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Financing

Franchisors start giving breaks on remodels

Yum Brands, Wendy’s and Huddle House are among franchisors letting franchisees delay capital projects.
Photograph courtesy of The Wendy's Co.

As sales plummet due to the coronavirus, franchisors are giving their operators more time to complete remodels.

Several franchisors have included delays on remodel projects as part of packages designed to keep their franchisees afloat over the next several months.

The Wendy’s Co., for instance, is giving operators a one-year break on the company’s “Image Activation” remodels as part of a package of assistance announced last week.

Similarly, Yum Brands is letting franchisees of its KFC, Taco Bell and Pizza Hut locations defer remodels until the end of the year. About 7,000 Yum units have been closed around the world.

And Huddle House last week announced a one-year extension for remodel requirements, along with extensions of deadlines for new locations required to open between April and September, according to documents provided to Restaurant Business.

The extensions are just part of the effort many brands are making to help their franchisees conserve cash in the coming months. Several franchise systems have deferred royalties, ad fund or rent payments.

Many are working with lenders or landlords to help their operators through the period. McDonald’s, for instance, is offering rent deferrals for its franchisees, and the company has vowed to get its operators through this period. “We will not let you fail,” CEO Chris Kempczinski told them.

Remodel extensions are believed to be part of the company’s effort, which could delay the completion of the chain’s kiosk-focused remodels into next year.

To be sure, delayed capital spending is considered a key strategy to help operators get through a period with little to no sales. Given that operators are struggling to pay rent, remodels seem to be of little importance. Operations experts recommend operators cut back on all but the most necessary capital projects while sales are in the tank.

Many brands held off on remodel requirements through the Great Recession, for instance, but quickly picked them up afterwards.

The remodel breaks could prove to be a savior for many franchisees this time around, however. Several large-scale operators have significant remodel cost burdens. NPC International, the largest Pizza Hut and Wendy’s operator, was teetering on the edge of bankruptcy before the coronavirus shutdown in part because of a debt load used to fund its capital projects.

Similarly, large Burger King operator Carrols Restaurant Group slashed its own remodel projects before the shutdown so it could use cash to pay off debt.

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