Among his fellow Dickey’s franchisees, Krage Fox was known as a “company man.” He operated four locations. Those locations had been performing well, above the system average. And Fox believed the brand had plenty of potential. “I was bullish,” he said.
He's not as bullish these days. In September, Fox’s company, Smokin’ Dutchman, filed for bankruptcy, its revenues plunging 20% this year. In court filings, the franchisee blamed “extreme and unreasonable demands” from Dickey’s on the operator for driving the company into bankruptcy.
In some respects, Fox is one of the lucky ones, because his stores are still open. Franchisees of the barbecue chain closed 85 locations in the 12 months ended May 31, according to the company’s franchise disclosure document, or FDD. Another 106 stores were sold from one operator to the other. That means 45% of the chain’s stores changed hands or closed in just one year.
According to franchisees, another 30-plus locations have closed in the months since then. That means as many as 28% of the chain’s stores have closed just in the past 18 months.
The problems come during a brutal operating environment for much of the industry. Rising costs for food and labor, and then weak sales more recently, have doomed operators. It is the same brutal operating environment that has led to bankruptcy filings with numerous restaurant chains, including several fast-casual chains that were once considered hot concepts.
Yet interviews with about a dozen Dickey’s franchisees, details from legal filings and numerous comments submitted to federal regulators all suggest that the challenges this year have exacerbated problems in a system that has long had difficulty with high numbers of store closures.
Operators complain that it’s difficult to generate a profit in the Dickey’s system. They complain about cost overruns on new unit openings, high costs for food and supplies from Dickey’s company-run supply chain subsidiary, frequent discounts on digital orders and pricing limits from the franchisor.
Add it all together and the result is a system in which franchisees are closing locations at a rapid rate.
“Some locations are viable,” Robert Zarco, an attorney who represents a number of Dickey’s franchisees and the independent franchise association, said in an interview. “But very few. Seventy to 80% are shutting down.
“The whole business model is simply not working.”
Restaurant Business sent a detailed list of questions to Dickey’s, which simply responded that everything we asked was “false” and referred the matter to their attorneys.
The attorney responded with a letter that blamed the issue on a “small, fringe circle of former and current franchisees who, along with a group of trial lawyers, are designed to generate animosity and drum up new plaintiffs’ cases.” The letter also accuses Restaurant Business of being “part of a larger scheme to continue to flame and embolden this group to harm the numerous other franchisees in the [Dickey’s] system.”
In a subsequent meeting, the attorney again refused to answer any of our questions.
In the past, however, the company has said it is working to improve sales at its core barbecue concept, including more advertising and plans for a new menu.
Closures and lawsuits
Dickey’s was founded in 1941, when Travis Dickey opened a barbecue restaurant in Dallas. The company started franchising in the 1990s.
But its unit count soared as the brand took advantage of consumer affinity for fast-casual chains. It went from 115 locations in 2010 to 567 in 2017, when it was the country’s largest barbecue chain.
Members of the Dickey family remain heavily involved in the company. Roland Dickey, son of Travis, is the chairman. His son, Roland Jr., is a director and former CEO who currently serves as chief executive of Dickey’s holding company, Dickey’s Capital Group. Cullen Dickey, another son, is a director. Roland Sr.’s wife, Maurine, is on the board. Roland Jr.’s wife, Laura Rea Dickey, currently serves as the CEO.
Problems emerged before the pandemic. In 2018, Dickey’s closed 113 locations through a combination of terminations and outright closures.
System sales declined 5.2% last year, according to Restaurant Business sister company Technomic. Between 2018 and May of this year, Dickey’s franchisees have closed 140 restaurants, according to Technomic. That doesn’t include the 30 or so restaurants franchisees said have closed since May.
Dickey’s generated $675,000 in average unit volumes last year, according to Technomic. That was the lowest average unit volume of any fast-casual restaurant chain on the consulting firm’s Top 500 ranking. That was lower than the volumes generated by Boston Market, which closed most of its restaurants that year.
Dickey’s has faced several different lawsuits over the years, largely from franchisees over alleged violations of franchise rules, including at least six over the past two years.
That includes a lawsuit filed in June against Dickey’s and the lender Luminate Bank, which helped steer franchisees into SBA-backed loans to develop new locations. Those lawsuits are still open.
Dickey’s has faced several other legal issues with franchisees dating back to 2016, settling or paying out awards handed down by an arbitrator a half-dozen times, according to the company’s franchise disclosure document, or FDD.
In 2019, more than half of the chain’s franchisees said their stores were not profitable in 2018, according to a survey by the Pit Owners Association, an independent group of Dickey’s operators. Eighty-four percent said that their investment in the brand and its return on investment did not meet expectations, and 77% said that the company doesn’t purchase food and supplies with franchisee profitability as their top priority.
Another recent survey of franchisees, shared by a group of operators with Restaurant Business, illustrates some of the losses owners are complaining about. That survey was smaller, with only 36 respondents. But 80% said they were losing money.
Most of those who answered the question said they were losing $5,000 to $10,000 per month, though two said they were losing $20,000.
“Sometimes it is cheaper to stay open just to lose less money because by closing down your fixed costs exceed the variable income that’s coming in.” —Robert Zarco, attorney for Dickey's franchisee association.
Falling sales, closing stores
As stores lose money, franchisees often face a difficult choice.
Many work furiously to keep things going, even when their store isn’t profitable, Zarco said, because it’s less of a problem than if they were to close the store.
Let’s say a store generates $40,000 in revenue per month. Its food and labor costs $30,000. But fixed costs, including the lease on the location and the debt taken out to buy or build the store, cost another $20,000. The store loses $10,000 per month.
Closing the store might save those $30,000 in food and labor costs, but those $20,000 in fixed costs remain. So franchisees often scramble to get bills paid and take other jobs or rely on spouses to make ends meet.
“They’re losing less money than if they shut down and they pay fixed costs,” Zarco said. “Sometimes it is cheaper to stay open just to lose less money because by closing down your fixed costs exceed the variable income that’s coming in.”
But that’s also where sales declines can make that brutal decision easier. Fox’s stores, which remain above average, saw revenues decline 10% to 20% this year, according to court documents. Several other franchisees said their sales have fallen this year.
One franchisee showed us an accounting for sales on a Wednesday earlier this month. They made $173.
The sales challenges are a major factor in the closures, franchisees said.
Last month, the operator of a Dickey’s in Downey, California, closed the restaurant’s doors and filed for Chapter 7 bankruptcy. The franchisee owes $330,747 in loans backed by the U.S. Small Business Administration, loans that require operators to put up a personal guarantee, such as a home.
When SBA loans fail, franchisees can lose their homes. That’s what happened with Jeremy and Nicole Kolbach, who defaulted on a $600,000 government-backed loan after their Idaho Dickey’s closed. They’ve since moved to California.
To be sure, Dickey’s is hardly alone in facing a high rate of closures this year. Sales declines have been common throughout the restaurant industry in 2024. Those sales declines followed a difficult 2022 and 2023 as soaring costs for food and labor hurt the profitability of many different brands.
The result has sent numerous restaurant chains into bankruptcy, including several fast-casual brands. And some companies that avoided that fate, such as MOD Pizza, were sold to bargain-hunting investors at cheap prices. It has also led to closed stores in all kinds of brands.
Nevertheless, the closures and sales declines appear to be affecting Dickey’s revenue.
The company’s corporate franchise revenue declined 12.5% last year and is down 24% over the past two years, according to the company’s FDD. Dickey’s has reported losses in each of the past three years, including a net loss of $3.2 million last year, though that has narrowed in each of the past two years.
Buildout costs
One of the policies franchisees complain the most might be the company’s franchising strategy itself. Operating a barbecue restaurant can be difficult.
“It was overbuilt and didn’t have the structure to support it,” said one multi-unit franchisee. “And a lot of these owners are just not qualified.” Most franchisees we spoke with would only speak on condition of anonymity, fearing reprisal from Dickey’s.
One of the biggest issues is the cost of building a new location. Several franchisees, through legal documents, in FTC comments, in interviews and in responses to various surveys, said that building a new location costs more than has been listed on Dickey’s franchise disclosure documents.
The lawsuit against Dickey’s and Luminate Bank, by the Kolbachs and former Ohio franchisee Danny Unsworth, spells much of that out. Dickey’s current FDD lists the estimated buildout costs for a new unit at between $432,500 to $516,200.
Yet many franchisees we’ve spoken with have paid a lot more than that. The June lawsuit, which also mentions the SBA lender Luminate Bank, said that actual cost of buildout was $800,000 to $1 million.
That is backed by several franchisees who said in interviews that they paid more than they expected to open their restaurants, including some that paid at least $800,000. Multiple franchisees have echoed similar complaints in documents filed with the FTC.
Dickey’s has yet to file a response to the lawsuit, though it is asking the court to send the case to mediation or arbitration. The company has denied the charges in the complaint in a prior interview with Restaurant Business.
Luminate, meanwhile, is requesting a dismissal, saying that the franchisees’ arguments “all fail as a matter of law.”
“Plaintiffs are unhappy with the performance of their barbecue restaurants, so they are now trying to walk away from their contractual obligations and be relieved of their obligation to repay the funds they borrowed from Luminate,” the bank said in its motion.
The cost of buildout is key because it can determine the profitability of a location and an excessive buildout cost can drain franchisees of excess cash or savings and lead them to take on more debt than they can handle.
One franchisee we spoke with, whose store was among the system’s better performers, said they couldn’t make a profit because they had to pay $12,000 per month to repay a $900,000 SBA loan.
“This upfront underfunding puts many franchisees so far under the water they can never recover,” the Pit Owners Association said in its letter to the FTC.
“If you’re an operator that knows what you’re doing, you can make it work. As long as you don’t overspend on the build.” —A multi-unit Dickey's franchisee.
Projections and costs
Dickey’s has also worked aggressively to get new operators into stores that are put up for sale. The Kolbachs’ store was sold for $30,000 after it closed, according to court documents. Dozens upon dozens of stores have been sold on the secondary market.
Sometimes the franchisee doesn’t even know. Last year, Restaurant Business told you the story of Gwen Bassett, whose Napa, California, store was put on the market for $200,000 without her permission, and then lowered to $50,000.
Yet even operators who buy their stores for relatively low prices sometimes end up failing. One franchisee we spoke with bought their store for $125,000 but closed after just 14 months. “We never made anything,” the operator said.
Not everybody we spoke with is struggling to generate a profit. Some do say the system can work so long as franchisees get in at lower prices and have some experience.
“If you’re an operator that knows what you’re doing, you can make it work,” one multi-unit franchisee said. “As long as you don’t overspend on the build.”
Still, many operators cite Dickey’s costs, fees and other issues for the difficult profitability.
Many of the vendors franchisees do business with are in fact subsidiaries of the company itself, according to the company’s FDD.
Franchisees, for instance, pay a monthly fee for a point-of-sale system called Spark that they are required to use.
Spark is a Dickey’s subsidiary. Dickey’s generated $2.6 million from franchisees for those fees in the company’s last fiscal year, according to the FDD.
Dickey’s has two subsidiaries that sell different food and paper products to operators, including Wycliff Douglas Foods and Wycliff Douglas Provisions. Those two companies generated $21.3 million in the last fiscal year, revenue generated through sales to franchisees, according to the Dickey’s FDD.
Add it all together, plus another $3.6 million in credits and payments from vendors, and Dickey’s in the last fiscal year took in $27.5 million in revenue through its supply chain and technology subsidiaries, according to the FDD.
By contrast, Dickey’s took in $28.3 million in revenue from franchise royalties, fees and ad fund contributions, meaning the company relies nearly as much on selling product to operators as it does on taking franchise royalties, according to the FDD.
Still, much like the royalty revenue, the funds generated by those subsidiaries is also down, having declined 9% during the company’s last fiscal year.
Dickey’s tried operating another subsidiary, called Stanford Sonoma, which sold wood pellets and interior furnishings to operators. That company filed for bankruptcy last year, after one of its creditors won a lawsuit against the subsidiary and took steps to garnish its bank account, according to court documents.
Some franchisees argue that Dickey’s company-run supply chain led to excessive food costs. Some operators said their food costs were up by 40% or more, though some sourced their own products that cut those costs down.
Many say they can source Dickey’s own products cheaper at Walmart or Sam’s Club. At Walmart, a bottle of Dickey’s barbecue sauce costs just under $3 per bottle. One operator said in an FTC filing that their cost for sauce amounted to $5 per bottle. Other franchisees we spoke with agreed with that estimate.
The Pit Owners Association noted in its comment that Wycliff will ship some common items via FedEx to operators outside the Dallas area, which can double the cost for franchisees.
Discounts, royalties and fees
Last year, meanwhile, Dickey’s capped menu prices, which the company said was legal. Several owners said that made it difficult for them to offset rising food and labor costs, though one operator said that they still had enough freedom within those caps to adjust prices.
Dickey’s sometimes runs discounts for digital deals, a common strategy employed by fast-food chains, particularly in 2024. Franchisees said the company routinely gave out free sandwiches, for instance.
Third-party delivery services will also run promotions, and Dickey’s requires operators to use the services and to pay fees to be listed prominently on the apps.
Sometimes these discounts can undercut in-store prices, operators say.
In some cases, franchisees shared that they would be required to pay royalties on the full price before the discount, even though they weren’t bringing in all the revenue.
Jan Jeczen, a former Dickey’s franchisee in Michigan, said that on a delivery order for a one-meat plate priced at $19.89, she ended up owing DoorDash $1.50 after the provider’s charges, marketing fees and Dickey’s own royalties on the whole order. “I had many, many negative tickets,” she said. “I had to pay DoorDash to deliver my food that I made nothing on at all.”
There’s also the case of the 39-cent “recycling/renewal fee” that appeared on customers’ charges late last year.
The same fee was charged to each customer, regardless of how much they spent. Customers paid the same 39 cents if they bought a three-meat plate for $17.49 or a Chocolate Chunk Cookie for $2.49. Franchisees said they get numerous questions about the charge.
That fee, however, is not for recycling or renewal, but to subsidize the cost of replacing signs, new uniforms or other costs, according to the Pit Owners Association. “They do not account for how much they have collected, and certainly how much of that is being returned or helping the franchisees,” the association said.
“They make a massive sales effort to get franchisees, but not enough execution on facilitating their success.” —Robert Zarco.
‘Simply not working’
Zarco, who represents numerous franchisee groups, argues that Dickey’s business model simply doesn’t work, at least for most of the operators.
“Franchisees are losing their investments,” he said. “Stores have no equity once the investment is made. Buildouts are more expensive than what they portrayed. The whole business model is simply not working.”
“They make a massive sales effort to get franchisees,” he added, “but not enough execution on facilitating their success.”
Jan Jeczen last summer seemingly was a successful Dickey’s franchisee in Michigan. She took advantage of the company’s deal with Fooda, which works with companies to set up pop-up locations at work sites. In Jeczen’s case, she would open pop-up restaurants at local hospitals or factories and serve food for two to three hours.
In July of last year, she added one of Dickey’s virtual brands, Wing Boss, to that effort and sales exploded. She generated more than $700,000 in revenue from Fooda alone in 2023, she said. She had six cars and eight employees dedicated to the service.
Even then, she said, it was difficult to make money because of fees, discounts and other charges from Dickey’s.
And then a dispute with the company last summer led her to leave the system entirely. The company terminated Jeczen’s franchise agreements.
Ultimately, her son-in-law helped her remove Dickey’s name from the restaurant one night in October 2023. The store was rebranded Bad Granny’s.
The store hasn’t done nearly as well without the Dickey’s name or its association with ezCater, the catering company, or Fooda. “It’s been a struggle,” she said.
“I’m just taking it day-by-day,” she added. “That’s it. That’s all I can look forward to. I refuse to let them beat me. I’m 62 years old. I’ve been widowed for 15 years. I’ve put everything I had into this business.”
Members help make our journalism possible. Become a Restaurant Business member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.