Large Restaurant Chain Insight
The pressure is rising on large restaurant chains, many of which took on heavy debt loads during and after the pandemic. Aaron Allen, CEO of Aaron Allen & Associates, a global restaurant consulting firm based in Chicago, says two key factors — competition for capital allocation and unsustainable debt levels — have many brands rethinking equipment purchases as a result.
“So there’s a lot of lenders out there kicking the can down the road because the banks don’t want to run restaurants; they want the restaurants to recover,” says Allen. “It’s now been four, five years, however, and they can’t keep dragging along this way. If they’ve lent out more money than the business is willing or able to repay, that can get nasty.”
An increasing number of restaurant bankruptcies is a likely result, Allen says. And that’s already been happening, as chains attempt to navigate increasing operational and financial challenges. Last year saw brands including TGI Fridays, Rubio’s Coastal Grill, BurgerFi, Buca di Beppo, Tijuana Flats and World of Beer file for bankruptcy protection. By April of this year, Hooters of America, Bar Louie and On the Border had joined them.
Some have since restructured under new equity ownership with plans in the works for comebacks, but bankruptcy attorney Daniel Gielchinsky, in a recent Fox Business report, predicted more filings to come and a significant amount of unit closures as the industry struggles to manage heavy debt accumulated during the pandemic.
“Debt is weighing on finances for companies’ future growth potential because of the cost of capital now and shifts in terms of where to get the best returns for capital,” Allen adds. One implication, he says, is that equipment is a hard sell right now.
“At the start of 2024, we saw quite a few companies looking to redesign their kitchens to be more efficient, but even in just the past 12 months the means of doing that has changed so dramatically,” Allen says. “And things like robotics, AI and other tech advancements have many operators rethinking putting a lot of money into big stainless-steel boxes. A lot of foodservice equipment hasn’t kept pace with advances that are happening in other forms of enterprise technology and equipment, where there’s a very different level of capital investment and innovation going on. So, unless it’s a startup that’s growing quickly or a brand’s equipment is absolutely defunct, there’s not going to be a lot of, ‘Oh hey, we need this $20,000 piece of equipment in all 2,000 of our stores.’ That’s not in the cards for at least the first half of this year, maybe more.”
Tony Maldonado
State of Mind
Tony Maldonado
Senior Vice President of Construction & Design
Parent company of Auntie Anne’s, Carvel, Cinnabon, Jamba, McAlister’s Deli, Moe’s Southwest Grill, and Schlotzsky’s
Atlanta
We’re proactively addressing industry-wide inflationary pressures impacting our supply chain and franchisees, particularly in equipment and supplies, by strategically innovating rather than merely reacting. For example, we recently debuted Jamba’s new ‘Hello Sunshine’ prototype that showcases such strategic innovation with a value-engineered design. By standardizing our design and equipment specifications, we’re able to more accurately predict demand, which allows us to negotiate more favorable pricing with suppliers.
This isn’t just about cost reduction; it’s about building resilience into our supply chain. And GoTo Foods’ emphasis on operational efficiency — through prototype features like streamlined grab-and-go areas and self-order kiosks — directly translates to reduced labor costs and faster throughput, which are essential in today’s tight labor market. We’re also proactively exploring alternative materials and suppliers to secure competitive pricing without compromising on quality across the GoTo Foods platform.
As for development, we’re strategically navigating a complex landscape by ensuring our targets remain adaptable. Our development team is also introducing new incentives to drive further growth. While we remain committed to our long-term growth objectives, we’re prepared to adjust projections based on market dynamics.
Reason for optimism: Recognizing the industry’s challenges with inflation and supply-chain disruptions, we are evolving our business models to stay ahead.
