Lesson 1 of 3 Last reviewed 28 September 2026 10 min
How restaurants and food service make money
Restaurant formats, the franchise model, delivery aggregators, and an approximate cost breakdown built around prime cost.
Industry brief, with a one-minute summary: Restaurants and food serviceFirm processes and online tests change from year to year and differ by office. Use this to prepare, and confirm the exact current steps on the firm's own careers page.
Key takeaways
- A restaurant turns ingredients and staff time into meals, using a fixed space.
- Quick service restaurants (QSR): fast food with counter or drive-through service, a short menu, and low prices.
- Fast casual: higher quality ingredients, counter service, slightly higher prices.
- Casual dining: table service, a larger menu, and alcohol in many countries.
Key idea
A restaurant turns ingredients and staff time into meals, using a fixed space. Profit depends on keeping food and labour costs (prime cost) under control and on filling the space as many times as possible each day.
The main formats
- Quick service restaurants (QSR): fast food with counter or drive-through service, a short menu, and low prices. Examples: burger, fried chicken, and pizza chains.
- Fast casual: higher quality ingredients, counter service, slightly higher prices.
- Casual dining: table service, a larger menu, and alcohol in many countries.
- Fine dining: high prices, many staff per guest, small volume.
- Cafes and coffee chains: drinks with high margins and many small transactions.
- Cloud kitchens (dark kitchens): kitchens with no dining room that cook only for delivery.
- Contract catering: companies that run canteens for offices, schools, hospitals, and events under multi-year contracts.
How money is made
- Company-operated restaurants: the brand owns and runs the restaurant and keeps all sales and all costs.
- Franchising: a local owner (the franchisee) pays to use the brand. The brand (franchisor) earns an upfront franchise fee and an ongoing royalty, usually a percentage of sales, and the franchisee pays into a shared marketing fund. Some franchisors, such as McDonald's, also own or lease the property and collect rent.
- Master franchise: one company holds the rights for a whole country or region and opens or sub-franchises restaurants there. Americana Restaurants runs brands such as KFC and Pizza Hut in many Middle East and North Africa markets; Jubilant FoodWorks runs Domino's in India.
- Delivery: orders through the restaurant's own app, or through delivery aggregators (platforms that list many restaurants and send riders). Aggregators charge the restaurant a commission, often a large percentage of the order value.
- Restaurant profit
- Sales
- Dine-in: seats x turns per day x average spend per guest
- Takeaway and drive-through: transactions x average ticket
- Delivery: orders x average order value
- Costs
- Key: Prime cost: food and packaging plus labour
- Occupancy: rent, service charges
- Other operating costs: energy, marketing, delivery commissions, maintenance
- Royalty and marketing fund, if franchised
| Line | Approximate share of sales | Comment |
|---|---|---|
| Food and packaging | 28 to 33 percent | Higher for premium ingredients, lower for drinks and coffee |
| Labour | 25 to 32 percent | Wages, benefits, and staff meals; rising in many markets |
| Prime cost (food plus labour) | 55 to 65 percent | The first number a restaurant operator checks |
| Occupancy | 6 to 10 percent | Rent in malls, airports, and city centres is higher; high-volume chains can be lower (Chipotle about 5 percent in 2025) |
| Other operating costs | 10 to 15 percent | Energy, marketing, card fees, repairs, delivery commission |
| Restaurant-level margin | 10 to 20 percent | Before head office costs, depreciation, and royalties; the best chains sit above (Chipotle 25.4 percent in 2025) |
So-what
If prime cost rises 3 points, a restaurant can lose a quarter of its profit. Top chains such as Chipotle earn more because very high sales per restaurant spread rent and staff over more meals.
Key metrics
- Same-store sales growth: sales growth in restaurants open in both periods (the restaurant version of like-for-like).
- Average unit volume (AUV): average yearly sales per restaurant.
- Prime cost percentage: food plus labour cost, divided by sales.
- Table turns: the number of times each seat is used in a service period (covers divided by seats). A cover is one guest served.
- Average check (ticket): sales divided by transactions or covers.
- Speed of service: for drive-throughs, cars served per hour.
- Delivery mix: the share of sales that comes through delivery.
Check your understanding
What is prime cost in a restaurant?
Terms in this lesson
Sources for this lesson (2)
- Recognized public explanations of case-interview concepts and frameworks
- Chipotle Mexican Grill: fourth quarter and full year 2025 results (February 2026)
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