More and more families with two working parents—as well as ever-busier lives and a booming economy—are driving rapid growth in the quick-service restaurant industry. Last year, for example, growth in overall revenues for these purveyors of burgers, chicken, pizza, and other $4-a-shot meals outpaced both the broader retail category and the S&P 500.1
Yet intense competition, escalating marketing costs, and labor shortages have kept those increasing revenues from dropping to the bottom line. In fact, in the United States, the industry’s market capitalization has grown a good deal more slowly than that of retailers and of the S&P 500 as a whole (Exhibit 1). This unfortunate trend of growth without profits is typified by the Boston Chicken chain, which from 1993 to 1997 opened 1,200 units and built system sales of $1.2 billion, only to file for Chapter 11 last year.
Making money in the restaurant business around the world has always been tough. Now it is tougher than ever. Until recently, the global competition, though intense, involved a small and fairly stable set of players: McDonald’s and Burger King, Kentucky Fried Chicken (KFC), Pizza Hut, and a few other major chains. Today, the competitive field is broader...