This is from the weekly restaurant finance newsletter The Bottom Line. To get this in your inbox every Monday morning, click here.
O’Charley’s, the casual-dining chain, shut down its corporate locations last week, leaving only a small number of franchisee-owned locations still standing, meaning it’s all but defunct.
The closures followed more closures at Red Lobster, and news that a Denny’s operator filed for bankruptcy.
Full-service chains have struggled for some time. Outside of a few names, like Texas Roadhouse or Chili’s or Longhorn Steakhouse, the sector has fought a mostly uphill battle to remain relevant with consumers.
We’ve long felt that consumers shifted from dining in to dining out, which certainly played a role, especially during lunch. Nobody has time to sit at an Olive Garden anymore because they’re too busy being overworked while the threat of AI replacing their job drives them.
They may or may not be coming back to dine-in restaurants right now. But that doesn’t mean casual-dining brands are getting that business, because of the large number of independent restaurants out there.
When a consumer, particularly a consumer with some spending power, wants to dine out, they might choose an O’Charley’s. Or they may go to the interesting new independent down the street. Or they might try a concept they’ve been meaning to test for a while. Chains may be in the consideration set. But they have to fend off some tough competitors, because consumers love local restaurants.
Casual-dining chains may have some advantages in that battle, but they are less able to bulldoze competitors with marketing or loyalty programs the way big fast-food chains can. And that gives independent restaurants an advantage.
All this means that casual-dining chains need to be at the absolute top of their games. And that means they need to have the capital structure to be able to fund improvements, something many such brands do not have.
This week’s financial news
Maybe Yum Brands should get its existing concepts in better operating condition rather than think about another chain.
Private-equity investments in small growth chains have not completely dried up since the pandemic. But they’re not exactly common, either.
But Authentic Restaurant Brands just got some investment dollars.
Can Jersey Mike’s get to $2 million in average-unit volumes? Investors remain skeptical, but it’s certainly doable.
California franchise regulators are taking a keener interest in the franchise space.
Has it really been two years since Brian Niccol took over at Starbucks? It seems like just yesterday. But it also seems like he’s been there forever.
It takes a lot to turn around a franchise brand, but most companies don’t have the wherewithal to do it.
You can get your Papa Johns pizzas from Walmart now.
No I don’t understand what Steak n Shake is doing.
Number of the week
This is a really nice chart if you’re Brian Niccol.
Quote of the week
“We’ve executed with focus. And it’s working. Starbucks is back.” -Niccol, declaring Starbucks turned around.
On the blog
I wrote about franchising, California, Steak n Shake, and private equity. Check out all my blog posts at The Bottom Line.
On the podcasts
On A Deeper Dive I spoke with Iwona Alter on Carl’s Jr.’s burger improvements. On The Week in Restaurants we chatted about O’Charley’s, Jersey Mike’s and Starbucks.
For questions, comments or story ideas, send me an email at jonathan.maze@informa.com. And follow me on Twitter at @jonathanmaze. And also LinkedIn. And TikTok.