30%), and a final exam (35%). Cross registrants will be accepted.  Classes will use the extended sessions on the Y schedule from 1:15 to 3:15 pm;  to provide time for students to prepare for the in-class exercises, class will not meet on  the following Fridays: February 7, 14, 21, and 28; March 27; April 10 and 17.

This course re-positions and replaces the Field Course:Challenges and Opportunities in the Restaurant Industry” listed as FC 6540 for Spring Q3Q4, 2020.