Restaurant Business Model: How Restaurants Make Money

It may seem obvious that the restaurant business model works on the basic idea that serving food equals earning profit. However, the restaurant industry hosts diverse business types—from full-service restaurants to bars and food trucks—so many different restaurant business models exist. In this article, I break down the types of restaurant business models across the food and beverage industry.

What Is a Business Model for a Restaurant?

A business model details how different parts of a business work together to turn a profit. It is the actual structure that ensures your business sells a product that makes money.

A business model for restaurants includes how the restaurant attracts customers, what kind of food it serves, its pricing models on menu items, and how the food will be made efficiently. Understanding different restaurant business models will help you identify the specific food business type you want to invest in, operate, or work for. A restaurant’s business model is not only the key to success but it is also the core of the business.

Key Components of a Restaurant Business Model

Many factors inform your restaurant’s business model. Below are some of the key components of a restaurant business model based on the Business Model Canvas:

• Customer Segments: This identifies the clientele you aim to serve. Food service is personal, and understandingcustomer demographics, price point expectations, and overall value expectations is key.
• Value Propositions: Your value proposition is what you are actually selling to a customer—whether it is food, drink, or another form of dining. It could be a taco from a food truck, a tasting menu from a restaurant, or coffee from a cafe. Knowing the value proposition of your business is important to how you build it.
• Channels: Channels are how you reach and serve your customers. Ghost kitchens do this through online selling platforms. Caterers do this through recommendations and partnerships with local businesses to get their services known to their clients.
• Customer Relationships: Planning how to engage with customers and foster long-term relationships enables continued business success.
• Key Resources: Key resources include the leaders and personnel essential to business operations. Other items would be signature dishes or serving styles, personalized ways of serving food to guests, and any machinery or serving style that adds value to your business’ identity.
• Key Activities: Your business’ key activities are the crucial actions you take to serve the food or drink you offer and make a profit.
• Key Partnerships: Key partnerships refer to your suppliers, vendors, and other businesses you rely on to execute your offerings.
• Cost Structure: Your restaurant costs come from labor, food, taxes, and overhead from your location. These costs must be listed and accounted for so that your model can reflect a profitable business.
• Revenue Streams: Revenue streams are the different ways your business makes money. For example, a restaurant can have a dining room, a food truck, a catering business, and a ghost kitchen. Understanding the different amounts of revenue from these entities and the percentages of each against total revenue is vital.

As you can see, these components need to be thought through carefully. Once you identify the key components of your business, you can build a model that clearly aligns with how you can run a profitable restaurant business.

Traditional Restaurant Business Models

Traditional restaurant business models are business models that have been in the food industry for some time. These models are proven, offer success, and, when followed correctly, can lead to long-term growth within the restaurant industry. Below are three of the most common restaurant business models used today.

Full-service Restaurant Business Model

A full-service restaurant (FSR) business model focuses on offering in-person dining off of a fixed menu. This model invites customers to sit down for a prolonged duration to dine and drink in their establishment (though this model may branch out to takeout or delivery).

• Customer Segments: Focuses on the local community; it can include families, business professionals, solo diners—a variety of consumers of all ages, financial statuses, and backgrounds. This also varies according to your price point.
• Value Propositions: Extends beyond food and drink offerings; customers pay for the experience of dining—service, decor, and atmosphere are as valuable as food quality.
• Channels: On-site, in-person service but can include takeout, delivery, catering, ghost kitchens, and hosted events.
• Customer Relationships: Maintained through guest service, social media presence, value offerings, and consistency in the dining experience.
• Key Resources: Capital funding, restaurant location, management and employees, all intellectual property (e.g., recipes), service style, and restaurant functionality and design.
• Key Activities: Cooking food, serving food, and providing an experience for customers in a food and beverage setting.
• Key Partnerships: Vendors, local suppliers, large-scale distributors, local businesses, and collaborative deals with local food businesses.
• Cost Structure: Based on overhead, labor, and food costs. Major costs are added due to the need for a dining area, prolonged service times, and more staff members.
• Revenue Streams: In-person dining, takeout, delivery, catering, event hosting, ghost kitchen access, and merchandise.
• Full-service restaurant examples: Olive Garden, Lazy Dog Restaurant & Bar, TGI Friday’s

Quick Service Restaurant Business Model

A quick service restaurant (QSR) offers a limited, concise food selection in an environment that is easily accessible and typically not designed for in-person dining. Price points are usually much lower for this restaurant model, and the convenience of speed draws customers in as much as your delicious food.

• Customer Segments: Focuses on working professionals, busy families, single diners, and diners looking for a complete (yet quick) meal.
• Value Propositions: A QSR’s value proposition is offering quality food in a short time at low price points, with returning guests coming back often.
• Channels: Counter service and some in-person dining, takeout, drive-thru, and delivery channels. Other opportunities include sponsorships, merch, brand collaborations, and, in rare cases, consumer packaged goods (CPG).
• Customer Relationships: Customer relationships are built by quick wait times for food, consistent quality in food, and price points that are affordable to most.
• Key Resources: Key resources are your menu, the style of service (think the ordering portals at McDonald’s), capital funding, franchise owners, your management and employees, and the space and location for customers to order and receive their food.
• Key Activities: Fast service of quality food, easy access to takeout orders, and efficient delivery of quality food.
• Key Partnerships: Vendors, suppliers, third-party takeout and delivery apps, local businesses, and some branded marketing opportunities with companies.
• Cost Structure: Focused on overhead, labor, food costs, and management of third-party ordering websites.
• Revenue Streams: Revenue streams come from in-person, takeout, delivery, and sponsored event sales.

Quick service restaurant examples: Burger King, Wendy’s, McDonald’s

Fast Casual Restaurant Business Model

Fast casual restaurants are a step up in quality after quick-service restaurants, offering higher-quality food at a shorter length of time than a traditional restaurant. Food quality is weighed a touch over speed, but speed of service is still a main driver in this model.

• Customer Segments: Working professionals, some families, busy rush hour and lunch hour diners, and diners with more focus on health and quality in their food options.
• Value Propositions: Higher quality food in a speedy timeframe that delivers flavor and the ability to get your food faster than a full-service restaurant.
• Channels: In-person, counter service, takeout, delivery, some drive-thru, and some sponsored events. Other options include merch and branded CPG.
• Customer Relationships: Depend on the speed of service and a high-quality culinary offering. Due to the perceived quality increase, customers are willing to wait longer and pay more for quick service.
• Key Resources: Menu, the style of service (think Chipotle’s ordering style), your management and employees, and the space and location where customers can order and receive their food.
• Key Activities: Fast service of higher-quality food, easy access to takeout orders, and efficient food delivery.
• Key Partnerships: Vendors, suppliers, third-party takeout and delivery apps, local businesses, and some branded marketing opportunities with companies.
• Cost Structure: Costs are focused on overhead, labor, food costs, and management of third-party ordering websites.
• Revenue Streams: Revenue streams come from in-person, takeout, delivery, and sponsored event sales.
• Fast casual restaurant examples: Chipotle, Panera, Shake Shack

Innovative Restaurant Business Models

Innovation is always present in the restaurant and food service industry. Below are some examples of business models for other innovative restaurant business models.

Food Truck Business Model

Food trucks are a great starting point for food entrepreneurs as they require little startup cost and can be profitable with the right model in place. Furthermore, they are mobile, allowing you to meet customers wherever they are.

• Customer Segments: Crowds, sporting events or concerts, foot traffic in busy areas in major cities, and consumers willing to travel for fast and delicious foods.
• Value Propositions: Offers delicious food at affordable prices with an easy-to-access serving style. Many food trucks also specialize in one type of food or cuisine.
• Channels: Limited to walk-up services, catering events with the truck, and sometimes delivery through a third-party app.
• Customer Relationships: Customers relate to food trucks through the novelty of service, brand identity, and food quality.
• Key Resources: The truck or fleet of trucks, the staff on the truck, all brand IP, and any legal certifications to operate the truck.
• Key Activities: Offering cheap, delicious food in a mobile truck that can meet customers where they are.
• Key Partnerships: Vendors, suppliers, business owners that allow the truck to park, local government and regulatory bodies, local businesses, and some catering partners.
• Cost Structure: Depends on food, labor, running the truck, regulatory certifications, local tax on trucks, and the cost of parking the truck in different locations.
• Revenue Streams: Include serving out of the truck, pre-paid catered events, different business partnerships, and merchandise for creative brands.
• Food truck examples: KBBQ, Curry Up Now, The Halal Guys

Subscription-based Restaurant Business Model

A subscription-based model offers customers food regularly at a set price. The food can be a whole meal, whether a preset offering, a side dish, or another item featured along with a paid meal.

• Customer Segments: Diners with more disposable income who can regularly purchase, regulars who love your brand, and diners looking for value.
• Value Propositions: Will offer a set amount of food at a valuable price, garnering customer buy-in and a sense of belonging to a food brand.
• Channels: The base subscription and the subsequent items bought from diners who are there to redeem the subscription.
• Customer Relationships: Offers buy-in to a restaurant brand and allows you to add special items per month to the offering to enhance the subscription experience further.
• Key Resources: Staff, restaurant, social media channels, and marketing to promote the subscription.
• Key Activities: Delivering on the subscription model while also providing the guest with other normal offerings from your business.
• Key Partnerships: Any subscription software you may use to deliver on the subscription, along with general relations, is kept as a standard restaurant.
• Cost Structure: Costs set by the subscription plus general restaurant costs you would find specific to your type of model.
• Revenue Streams: Include set revenues from your subscription plus all other revenue streams added to your business.
• Subscription-based restaurant examples: Panera Bread, PF Chang’s, Taco Bell

Ghost Kitchen Business Model

With the ghost kitchen business model, a business owner operates one or several brands for delivery-only businesses. They are centralized kitchens supporting multiple brands, offering no front-of-house (FOH) experiences, and allowing for cheaper operating costs overall.

• Customer Segments: All customers will order delivery or takeout for certain concepts, so mobile customers are your market.
• Value Propositions: You offer delicious foods to mobile customers. But some of your customers can be restaurant brands that “rent” out your kitchen for a fee, utilizing you and your staff to sell their food on a third-party platform.
• Channels: Through a third-party site such as Uber Eats or DoorDash. Additionally, you could receive orders from restaurants, which will pick up the order directly and deliver it to the customer.
• Customer Relationships: Based on the quality of food and your brand recognition. A ghost kitchen does away with most other relationships, as you will never see or meet your customer.
• Key Resources: Your ghost kitchen space, management, employees, third-party apps, and restaurants/brands you serve out of your kitchen.
• Key Activities: Fulfilling orders for different brands or businesses out of your kitchen.
• Key Partnerships: Third-party delivery sites and any brand or restaurants you cook food for as a ghost kitchen.
• Cost Structure: Focus on labor, food, and only the overhead of the space you cook in. You have relatively lower costs due to only needing a front-of-house and minimal staff members.
• Revenue Streams: Direct fulfillment of orders and also from fees gained from cooking food for other restaurants to then deliver to their own customer base.
• Ghost kitchen examples: CloudKitchen, Future Foods, Kitchen United

Choosing the Best Restaurant Business Model

Choosing the best restaurant business model comes down to a few factors. Consider the points below:

• Customer Experience: Your first decision is the type of customer experience you want to provide to guests who will patronize your establishment.
• Capital and Startup Cost: The costs associated with building out your business model compared to the capital you have access to will determine your model type next.
• Potential Labor Force: To be successful, you have to operate and maintain the different levers in a business model. Success in how you operate comes down to the talent available in your area and the effort you can provide in training your staff.
• Restaurant Management Experience: Your own experience in running a food business, paired with investors’ and co-leaders’ shared knowledge, will determine the best type of restaurant business model you will choose.

In addition to the factors above, consider the businesses you may already own and the region you are cooking in. Your experience and financial means will also often dictate the best one for you in the present moment.

For example, if you are a full-time restaurant owner wanting to diversify your revenue streams, starting a food truck can be a huge win. Or, if you need to learn the basics of a food business model, then catering is an excellent choice, as it can be scaled to achieve more revenue without the overhead costs associated with a traditional restaurant.

How to Use a Restaurant Business Model

Using a restaurant business model is in many ways, like using mise en place when making a recipe in your kitchen—it is simply the components of a business that allow you to make a profit. So, for example, if a restauranteur ever needs to talk to potential investors, they have a baseline format to refer to. It can also be a great tool in selling your business, demonstrating why a potential buyer would want to purchase your establishment.

Once a business model is set, your business plan can then be discussed. The business plan is how you will gain investment and ultimately portray your goals in building a successful business.

The business model is also useful in gauging the effectiveness of your operations as an owner. It maps out where you should be doing well as a business and how you should operate efficiently. This guide can then be used to focus your efforts on areas of the business that may be lacking, and it lets you revitalize those areas to ensure all of your business’s financial goals are being met.

Frequently Asked Questions (FAQs)

Building out a restaurant business model, when done correctly, can be both beneficial and lead to long-term business success. Below are some of the most common questions asked regarding restaurant business models.

Last Bite

As you have learned in this article, it is crucial to know and fully understand the restaurant business model to build out a successful food service business. It shows you the bones of your business and how it makes money while offering a product. Understanding how your business fits the model is key to maximizing your business’ potential and offering the best experience possible to the customers you serve.