Nearly half of the franchisees of Dickey’s Barbecue either closed or sold their store over the past year, according to the company’s most recent franchise disclosure document (FDD).
Franchisees closed 97 restaurants during the company’s 2024 fiscal year, which ended May 31. Another 106 locations were sold to other franchisees, according to the document. That’s a “churn” rate of 46%.
After factoring in openings last year, Dickey’s closed a net of 85 U.S. locations, or about 19% of the chain’s unit count at the start of the fiscal year. The company projects just four new locations this fiscal year.
In an email to Restaurant Business, Dickey’s SVP of Franchise Relations Jeff Gruber said the company’s focus the past year has been to “clean up” and strengthen the Dickey’s brand.
“We listened to our operators and we made the strategic decision to strengthen our core before growing again,” he wrote.
He said the company closed most of its virtual Dickey’s locations and also “terminated” some non-compliant locations as part of a “systemwide cleanup effort.” No terminations were listed in the FDD last year. When asked, Gruber said that the use of the word “terminations” was not intended to be “legalese,” but he stood by the sentiment.
On the high number of sales of restaurants last year, he said, “we put our energy into ensuring the right operators are in each location” and said the company completed several consolidations with multi-unit franchisees looking to expand.
Still, the closures and transfers come during a particularly difficult period for a restaurant industry where bankruptcies and discount sales of restaurant chains have become commonplace.
Dickey’s in particular has struggled in recent years with weak unit volumes and disputes with franchisees.
Dickey’s grew in the years after the Great Recession by selling franchises aggressively across the country. It added an average of 45 new restaurants a year from 2008 through 2017, when it peaked at 564 restaurants.
The Dallas-based chain finished 2023 with $322 million in U.S. system sales, down more than 5% from 2022. Unit volumes were just $675,000, down 3.6%. The company finished its 2023 fiscal year with 451 locations.
But it was down to 366 U.S. restaurants by the end of May this year. That’s the lowest number of restaurants the brand has operated since 2013. Dickey's operates another 19 international restaurants, giving the brand 385 total.
Earlier this month, a four-unit Dickey’s franchisee out of Western Michigan, Smokin’ Dutchman Holdings, declared bankruptcy with $2.1 million in debt and steeply falling revenues.
According to court documents, the company’s revenue appears to be down at least 10% so far this year. The franchisee is also asking the court to reject the company’s franchise agreements with Dickey’s, “to alleviate the debtor from the burden imposed upon it by Dickey’s.”
Dickey’s closed 113 locations in 2018, for instance, most of which were listed as terminations. But it also opened 72 locations that year.
The company promised improved franchise support and more digital sales the next year. But that wouldn’t assuage franchisees for long.
Last year, Dickey’s put the restaurant belonging to one of its California franchisees on the market for $200,000, even though the operator said she did not give the company permission. The price was then lowered to $50,000 and was kept up even after the franchisee complained.
In June, a pair of Dickey’s franchisees, one in Ohio and one in Idaho, sued the franchisor, claiming that the company gave them falsified profit-and-loss statements to convince them to buy into the franchise.
Both of the franchisees, Daniel Unsworth and Jeremy and Nicole Kolbach, claim in the lawsuit they should expect $900,000 in revenues their first year. Yet they say the stores never came close to making the kind of sales that would yield those types of volumes, even on their grand openings.
Gruber called the allegations “baseless.”
Dickey’s in recent years has focused on ancillary, virtual brands run through different affiliates. The company has created a handful of virtual brands that run out of ghost kitchens or other restaurants, including Wing Boss, Big Deal Burger, Trailer Birds, Mac Nifico, Big Bob’s Bakers, Big Edna’s Breakfast and Foxy’s Fine Fries and Tots. There are also 26 virtual Dickey’s locations.
According to the Dickey’s FDD, there are 490 virtual brand locations under the different names, most of which are licensed to kitchens and other restaurants.
Gruber in his email provided a list of efforts the company is making to improve the state of its core restaurants.
He said the company is reimbursing franchisees 1% of their sales if their sales are up monthly. He also said the company is picking up half the cost of public-facing store upgrades, including signage, digital menu boards, catering van wraps and drive-thru menu boards.
He also said the company is paying for advertising and creating regional advertising co-ops to give operators a bigger voice. The brand is planning to launch a new menu.
“Our system is refocused on our barbecue core,” Gruber said. “These are the right moves to ensure the Dickey’s brand and our owner/operators are where they need to be for the long term.”
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