Cooking up extraordinary growth for restaurants during a downturn

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When customers stockpiled groceries and stayed at home during the darkest days of the COVID-19 pandemic, restaurant businesses suffered. Stoves went cold and chairs were stowed atop tables. Restaurant insolvency rates skyrocketed globally, and many countries in Europe maintained restrictions on restaurants for more than a year. The pandemic reshaped the industry with a once-in-a-century disruption.

The pressure facing restaurants has yet to abate, as the sector brims with new channels and new cost pressures. Supply chain woes, rising rents, labor market imbalances (the doubling of wage rate growth is often the number-one challenge cited by restaurants), and soaring inflation (at its highest rate since the 1970s) are all altering restaurant economics. Meanwhile, consumer attitudes are in flux, and a digital revolution is changing the way business is done.

On delivery apps, small but quick-moving brands are now routinely outperforming larger, more entrenched players—despite being a fraction of the size offline. Virtual brands can be instantly conjured nationwide, hitting peak sales velocities within a few months of their launch. New loyalty programs are attracting more members in one year than their predecessors managed to accumulate over the course of a decade. The heat keeps turning up.

This uniquely challenging environment represents an opportunity: restaurant companies that seize this open-ended moment to innovate and grow can set themselves apart for years to come. Our research tells us—across the board—that making bold, strategic decisions during times of uncertainty can be a winning play.1Strategic courage in an age of volatility,” McKinsey Quarterly, August 29, 2022. In this article, we demonstrate how important profitable growth is for restaurants, and then detail the eight ingredients that comprise a recipe for extraordinary growth. How restaurant companies balance these eight ingredients, and how quickly they mobilize around an integrated growth agenda, could determine their future trajectories.

Profitable growth is the main dish

Generating growth within the consumer sector is never easy. But McKinsey research has shown that growth—especially profitable growth—is imperative for meeting the high expectations of consumer sector investors.2The growth triathlon: Three pathways to extraordinary growth in the consumer sector,” August 17, 2022. Profitable growth is, and will remain, the North Star.

Achieving long-term growth outperformance is elusive for chain restaurant companies. McKinsey analysis of same-store sales growth among a representative sample of 55 chain restaurant brands finds that only 18 were able to outperform the average of their peers for the majority of the ten-year period from 2012 to 2021. Only eight of those brands—or 15 percent—managed to outperform the average of their peers in at least nine of those ten years. And only one brand beat the average of its peers’ same-store growth every year during that time frame.

While growth is difficult to sustain, it is generously rewarded. In examining 15 major publicly traded restaurant companies3—ranging widely across different segments (quick service to full service) and cuisine types (chicken to pizza)—it becomes evident that same-store sales growth serves as a strong indicator for investor returns (Exhibit 1). From 2016 to 2021, there was a more than 80 percent correlation between the annualized same-store sales growth of each of these company’s largest restaurant brands and that company’s annualized total shareholder returns (TSR). Delivering one or two quarters of same-store sales growth didn’t necessarily move the TSR needle—even in the near term—but sustained same-store growth over the period proved critical for consistent TSR success.

Restaurants that grow profitably are rewarded with higher shareholder returns.

Growth alone, however, is still not enough. Accretive growth—meaning growth accompanied by increasing margins—is the special sauce that puts the dish over the top. Large, publicly held restaurant brands4 that drove at least 6 percent year-over-year revenue growth from 2016 to 2021 while increasing EBIT margins enjoyed a nearly fourfold larger TSR boost than those that grew just as fast but with shrinking EBIT margins (Exhibit 2). Illustrating the disproportionate effect of profitable growth: moderately growing companies that still managed to expand margins achieved more TSR growth than did fast-growing companies with shrinking margins.

Same-store sales growth fuels returns for restaurant brands

In seeking profitable growth, there are three avenues that any consumer sector company should explore: strengthen the core of the business (the most developed categories and markets); expand into adjacencies (through innovation or acquisition, in either new categories or new geographies); and ignite breakout businesses (mobilizing resources behind big, disruptive bets).

Specific to the world of restaurants, we have identified eight granular areas of focus that will help maximize those triple-growth pathways in the coming years (see sidebar, “Triple growth and the eight ingredients”). These eight “ingredients” for growth fall into two categories: “front of house” components that engage with consumers to boost revenue and “back of house” components that improve efficiency and reduce costs to provide the foundation and fuel for growth.

Front-of-house ingredients include the following:

  • data-driven marketing
  • revenue growth management
  • store development, footprints, and formats
  • new revenue streams

Back-of-house ingredients include the following:

  • sourcing
  • restaurant operations
  • enterprise organization and operating model
  • technology and analytics

Front of house: Consumer-facing ingredients to boost revenue

Consumer preferences are shifting. Inflation is provoking new approaches to pricing. Much of the world is rapidly embracing digital channels and engagement. Restaurant companies that are slow to adapt to these developments could be left behind. These consumer-facing ingredients in our recipe for growth can help restaurants set the pace.

Data-driven marketing

The fundamentals of marketing in the restaurant sector remain unchanged: companies must create a brand purpose and mission, identify critical moments within customers’ journeys, and then target and engage those customers to encourage repeat business. Old standbys of a strong brand, clear value proposition, new menu items, strong advertising, and constant measurement aren’t going away soon.

What’s new is that digital marketing has opened countless novel pathways for engagement, while also necessitating different kinds of knowledge, capabilities, and tactics. Customer research and targeting powered by digital tools have advanced at lightning speed—often fueled by an agile operating model. Successful chains’ investments in these realms have helped them to generate traffic, conversion rates, and repeat purchases. For example, PizzaExpress launched a “Spin to Win” campaign that leveraged dynamic customer segmentation to offer a range of personalized promotions to customers through social media. The brand saw an 11 percent uplift in revenue over 18 weeks, adding more than one million opt-ins to its customer database. Marketing mixes will continue to shift toward digital channels that allow consumers to be routed directly into a brand’s own digital ecosystem—encountering platforms where they can join loyalty programs, receive hyperpersonalized offers, or immediately order food.

Many of the largest restaurant brands launched new loyalty programs in 2020 and 2021, keener than ever to establish and deepen relationships with their customers. Successful loyalty programs translate directly into financial results, often encouraging both larger order sizes and greater order frequency from program members. These programs can funnel customers into brands’ first-party delivery businesses, which offer the brand higher margins than it receives from orders conducted through third-party delivery services.

The pizza category, led by Domino’s, has been a long-time loyalty success story. But a new digital loyalty program by McDonald’s garnered 26 million customers to sign up within a year after it launched in 2021. And in the first quarter of 2022, Starbucks became the first nonpizza chain to realize more than half of its sales from loyalty members—with Panera Bread not far behind, riding the success of its new subscription-based program.

Revenue growth management

Spurred by cost pressures resulting from inflation, many brands have increased prices to improve unit economics. Responding to near-term pressure is part of the answer. But this traditional, cost-driven approach fails to capture the full opportunity presented by a holistic revenue-growth-management (RGM) program. Holistic RGM strategies involve multiyear plans that create long-term value by harmoniously coordinating not just pricing but also other elements, such as promotions and product offerings. RGM must balance the short-term need to protect profitability with the longer-term goal of broad value creation.

A brand that embraces strategic price-setting and price architecture will identify the products, stores, and day parts with the lowest price sensitivity. But it will also carefully calibrate the price of each item based on that item’s role—whether it is, for example, a core traffic driver or a premium add-on—and flexibly adjust based on hyperlocal dynamics of specific neighborhoods. Pricing can be used to differentiate a brand from its competitors or to encourage specific customer behavior. Strategically built price architecture (in which prices are coordinated with each other in nuanced ways to achieve broader goals) can encourage customers to trade up to more expensive items, establish the right positioning vis-à-vis a competitor, and create welcoming entry price points that help recruit new consumers.

A coffee brand, for example, might focus its price increases on smaller-size beverages as a means of encouraging customers to trade up to larger sizes. Meanwhile, a burger brand, noting that the buyers of its more economically priced offerings are the most price sensitive, might choose instead to raise prices on premium offerings—or build a new ultrapremium tier—to minimize the need for price increases at the lowest price tiers. A company might even adjust prices based on the channel a customer comes through (since customers have demonstrated a willingness to pay for convenience), or vary its pricing in different stores depending on localized demographic factors or the nature of that area’s competition.

As customer-level data improves (aided by digital marketing and loyalty programs), promotions can be increasingly personalized. Each potential customer can be presented with a different, perfectly tailored deal—a process that’s eased when offers are made through digital channels. A lapsed customer, for example, might be given incentive to return, while a brand loyalist might be induced to try a new item. Over time, through analysis of results, these offers can be made with pinpoint accuracy.

During the pandemic, many restaurant brands were forced to simplify their menus or to engineer new menu items around supply chain shortages. Some of these efforts, initiated out of necessity, resulted in improved profitability and kitchen efficiency—thereby proving, once again, the value of menu optimization and innovation. Menus should be frequently reviewed, accounting for customer, operational, financial, and supply chain factors. Limited-time offers of special items can serve as auditions for regular menu spots or be used to stir up seasonal excitement. Popeyes Louisiana Kitchen’s chicken sandwich is a quintessential innovation success story, helping to restore buzz to the brand: sales growth resulted across the Popeyes menu, driving $400,000 in added sales per restaurant between 2019 and 2020.5

Store development, footprints, and formats

Restaurants are expanding the range of store formats they employ, tailoring different formats to different locations. In many cases, they reduce store footprints and redesign layouts to be more conducive to pickup and delivery than to in-store dining. Some go a step further, opting for delivery-only “ghost kitchens” that eliminate the storefront altogether. One ghost kitchen can cook food for multiple (in some cases, virtual) brands, opening up markets that would not have been viable for a single-brand play.

Chipotle Mexican Grill has pioneered another form of footprint reduction: the “Chipotlane” allows car-side pickup through a window but without the menu boards, speakers, or—most important—the frequent delays of a traditional drive-through. Customers order ahead digitally and then enjoy an average pickup time of less than 30 seconds. Chipotlanes boast up to 20 percent higher sales volumes than traditional Chipotle stores.6

For major brands eager to expand beyond core markets, international franchising can be an important development lever. But expanding in haste—with international franchisees that vary widely in quality and commitment—can lead to lower per-store revenue and an elevated store closure rate. Brands that successfully expand internationally prioritize a small number of countries and work closely with franchise partners to understand the local market prior to entry. This kind of collaboration can sometimes result in significant changes to menus, recipes, and positioning—preserving the essence of the brand while adapting to fit local tastes.

New revenue streams

While building a thriving first-party delivery business isn’t easy, it is a quickly scalable way to create a new revenue stream. Many brands initially launch first-party delivery by partnering with an app provider (such as Olo, which focuses on consolidating orders into one place) to create an ordering interface before outsourcing the delivery itself to a white-label service (such as DoorDash Drive). Even brands with first-party delivery forces sometimes use white-label services to provide surge capacity or reduce expenses.

Consumers’ use of third-party delivery services has of course ballooned, with several major platforms experiencing growth of well more than 100 percent between 2019 and 2021. Total gross order value from just the five major delivery app players exceeded $125 billion in 2021, according to McKinsey analysis. Savvy restaurants have negotiated hard with third-party platforms to secure lower commission rates (compared with smaller chains or independents), more prominent placement, preferred access to customer data, and even dedicated delivery capacity.

Some brands have generated new revenue streams through at-home consumption via catering offerings or sales of consumer packaged goods (CPG). Retail sales of packaged Starbucks products reached 300 million global customer occasions per week—aided by the addition of new products in categories such as teas and creamers. Tim Hortons is another retail success story, growing its CPG business sixfold since 2014 and adding hundreds of millions of dollars of top-line revenue.

Back of house: Operational ingredients to improve efficiency and fuel growth

Sourcing costs have exploded, wages have climbed, and it’s become trickier to hire and retain workers. Meanwhile, customers now expect zippy service through a multitude of channels. These behind-the-scenes ingredients in our growth recipe respond to current challenges by improving efficiency, rethinking labor models, and applying technology to every corner of a business.


Input costs such as the price of livestock, chickens, and unprocessed feedstuffs have risen by up to 40 percent above prepandemic levels. EBITDA margins have been squeezed, as many major brands only partially pass on their cost increases to consumers.

Simplified menus—designed with careful consideration regarding the necessary mix and volume of ingredients—can be a first step toward reducing sourcing costs. Some restaurants are taking this one step further and reengineering products to match what is available and can be cost-effectively sourced through their supply chains. Orders from suppliers can generally be consolidated and firmly bargained (through, if appropriate, multiround competitive negotiations). Usage of materials such as paper and plastic can be ruthlessly scrutinized, and chain-wide procurement teams can weigh in on sourcing decisions around expenses such as utilities and building maintenance. Careful attention should be paid to building resilient, sustainable supply chains and a portfolio of diversified suppliers.

Restaurant operations

Improving the operational efficiency of stores can involve efforts such as eliminating food waste, optimizing staff scheduling, and increasing the speed and accuracy of customer order fulfillment. Restaurants need to streamline digital delivery orders, in-car pickups, and drive-through operations—all channels that exploded during the pandemic and remain here to stay. Efficiency improvements can reduce expenses while responding to customer needs.

Rising labor costs and frequent worker shortages—coupled with rapid advancements in technology—are making automation one potential route to operational efficiency, allowing employees to be redeployed to higher-value activities. Robot cooks are finding their way into the kitchens of pizza chains, where they help to automate the pizza-making process from start to finish.7 Some automation approaches help with front-of-house, consumer-facing operations: Chili’s has experimented with rolling robots that can help seat guests and deliver food to tables, while many restaurants allow customers to order and pay using computer kiosks. And in 2021, McDonald’s entered a strategic partnership with IBM to automate drive-through lanes by using AI to understand customers’ spoken orders.8

Some companies are contemplating new ways to optimize what happens on-site versus off-site and are looking for innovative solutions to simplify kitchen operations. For instance, cheese for menu items might be sliced off-site, while the on-site kitchen is treated mostly as a place to assemble finished items.

Enterprise organization and operating model

There are substantial rewards for companies that develop excellent enterprise models. An effective enterprise model instills a culture that rallies behind the organization’s central guiding principles. It then wisely prioritizes, allocating resources toward functions and teams that offer the greatest opportunity and highest returns. An operating model can make or break critical initiatives that require the full enterprise to push in unison.

An operating model can make or break critical initiatives that require the full enterprise to push in unison.

Choosing a specific model can incur trade-offs. Starbucks and Domino’s both employ models that combine the US market with global operations, which boosts efficiency but can encourage US-centric thinking that’s less suited to other markets. Yum! Brands manages its international operations through a separate organization, which helps it tailor strategy to locations but dilutes the benefits of scale. Grouping several brands under one umbrella—as Yum! has done with KFC, Pizza Hut, and Taco Bell—allows sharing of resources and expertise across the organization. Bundled brands can also leverage their collective buying power to lower costs. Consolidation through mergers and acquisitions will be a trend to watch as cost pressures continue.

Some companies are increasingly deriving enterprise-level advantages from their HR departments. An exceptional HR team can support labor attraction and retention, strategically identify superlatively talented personnel, and create a winning corporate culture. In some cases, HR teams’ responsibilities even extend to recruiting, onboarding, and talent-managing franchisee leaders.

Technology and analytics

Data and technology platforms have become invaluable assets for restaurant companies. Industry leaders have invested technology platforms designed to power efficient and automated operations, to encourage customer engagement, and to optimize commercial decisions. Edge computing and connected devices such as sensors enable operators to standardize processes, increase speed, and reduce waste. Powerful customer analytics platforms enable leading players to maximize customer retention, frequency, and average order size through marketing and promotional activities, while lowering customer acquisition costs through improved targeting. Using advanced-analytics tools—powered by scalable databases that often operate in the cloud—a brand can continuously assess outcomes and readjust based on results or predictive models.

Cross-functional teams can be organized around both the front-of-house tech products and services that consumers interact with and the underlying, back-of-house platforms that make it all possible. Getting this right is critical for success and often propels adoption of agile methods in organizational areas outside of technology. Maintaining a robust core tech infrastructure, building out advanced data and analytical capabilities, and staying at the forefront of emerging technological trends will be imperative for growth.

Yesterday’s restaurant winners are not guaranteed tomorrow’s success. We expect the next decade to feature continued fragmentation across the sector. Significant value is at stake—and accelerating performance during a volatile moment could pay dividends for years to come. This moment presents a unique opportunity for brands to lift their trajectories by stirring these eight ingredients into their recipes for growth.

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