Transforming a black hole into a showcase for Italian food

Proposals for Italian commercial catering that continues to lose money despite overtourism

Despite the global restaurant market being valued at $3.24 trillion in 2023 and projected to double by 2032, profitability remains elusive for many restaurant chains. While brands like Starbucks post multibillion-dollar profits, others, such as Autogrill, struggle with prohibitive fixed costs and negative margins. It is one of the few sectors experiencing disruptive demand, especially post-Covid, yet still manages to incur losses or even fail. But how does McDonald’s maintain a 44% EBITDA margin while Starbucks achieves 17%? Similarly, Haidilao, a leading Chinese chain, reports 16%, Saiziria reaches 10.8%, and Mos Burger posts 11.2% in Japan, while in the U.S., Darden maintains 15.2% and Wendy’s achieves 25%. All these chains are rated as “strong buy” or “buy” by investment banks, reflecting confidence in their financial performance.

What causes these dramatic differences? 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—considered one of the country’s strategic assets—to be on the brink of bankruptcy? To find solutions, it is essential to understand the determinants of the crisis in the sector.

The sector's rapid growth is fueled by urbanization, rising disposable income, and the demand for convenience, particularly among younger generations. Quick Service Restaurants (QSRs) are the fastest growing due to low product costs and quick service. Nevertheless, even within this category, profitability varies dramatically. Regional dynamics play a role: while North America leads in market size, European chains struggle with high operating costs, and Asia-Pacific is the fastest growing despite being the largest in scale.

One of the most significant homogeneous indicators for understanding these differences is the Cost of Goods Sold (COGS), which accounts for about one-third of total costs worldwide. Data shows that COGS is well managed across the industry, with similar percentages among the major chains. 

However, other cost components create significant disparities between Italy and the rest of the world. Labor, ancillary services, and depreciation or rent dramatically affect the bottom line. The total cost of ownership, excluding the cost of the product, is the real battleground for business profitability. Despite favorable margins, Italy’s largest restaurant chain, Autogrill, reported a net loss of €19.9 million in 2023, despite a strong market position, largely due to high fixed costs. 

While the format influences consumer expectations and willingness to spend, cost consistency and service quality remain inconsistent. In countries like Italy, the minimum operating fixed cost prevents profitability. Location rents reflect luxury expectations, and taxation on labor costs doubles its impact on the cost of meals. The legislative system has not addressed labor and rental costs, leading to a situation where a cappuccino and a croissant compete with Cartier jewelry and Cucinelli sweaters in terms of fixed costs. In contrast, Spain exempts labor in hospitality from taxes, with contributions covered by the state and regions. In some countries, urban development plans consider restaurants as essential services, imposing rent caps or offering subsidies to ensure profitability.

The success of fast food chains is driven by high customer turnover, standardized menus, and cost efficiency. Brands such as Starbucks and Yoshinoya benefit from strong branding, economies of scale, and pricing power, which increase margins and revenue per store. For example, Starbucks generates around €874,000 per store, while Haidilao in China achieves €5.5 million per store due 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 rather than efficiency-based catering. Saizeriya, a full-service restaurant chain based in Japan, is experiencing profitability problems despite maintaining a relatively stable gross margin (Olive Garden, its U.S. chain of counterpart restaurants, is experiencing the same situation). Price constraints in the Japanese market are forcing menu prices down, making it difficult to absorb rising service costs while maintaining competitive prices (just like Olive Garden).

The net result is that the only realities that make money in Italy are the independent operators who work in the establishment and are either used to or forced to make strong compromises on management (the bar owner works 18 hours straight without thinking much about it). 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 resilience, many continue to seek profitability and struggle with operational inefficiencies. As seen in the table, only a few have managed to maintain positive EBITDA.

De Santis, the Moratti family's historic sandwich shop, systematically lost from 2015 to 2023 --(-20% EBITDA) on sales of 4.5 million.Miscusi has seen some improvement after its 10 million euro investment in May 2023, but profitability remains a mirage. While revenues grew by 5.95 percent CAGR, EBITDA improved from -24.98% in 2022 to -6.94% in 2023, still showing inefficiencies. California Bakery, despite reaching €8.33 million in revenues (+29.01% CAGR) in 2023, remains deeply unprofitable, with EBITDA at -26.14%, a slight improvement from -32.91% in 2022. After bankruptcy in 2019 (€8 million 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 sector, racked up losses of 12 million euros before being acquired by Mutares, but its EBITDA of -3.34% in 2023 reflects continued difficulties due to falling margins and rising expenses. Grom, despite an EBITDA of 6.06%, recorded a CAGR of -8.67% in revenues, showing formula fatigue.

This challenge extends beyond a few names. Panini Durini closed all its locations in 2024, marking the collapse of what was once a growing brand. Caffè Napoli, despite expansion efforts, has struggled with inconsistent performance. Although revenues have grown from 1.22 million in 2020 to 2.44 million in 2023, the CAGR remains negative (-3.95 percent). Profitability has been up and down, with EBITDA fluctuating 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. La Piadineria, while achieving 11.09% growth in sales, recorded a decline in EBITDA of -13.94%, indicating increasing pressure on margins.

As the table illustrates, while some brands are sustaining revenue growth, most Italian restaurant chains are struggling 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.

	EBITDA % (2023)	CAGR (revenue)	CAGR (EBITDA)	Net Profit
Temakinho	-3,34	-8,26%	-5,93%	-5.110.921
Miscusi	-6,94	5,95%	-2,78%	-414.729
Caffè NAPOLI	9,90	-3,95%	-1,75%	96.625
Grom	6,06	-8,67%	-2,37%	867.264
Poke house	1,38	49,59%	-24,78%	-19.189.457
California bakery	-26,14	29,01%	-26,05%	-3.415.104
La piadineria	5,93	11,09%	-13,94%	-4.042.000
Cioccolati italiani	0,06	-8,84%	-61,83%	-532.171

Table 1 presents the financial performance of some Italian restaurant chains from 2019 to 2023.

Interestingly, even luxury chains such as Marchesi 1824, a high-end patisserie owned by the Prada Group, show the complexities of premium positioning in the restaurant industry. Despite strong brand awareness and attractiveness and a 31 percent increase in revenues in 2023 (reaching 26 million euros), it posted an 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 catering.

Profitability in the restaurant chain business 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 an analysis of the financial data of major brands:

• Controlling costs beyond cost of sales - 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 efficiency matters- Brands such as Starbucks and Haidilao excel through economies of scale, digital transformation, and premium pricing strategies. These factors enable them to maintain strong margins despite rising costs.
• Customizing format and operating model by industry - QSRs succeed due to high turnover and efficiency, full-service restaurants depend on pricing power, and travel chains suffer due to fixed costs. Adapting to industry-specific challenges can help improve financial performance.
• Customizing 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 opportunity. The integration of 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 meeting complex challenges and capitalizing on opportunities for innovation and growth. Brands such as Starbucks, Haidilao and Marchesi 1824 demonstrate how operational efficiency, premium pricing and strategic adaptability are not enough to ensure profitability. As the industry continues to evolve, adaptive and flexible chains that invest in efficiency, technology and customer-centric strategies are the ones best positioned to make gains. The road ahead can be challenging, but for those willing to adapt, the opportunities are considerable.