Restaurant operating expenses and their effects on profitability enhancement

Sung Gyun Mun, Soo Cheong (Shawn) Jang

Research output: Journal article publicationJournal articleAcademic researchpeer-review

18 Citations (Scopus)

Abstract

Restaurant firms need efficient cost management strategies due to highly competitive market conditions and the weak financial structure of the restaurant industry. In this regard, the objectives of this study were to examine the operating expenses of restaurant firms and their impact on profitability enhancement by business segment and firm size. This study found that high prime costs (food costs and salary expenses) could be a major concern for full-service restaurant businesses and cause lower profitability compared with their limited-service counterparts. Improving the operational performance of full-service restaurants depends on sophisticated cost retrenchment skills, such as balancing productivity and revenues while minimizing quality detrimental. Further, firm size had an impact due to economies of scale decreasing food costs. Nevertheless, managers of limited-service restaurants, especially large firms, need to consider improving food quality instead of relying on advertising effects to maximize profits.

Original languageEnglish
Pages (from-to)68-76
Number of pages9
JournalInternational Journal of Hospitality Management
Volume71
DOIs
Publication statusPublished - 1 Apr 2018

Keywords

  • Full-service restaurants
  • Limited-service restaurants
  • Operating expenses
  • Prime costs
  • Profitability
  • Restaurant firms

ASJC Scopus subject areas

  • Tourism, Leisure and Hospitality Management
  • Strategy and Management

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