What explains profit inefficiency in the restaurant industry? Evidence from Sweden

Author(s):
Boto-Garcia, D.; Demydyuk, G.; Carlbäck, M.
Published
2024
Publication type
Article / Letter to editor

Abstract

This study investigates the drivers of profit inefficiency in the restaurant industry. Assuming

that restaurants operate under monopolistic competition, we first present a characterization of

the factors that explain restaurants’ departure from the profit frontier, focusing on the role of

business experience, number of outlets, service model, restaurant typology, and COVID-19 shock. Based on Stochastic Frontier Analysis, we estimate how these factors explain the differences in profit inefficiency across firms using a panel dataset of 4,128 restaurants in Sweden in the period 2017-2021. We find that the average level of profit efficiency is low (46%). Inefficiency increases with years in operation and is significantly higher among limited-service restaurants and single-outlet firms. Interestingly, no significant difference in profit inefficiency is detected during the COVID-19 pandemic. Our findings provide valuable insights for profit efficiency management.

Profit inefficiencyRestaurant industryCOVID-19Limited-service restaurantsStochastic Frontier Analysis
Date issued
2024-12-03
Language
English
Is part of
Tourism Economics (2024), Vol. 31, no. 8, p. 1572-1597
hdl
1887/4246416
doi
10.1177/13548166241305694