Restaurant Financing

When Erin Hasselgren departed Corner Bakery Cafe in 2016 as a regional vice president of operations after nearly two decades with the chain, the restaurant’s network was just shy of 200 restaurants, with more in development. When he returned to take a post as chief operating officer after the brand was bought out of bankruptcy in 2023, Corner Bakery Cafe was rapidly shrinking. 

After a concerted effort, the chain is now healthy enough to attract new franchisees. Nanu Gill joined the chain’s system in March as its ninth franchisee and the first in nearly a decade.

The chain had struggled under the ownership of Jay Pandya, who also oversaw the decline of Boston Market, losing units and shedding sales. The company ended 2023 with just 104 units, per its franchise disclosure document. Hasselgren, now president, said Pandya failed to invest in the brand and that management lacked key operational insight at the store level.

Previous ownership, Hasselgren said, “didn't spend a dime of investment since [Pandya] bought it in ‘20 to ‘23. Not a dime. I mean [there was] broken equipment, ripped carpet, broken awnings. It was bringing it back from scorched earth.”

SSCP and Hasselgren undertook a significant series of changes, restoring bonus programs, ensuring restaurants had accurate profit-and-loss statements, and bringing back processes and routines.

The chain has continued to retrench its store system, Hasselgren said, cutting a few stores with uneconomical leases. But now, the store system has stabilized at roughly 90 units, and Corner Bakery brought on its first new franchisee in nearly a decade, when Gill took over ownership of the chain’s location in Bountiful, Utah. 

“SSCP bought the brand out of bankruptcy to kind of get the brand back on its feet,” said Hasselgren. “There was a lot of work to be done at Corner Bakery.”

Corner Bakery’s turnaround is nearly complete

In some ways, Gill joining the company’s franchise system closes out the turnaround period that began when SSCP bought the brand out of bankruptcy in 2023. 

That turnaround is clearly reflected in the brand’s average unit volume, which grew from $1.6 million in 2023 to $2.2 million at present for franchised units, Hasselgren said. Much of that improvement came in the first few months of the brand’s turnaround, as SSCP remade its training programs to focus on speed of service and hospitality. Since then, Hasselgren said, the chain has worked on improving its food quality, bringing it back up to previous standards.

“We're almost 100% [done] with bringing back our offering to where it once was from a quality standpoint,” Hasselgren said, though the brand is still looking to make minor tweaks to its coffee program and baked goods.

Food quality and hospitality have been the key strategic goals for the chain during its turnaround. Hospitality and guest experiences have become more important post-COVID-19, Hasselgren said, as consumers seek greater in-person connections. Hospitality is, in essence, a labor question.

“It all comes down to who we hire and if they fit our values,” Hasselgren said. The brand has a specific, yearly training module to help hourly workers and managers develop hospitality. 

Corner Bakery has balanced that hospitality emphasis with the adoption of new technologies, including ordering kiosks, and its loyalty program. 

“Technology shouldn't impact how the guest feels about their experience, if you have a greeting, if you have a genuine table visit, if you have a ‘thank you,’” Hasselgren said. 

The brand is integrating catering orders into its loyalty program, so consumers can use points even on catering orders, Hasselgren said. That change is forthcoming in Q3. Integrating catering with loyalty could lead catering consumers to become more regular restaurant consumers. Catering, which comprises 35% of sales at company-operated stores, is a major channel for Corner Bakery.

As inflation has eaten up much of consumer disposable income, value perception has become more important than ever. Hasslegren said Corner Bakery is running a “Choose Two $6.99” all-day digital special that offers significant value for a deal in fast casual.

That promotion, Hasslegren said, “is driving 28 additional guests per day, per restaurant, which is pretty phenomenal for any kind of a digital offer.”

All of these changes have combined to improve the brand’s unit economics, making it attractive to prospective franchisees.

How refranchising fits into a return to growth

Hasselgren said refranchising makes sense for units located in markets where Corner Bakery’s presence has declined significantly in the past decade.

“We're definitely more fragmented than we were back in my time,” Hasselgren said. “Utah only has three units. Atlanta used to have nine units. Now it has two. Running those from a corporate standpoint is really difficult.”

Corner Bakery likes its area directors to have charge of six to nine locations and to be able to visit all of them in the span of a day. But the declining density of the chain’s corporate footprint means that some of its area directors have to cover impractically large, multi-state zones. In that context, refranchising can turn units over to operators with local market expertise.

“It's better for an owner to run a two-store market, or a three-store market, or even a one-store market,” Hasselgren said. “They're in there seven days a week and they can really leverage the results.”

Hasselgren said the brand is still looking to refranchise select corporate markets in the Northeast and the South. The brand plans to keep its California system, particularly in Los Angeles and Orange Counties, corporate. Corner Bakery’s established brand identity, and the security of SSCP’s backing, have led operators to approach the brand.

“We've had a lot of really organic interest, and that's what spurred our strategy in welcoming in new franchisees,” Hasselgren said. 

In the short term, as the brand returns to net unit growth, franchising will account for most of its growth, though Corner Bakery will try to rebuild density in its remaining corporate markets, Hasselgren said. This year may not be the year the brand resumes net unit growth, Hasslegren said.

“This year is more about bringing on new franchisees and remodeling some of our corporate stores to just bring our image [up to date] and some fresh blood in on the franchising side,” Hasselgren. “[Next year] will really be more of a growth year for us.”

A bankruptcy court approved the sale of various Fat Brands’ assets through a number of transactions, according to court documents filed on Tuesday and listed on Fat’s restructuring website.

Hot Dog on a Stick will be sold to Amazing Brands for $8 million, while Elevation Burger will be sold to Tabco International Food Catering for $2.5 million. Amazing Brands is owned by Stephen Siegel, who created the company in 2008, according to its website. The company consists of Pinkbox doughnuts, Siegel Bagelmania and Piero’s Italian Cuisine. Tabco is a Kuwait-based foodservice company, according to its LinkedIn page. 

Twin Peaks is being sold to an entity known as TWNPKS Bid Co. in a $359 million debt transaction to be converted into equity, according to court documents.  

Fat Brands’ remaining businesses — Round Table Pizza, Johnny Rockets, Fazoli’s, Great American Cookies, Marble Slab Creamery, Pretzelmaker, Hurricane Grill and Wings, Buffalo’s Cafe, Native Grill and Wings, Yalla Mediterranean and Ponderosa & Bonanza — will be sold to a group of lenders known as FBG Bid Co. in a debt transaction worth $595 million.

The company closed its remaining Smokey Bones locations in April, according to multiple media reports. 

The transactions total nearly $1 billion, significantly less than the roughly $1.4 billion in debt the company had around the time of its Chapter 11 bankruptcy filing in January. Alongside its complicated debt situation that follows years of acquisitions, Fat Brands faced challenging economic conditions that impacted operations, as well as costly litigation.

The court approval also ends a monthslong back and forth between creditors and Fat Brands, during which creditors accused former CEO Andy Wiederhorn of improperly undertaking a stock sale of Twin Hospitality without court approval. Wiederhorn agreed to a leave of absence as CEO for the remainder of the bankruptcy process, but was still authorized to bid for Fat Brands’ entities. It is unclear if he is behind any of the entities acquiring Twin Peaks or the remaining companies, as individuals are not listed in court documents.

Sponsored content

By Restaurant365

Heading into 2026, most restaurant operators prepared for a difficult year. What they've found at the halfway mark is more complicated than that and in several key areas, more encouraging.

Restaurant365 surveyed more than 420 operators representing nearly 10,000 locations across quick-service, fast casual, casual dining, fine dining, pizza, and coffee shop segments for its 2026 Mid-Year State of the Restaurant Industry Report. The findings tell the story of an industry absorbing real financial pressure while finding reasons for cautious confidence heading into the second half of the year.

Costs Are Up — But Operators Are Getting Smarter

87% of respondents said food costs increased in the first half of 2026, with nearly half of that group reporting increases of 6% or more. Labor costs followed a similar trajectory, with 77% of operators reporting labor cost increases, driven by competitive hiring markets and ongoing wage pressure.

What's changed is how operators are responding. In mid-2024, 60% of operators responded to food cost pressure by raising menu prices. That number climbed to 66% at the start of 2026 — then pulled back to 52% at mid-year, the lowest point in three years. Operators are absorbing more cost pressure rather than passing it directly to guests, instead leaning on inventory and waste tracking, supplier renegotiations, and ingredient optimization to protect margins without alienating an already budget-conscious consumer.

The Traffic Turnaround Nobody Expected

Perhaps the most striking data point in the entire survey is the traffic reversal. At the start of 2026, only 28% of operators reported any traffic increase, and 55% said traffic had decreased. By mid-year, those numbers had meaningfully flipped: 49% of operators now report traffic gains, with just 31% experiencing declines.

Looking ahead, 62% of operators expect some level of traffic growth in the second half of 2026, compared to just 9% who anticipate further declines. That sentiment shift suggests operators believe the conditions for improvement are real and many are actively putting plans in place to capture it.

AI Is Moving From Conversation to P&L Line Item

One of the most significant shifts in this year's data is the rapid expansion of AI in back-of-house operations. At the start of the year, just over 25% of operators had implemented or planned to implement AI for back-office work. By mid-year, 69% of operators are actively using or piloting AI for reporting and analytics alone.

For the operators already using AI, the results are showing up on the P&L: 61% say AI has reduced their food costs, 62% say it has reduced their labor costs, and roughly 1 in 3 report cost reductions of 6% or more. 88% of AI users say the technology saves them time every single week. For a category facing margin pressure from every direction, those are not incremental numbers.

Still, 38% of operators say they are not currently using AI and have no plans to do so, citing data privacy concerns (37%), output accuracy questions (34%), and cost (29%) as the primary barriers. The gap between operators using AI and those sitting it out is widening — and the results suggest that gap will become harder to close the longer operators wait.

The Staffing Paradox Worth Watching

One of the most thought-provoking findings in this survey is a disconnect between challenge and investment. Recruiting and retaining staff surged from 18% to 33% as operators' single biggest challenge between the start of the year and mid-year — a 15-point swing that signals the staffing challenge is intensifying, not easing. Yet investment in staff enhancements has fallen to 16%, the lowest point in three years of survey data.

Operators are leaning on training programs — which ranked above pay increases as a retention strategy for the first time in recent memory — and cross-training to build flexibility into their teams. But the data raises a real question for the second half of the year: can operators hold onto people without increasing what they invest in them?

The Second Half Playbook

When operators were asked their single biggest operational priority for the rest of 2026, nearly half — 48.65% — said increasing sales. Cost control has dominated the conversation for most of the year, but operators know that cutting alone will not get them where they need to go. The path to profitability for the second half runs through revenue growth, guest experience, and smarter use of technology — not just tighter margins.

The operators who are best positioned heading into that second half are the ones treating cost management and revenue growth as parallel tracks, not competing priorities.

Download the full 2026 Mid-Year State of the Restaurant Industry Report from Restaurant365 for the complete data across food and labor costs, traffic trends, AI adoption, staffing, consumer behavior, and delivery dynamics. Or request a live demo to see how R365 helps operators act on data like this every day.

Jersey Mike’s plan to go public reflects more than just the sub sandwich chain’s rapid growth — it’s a signal that IPO activity is coming back to life.

The last time the IPO market was hot for restaurant chains was in 2021 when sales and profits were on the rise coming out of the COVID-19 pandemic. That year, Portillo’s, Sweetgreen, Dutch Bros, Krispy Kreme and First Watch went public.

Fast forward to the present, and industry experts are tracing renewed investor confidence in restaurants to Black Rock Coffee’s IPO last year, which raised nearly $300 million.

“The successful IPO of Black Rock Coffee last September demonstrated robust investor hunger for growth-oriented restaurant chains,” said Jerrold Bregman, a partner of the California-based BG Law. “It is probably no coincidence that Jersey Mike’s — backed by the deep pockets of Blackstone — has also recently thrown its hat into the IPO ring.”

Inspire Brands, which owns rival sandwich chain Arby’s and Dunkin’, also signaled interest in going public earlier this year. 

“[Jersey Mike’s and Inspire Brands] are quality companies. They have great models. They have great experience,” said Mark Davis, CEO of Black Rock Coffee. “I think there’s a value proposition there that works really, really well and there’s a history of return that works.”

After joining the public markets, Black Rock Coffee maintained its same-stores sales momentum and unit growth, and Davis expects to open at least 36 restaurants this year. Jersey Mike’s seems poised for a similar path — the brand has posted steady year-over-year growth in sales, average unit volumes and unit count. 

“A good restaurant IPO is one that has a good and effective roll out experience and strategy,” said Michael Halloran, lead corporate and securities partner at Halloran Farkas + Kittila. “Expansion followed by fairly immediate new store profitability leads to a higher multiple.” 

Investor interest in restaurants regains steam

Restaurant IPOs come in “spurts,” Halloran said, usually on and off every two to three years. Fast casual chains appear to be favored by investors, meaning Jersey Mike’s could be highly desired. 

“IPO candidates have two important choices for liquidity: a buyout by a private equity fund or another restaurant chain or an IPO,” Halloran said. “When the prices achieved through an IPO exceed what private equity and industry buyers are willing to pay, the IPO alternative is taken.”

Investor appetite for IPOs is growing not just for restaurants, but across multiple industries, especially with excitement over SpaceX’s public offering, experts said.

“It’s a great time now because the capital markets are active,” Bregman said. “There’s money that is on the sidelines and available.” 

Restaurants typically have steady cash flow but also accrue a lot of debt, which can be rolled off by raising money through an IPO, Halloran said. Other companies, like SpaceX, typically rely on big contracts and business can be more unsteady compared to restaurants, he added. 

Companies also are waiting longer before they go public. Decades ago, companies would wait as little as five years, but now they are waiting over nine years to go public, Halloran said. The time delay can help create stronger, more established companies that can handle a move to the public markets that typically comes with additional pressures over performance metrics. 

“The market is more rigid now about expectations and delivery of expectations,” Davis said. “If you’re going to be a public company, I think you’ve got to deliver and you have to be able to do it for a long time.”

Pros of going public

Sometimes an IPO doesn’t lead to a company going public, as a private equity firm could come in after looking at financials and offer a higher price than what would be gained during an IPO, Halloran said. Fogo de Chão, for example, shared its intentions of going public in 2021, but was later acquired by Bain Capital in 2023, which kept Fogo private. 

Even after an IPO, companies have the ability to file a secondary offering of equity and possibly debt or convertible debt to raise money for expansion with good germs on that money, Halloran said.

“The public market gives you ready access to file an S-3 and raise more money for expansion,” Halloran said, who added that this isn’t just liquidity for present investors but also an ability to offer stock options for employees, which could boost worker retention. 

A successful IPO could help Inspire’s owner, Roark Capital Group, pay down some $3 billion in debt that Inspire used to acquire Dunkin’ and Baskin-Robbin’s in 2020 for $11.3 billion, Bregman said. 

“The positioning of the IPO, which could unleash some $2 billion in fresh capital, stands as a resounding testament to the success of that transformative 2020 acquisition,” Bregman said. “Lightening that debt burden will free up cash flow on a going-forward basis, positioning the company for continued expansion, bold new ventures and sustained growth.”

Risks of going public

While going public can provide much needed capital, it also comes with risks, especially since finances become completely transparent. Activist investors have taken aim at different restaurant chains in recent quarters, including Cracker Barrel and Wendy’s. 

But experts say there is plenty that a company can do to minimize attention from activists.

The best protection for management is to run the business well and be transparent about its decisions, experts said. Strong finances, particularly year-over-year returns on ROI and revenue increases, is one of the best defenses, Halloran said. 

“You have to have a model that works for the public markets,” Davis said. “It’s really important to do what you say you’re going to do. I would say that is probably the number one rule. … I think where you get into trouble is where you chase trends or you try to be something you’re not to manipulate the stock price for lack of a better term.”

Management also should take into consideration different opinions and advice from minority shareholders. 

“Companies often get terrific ideas from minority or activist shareholders,” Bregman said. “It becomes problematic when … management isn’t responsive and they’re not getting the job done and they’re not listening to minority shareholders.” 

Public companies should have good quality controls in place related to outbreaks, which Chipotle learned the hard way in past years with outbreaks of eColi, norovirus and salmonella, Halloran said. Company policies should include good hiring practices to avoid disruption from increased immigration enforcement.

Part of what has made Black Rock sales and traffic has been its hiring practices. 

“One of our greatest strengths, again, is we have a large applicant pool that wants to be with us,” Davis said. “And I think when you get that great retention and great experience, it in turn drives those great sales.”

Hiring the right people, providing good products and offering a good experience for customers at its stores, within its app, through third-party delivery, and at its drive-thru, “it works out great,” he said. 

“We’ll continue to grow units at 20%,” Davis said. “We’ll grow our EBITDA at least 20%, and those things work out great as a public company,” Davis said. 

Impact of Jersey Mike’s IPO

Jersey Mike’s has the management in place and strong financials that could help it become successful as a public company. It also has a strong growth story, with 3,300 units open and a domestic pipeline of more than 1,600 stores, per its S-1 filing. 

The company plans to have 300 restaurants in Canada by 2034 and another 400 in the U.K. and Ireland, which Halloran said is “good stuff.” 

The fast casual chain is valued at about $12 billion, which Halloran said is 387 times higher than its 2025 revenue of $310 million and 65 times its net income. 

Same-store visits have grown during the first four months of the year and been relatively stable since May 2025, according to Placer.ai data. Monthly visits, in particular, have remained in the high single digits, a success in itself as other fast casual chains have struggled with traffic growth over the past few quarters.

“Jersey Mike’s growth story is about more than rapid expansion,” Ezra Carmel, content writer at Placer.ai, wrote in a June report. “The data suggests the chain is pairing disciplined real estate growth with widening mainstream appeal — a combination that could support both its potential IPO ambitions and its continued dominance in the sub sandwich space.”

Impact of Inspire Brands’ IPO

If Inspire Brands does land its anticipated $20 billion valuation, it could be one of the largest IPOs in recent restaurant history, Bregman said. This valuation would catapult Inspire to “the rarefied stratosphere occupied by gastronomic titans like Restaurant Brands International, and even the twin colossi of fast-food royalty: McDonald's and Starbucks,” he added.

“Given the colossal scale of this offering, the success of Inspire Brands’ IPO is poised to send powerful market signals — and perhaps even serve as a beacon of inspiration — for other fast-growth, private-equity-backed consumer-facing companies eyeing the public markets as a path to liquidity.”’

Inspire Brands’ $34 billion in annual revenue will likely “whet investors’ appetites,” Bregman said. The company has a highly integrated franchised system with over 2,700 operators, which creates a predictable cash flow that “makes portfolio managers salivate.”

“Though I don’t have crystal ball, and our firm does not represent any of the participants in connection with Inspire Brands’ contemplated IPO, I would say this much with confidence: Inspire Brands’ announced IPO is a resounding net positive for the industry and for investors alike, even if it is likely to only ratchet up the competitive pressure on your neighborhood mom-and-pop eatery,” Bregman said.

Correction: A previous version of this article incorrectly listed data relate to Jersey Mike’s same-store and monthly visits. The article has been updated. 

 

For restaurants looking to expand to new locations, or individuals looking to launch a new restaurant, there are a lot of benefits to franchising. 

It allows restaurateurs to leverage their recognized brand name, boost their business image and branding, ensure consistent quality at their new stores, attain motivated and productive staff, and gain access to good locations, said Jeffery Elsworth, an associate professor at the School of Hospitality Business at Michigan State University. 

Franchising can also help restaurateurs attain economies of scale for purchasing and marketing, while facing less risk of failure as they operate under the support of the franchisor, he said. 

Additionally, franchisees also get access to a “playbook,” including everything from systems, procedures, recipes, kitchen layout and design parameters, said Rick Camac, executive director of industry relations at the Institute of Culinary Education. Operators may also get marketing help and assistance in picking a new location, including demographic research, he said. 

But franchising can also be costly both for franchisors and operators. The franchisor collects on average 7% to 9% of revenues — a fraction of the income available if they were to own the concepts instead, said Elsworth. 

And the model gives franchisees less room for creativity, while their top-line revenue is often limited, given few QSRs or fast food restaurants take in $5 million to $10 million in sales, Camac said. 

“The path and timeline to revenue is clearer but often relatively limited,” said Camac. 

A number of factors need to be considered before a restaurant can franchise and open new locations, experts say. 

That process includes weighing the challenges and benefits that franchising different restaurant types pose, being strategic about where to open new locations and how brands should implement operational procedures and set fee structures. It necessitates deep dives into a franchisee’s financials and ethics.

Lastly, franchising should only be considered when a restaurant’s concept is “established and proven,” with a clear path to positive revenue and profitability, said Elsworth. 

That’s important for the franchisees as well, added Camac. 

The challenges and risks “are less as it's a proven concept and the roadmap has been given to you,” Camac said.

Picking the right type of restaurant to franchise

There are different benefits and challenges related to franchising restaurant types and concepts. 

Quick-service restaurants are, by far, the least complicated and least expensive restaurant types to franchise, said Elsworth. QSR franchisors usually have a very detailed set of standard operating procedures in place for the franchisee to follow, and the build-out of the restaurant is typically simpler, Elsworth said. 

In most cases, the food is ordered through a centralized commissary, while branding and marketing is mainly handled by the franchisor, he said. 

It’s also easier for staff to learn the systems and how to execute the menus through fast food and QSR formats, Camac added. 

On the other hand, QSRs need to be in highly visible locations, such as corner lots on major roads, which means the real estate is typically more expensive for the franchisee, said Elsworth. 

There are less stringent standard operating procedures for fast casual concepts, such as Panera or Qdoba, said Elsworth. And those types of restaurants are often in locations, like shopping centers, where the real estate is less expensive, he said. 

But fast casual restaurants typically require higher-end fixtures, furniture and equipment, making the build-out more expensive, he added

In general, simpler restaurant concepts are better for franchising, said Camac. A burger concept, for example, would be a lot easier to scale and expand than a fine dining concept, he said. Same with restaurants with smaller menus or easier recipes, since it’s easier to find chefs and cooks who can make the food, and it's cheaper to pay them, he said. 

Casual and fine dining restaurants, on the other hand, are the most expensive restaurant formats to franchise given the food, beverages, furniture, fixtures, equipment, human resources and real estate are all more expensive and require a much bigger investment, said Elsworth. 

“Each concept type has its own unique challenges,” said Elsworth. “But as you progress from QSR to fine dining, the main issue is the cost of the investment in every expense category of the income statement.”

Finding the right location

A restaurant concept should have name recognition in the areas they are looking to move into — a component that is essential for marketing and advertising, said Elsworth. 

“The customer should recognize the concept either through social media or word of mouth,” Elsworth said. “You cannot expect customers to be excited by a new concept coming to town unless they are aware of the brand.”

The first franchised locations should be launched locally or regionally, said Elsworth. A restaurant concept based in Michigan, for example, should consider expanding to other parts of the state or perhaps nearby Indiana or Ohio. 

Staying within reach of the corporate office provides operators access to continued support, he said, while staying within the same timezone avoids the need for expanded support hours, he added. 

Selecting the right location for a new franchised restaurant takes a lot of research and visits to the site to evaluate how it would fare on different days of the week and times of the day, and whether the demographics, psychographics and geographics are right for the concept, Camac said. 

Securing a lease for a restaurant on a busy street, for example, could be costly, but it could also provide the best visibility, Elsworth said. Fine dining restaurants don’t necessarily need to be located on a busy street, since they can be a destination-type business, he said. 

Franchisors typically work with real estate experts and utilize data to determine the best and areas for successful franchise locations, Elsworth said. 

Launching a new franchise

It’s essential that franchisors thoroughly verify the potential franchisee’s financials and vet their reputations and ethics, said Elsworth. 

And both the company and the franchisee need to make sure the numbers work — seeking the advice of financial and legal experts who understand franchising and have dealt with such it before, he said. 

“If something does not feel right, or make sense it might be best to walk away from a deal,” said Elsworth. “There are too many great opportunities in the market.”

Franchising a restaurant can also come with a number of regulatory requirements that can be expensive and challenging to navigate, said Elsworth. That includes preparing a federally-required Franchise Disclosure Document, which covers a host of details about their business. 

Franchisors also need to create standard operating procedures that give franchisees detailed instructions on how they should run their restaurants to ensure brand, operational and quality consistency, he said. 

When setting obligations for franchisees, restaurants should make sure they are able to keep control of their brand promise, quality and consistency, said Camac. 

That’s a “very difficult task, which is why the systems and procedures have to be so specific,” said Camac. 

Setting franchise fees

Franchisees need to raise enough money to purchase and develop the restaurant, said Elsworth. 

That can be a costly proposition as franchise fees alone can range from about $10,000 to more than $500,000, he said, and operators must then acquire the restaurant’s property, build out the store, purchase inventory, hire staff, provide marketing and set aside money for operations. 

“Most franchisors will require proof of wealth and assets in the millions of dollars,” said Elsworth. 

Franchisors, in return, should set the fees at a rate that’s best for both the company and the franchisee, while showing the potential for profit in the contract obligations, said Elsworth. 

If a franchise earned $1 million in sales and 15% in net profit during the first year, they would receive $150,000 in profit, Camac said. If a franchise fee costs $50,000, that would equate to about one-third of a year’s profit, an amount that “seems more than reasonable,” he said. 

Franchise models that provide the most support to the franchisee tend to be effective in ensuring long-term success, said Elsworth. Chick-fil-A, for example, only requires a $10,000 franchise fee, and the company provides a lot of support in different areas such as marketing, technology, and menu development, he said. Chick-fil-A also has some of the highest average unit volumes at over $9 million within the QSR segment. 

It’s relatively easy for a prospective franchisee to determine the best range of franchise fee expenses since FDDs are public, said Elsworth. 

Franchisees should “be able to see the value in the services offered for the fees,” he said.

Yum Brands’ $2.7 billion deal to sell Pizza Hut to two buyers marks a “step forward” for the company — and for the pizza brand — but the likely outcome for both remains unclear.

“The sale removes a lagging brand, improves the financial profile and optimizes their resource allocation, but is also dilutive to operating profit and removes them from a large, global category,”  Peter Saleh, an analyst with BTIG, wrote in a research note emailed to Restaurant Dive.

The sale may position LongRange Capital, which is buying Pizza Hut’s non-China operations for $1.5 billion, to help the chain address its major issues, but the future is uncertain.

Pizza Hut’s ongoing troubles

Pizza Hut has long trailed both Taco Bell, Yum’s leading U.S. brand, and major competitor Domino’s in same-store sales and other financial health metrics. The concentration of a plurality of its store system in the U.S. meant it could not — as KFC could — look abroad for dramatic revenue growth while undertaking a multi-year brand turnaround. 

Neil Saunders, managing director of GlobalData, said the inability of recent changes to return the brand to sales growth showed the difficulty, and likely duration, such a turnaround would require.

“It has become increasingly clear that pushing the division back into growth will require a level of investment and patience that Yum is just not prepared to commit to,” Saunders said in an email. 

In the U.S., the chain fell behind Domino’s, as the latter “trumped Pizza Hut across many aspects, including menu innovation, marketing, ordering technology, and its delivery infrastructure,” Saunders said. 

While Pizza Hut is closing about 250 stores in an effort to strengthen the performance of its remaining U.S. restaurants, Domino’s sees the closures as a strategic opportunity to ratchet up the competitive pressure on Pizza Hut through aggressive discounting.

What can actually change?

The deal was somewhat larger than anticipated, Saleh said, with a valuation roughly 7.5 to 9 times the size of Pizza Hut’s EBITDA, depending on whether one adjusts for Pizza Hut’s portion of Yum’s general and administrative expenses. That multiple, Saleh said, is “higher than deals for other depressed brands,” which he attributed to “the brand's sizable international presence ($5.2B in sales excluding China) and established China business ($2.4B in sales) with its existing franchisee.”

LongRange is inheriting the problems of Pizza Hut, and private ownership could result in “a more drastic turnaround effort, but the track record of similar deals isn't great,” Saleh said. 

Other major brand turnarounds and recent statements by Yum might provide a clue as to the brand’s strategic direction.

Starbucks’ turnaround under CEO Brian Niccol has included significant investment in on-premise experience and in hourly labor, for example, while Burger King has poured hundreds of millions of dollars into renewed marketing, menu innovation and store renovations. Both brands took considerable time to return to sales growth, but are now seeing results.

Yum recently highlighted that retro versions of Pizza Hut’s stores — the red roof design — with more intensive on-premise service, are seeing considerable consumer interest and nostalgia.

Saunders, however, said an emphasis on retro, on-premise experiences might not be a silver bullet, considering that many consumers “prefer the more balanced menus and a more contemporary environment offered by a large number of modern casual dining chains.”

Earlier this year, Yum announced the Hut Forward program, a partial brand turnaround for Pizza Hut. 

Hut Forward “represents a bridge to a longer-term acceleration of the brand,” Ranjith Roy, Yum’s CFO, said on the company’s earnings call in February. Hut Forward includes “a vibrant marketing program, modernization of certain technology and franchise agreements, and Yum! providing a onetime contribution to marketing support,” Roy said. 

Saleh was not optimistic about the prospects for the chain’s turnaround efforts, however. 

“We've seen a succession of different leaders, turnaround efforts, closure activity and franchisee transfers at Pizza Hut over the last twenty years, and the brand is in roughly the same position and modestly smaller in the U.S. ($5.1B in system sales) than it was back then, so we struggle to identify something that hasn't been tried already,” Saleh wrote.

Pizza Hut franchisee Chaac Pizza Northeast has sued the franchisor, alleging the chain’s Dragontail Artificial Intelligence system caused “cascading operational breakdowns,” slowed down order times and disrupted integrations with third-party delivery, court records show.

In the lawsuit, which was filed in the Business Court of Texas First Division, Chaac alleges the Dragontail system causes a loss of business and enterprise value of around $100 million. 

“We are in the process of reviewing the claim and will respond through the appropriate legal channels,” a Pizza Hut spokesperson said in an emailed statement, adding that the chain could not comment on pending litigation.

The lawsuit shows some of the potential difficulties posed by rolling out large technology solutions across thousands of stores. 

As Pizza Hut’s parent, Yum Brands, and other QSR chains embrace AI, issues integrating the software with operations could undermine promised gains in efficiency. 

Chaac, which operates about 111 Pizza Huts in New York, New Jersey, Maryland, Washington, D.C., and parts of Pennsylvania, was particularly dependent on third-party delivery carried out by DoorDash to sustain its sales. While Chaac’s stores represent less than 2% of Pizza Hut’s U.S. system, they accounted for 15% of DoorDash’s Pizza Hut volume from its Drive Program at one point, per the complaint. 

The franchisee “exclusively used and relied upon [DoorDash]” for delivery orders at the time Dragontail was rolled out.

The rollout of Dragontail took place over several years, with its deployment in the New York market finishing in 2024. Prior to that, Chaac said it was one of Pizza Hut’s strongest-performing franchisees in terms of sales growth, delivery times and customer satisfaction. 

Before Dragontail, Chaac’s managers “manually inputted [sic] the orders into DoorDash’s tablet, a software that enabled Chaac’s restaurants to process customer orders to DoorDash for delivery,” and the operator could prevent poorly-rated DoorDash drivers from accepting orders with it. 

At the time “more than 90% of pizza orders at Chaac’s were delivered within thirty (30) minutes,” Chaac claims.

But Pizza Hut shifted towards a national contract with DoorDash, rather than individual operator agreements, the suit states. This, combined with the rollout of Dragontail, meant that DoorDash and its Dashers gained greater visibility into the franchisee’s pizza operations. 

The integration of kitchen display, point-of-sale and third-party delivery management systems into a single software interface shifted power over delivery-order assignment from restaurant managers to delivery drivers.

Drivers now sometimes wait in the stores for up to 15 minutes to pick up multiple orders set to be ready in small periods of time. This led to an increase in delivery order times and in Rack Times — the period between a pizza leaving an oven and leaving a store — and an erosion in consumer satisfaction, Chaac alleges.

Dragontail was developed “to assist with in-house delivery drivers by providing insight as to the availability of DoorDash drivers in the event that in-house restaurant drivers were either not available or slower to deliver products,” according to the suit, making it a poor fit for Chaac’s DoorDash-dependent delivery model.

“With the intention to improve efficiency and service to the customer, Dragontail did the exact opposite; it caused significant delays and pummeled consumer satisfaction,” the suit states.

In Q3 2024, coinciding with the Dragontail deployment, the operator’s “New York City market—which had 10.19% sales growth year after year—dropped to -9.78%,” the complaint states. 

Pizza Hut has struggled to grow its sales for some time, with the whole chain posting same-store sales declines going back to Q4 2023. 

The brand’s stagnation in the U.S. market coincided with broader consumer pullback in pizza — Papa Johns has posted similarly lackluster results, while Domino’s sales growth has been much stronger, but uneven. Pizza Hut is in the process of closing about 4% of its U.S. system, particularly underperforming stores, while Yum Brands contemplates a potential sale of the chain.

Yum’s tech strategy in recent years has hinged on leveraging AI for gains in efficiency and in analysis. Yum is working with NVIDIA to develop new AI use cases for fast food, and the company has modernized its technology and data analytics across much of its system in recent years.

But Chaac’s allegations, if substantiated, could show how centralization of technology benefits franchisors and tech firms, rather than necessarily strengthening individual operators, depending on franchisee business models.

From refranchising deals to transactions between operators, restaurant franchisees were active buyers and sellers in the first half of 2026. Most of the transactions involved expanding their portfolios, while others, like Red Robin’s sale of company-owned units, led to operators gaining a foothold in primarily corporate-owned systems. 

Check out the biggest franchisee deals that occurred during the first half of this year. 

Mas Restaurant Group sells 87 Taco Bells

The Taco Bell operator divested itself of dozens of restaurants across two transactions, with Southpaw buying 43 restaurants in greater Columbus, Ohio, and Ghai Restaurants purchasing 44 restaurants in the Houston area. 

Southpaw said the deal helps it expand into a high-growth market of the sort where the chain typically thrives. Southpaw has been particularly active in growing its portfolio through acquisitions, including a 40-unit buyout in Georgia in 2023 and 16-unit transaction in Shreveport, Louisiana in 2024.

With its transaction, Ghai more than doubled its Taco Bell unit count — it previously operated 35 Taco Bell restaurants. 

Red Robin refranchises over 100 units

As part of its First Choice turnaround plan, Red Robin sold at least 116 company-owned units across three transactions totalling $96 million. The transitions will result in Red Robin having 263 restaurants and 206 franchised units upon their completion, based on its Q1 2026 unit count. 

Op Burgers bought 69 units in Kentucky, Indiana, Maryland, Ohio, North Carolina, Pennsylvania and Virginia for $62.5 million while Kuber Oregon bought 17 units in Oregon and Washington for $10 million. Red Robin also sold 30 units to Evergreen Dining for $23.5 million. 

Red Robin targeted experienced operators who could deliver strong guest experiences and possess the ability to grow. Red Robin will use the proceeds from these transactions to pay down outstanding debt. 

JRI expands Freddy’s portfolio

JRI Hospitality acquired HCI Hospitality, an operator of 43 Freddy’s Frozen Custard &Steakburgers’ units, in March. The operator now owns about 130 Freddy’s across 18 states and is one of the chain’s largest franchisees with one-fifth of its roughly 580 restaurants. 

JRI also appointed HCI’s CEO Cam Blakely as president of Freddy’s operations to help with the integration of the two operators’ systems.

In the transaction, JRI also bought two brands operated by HCI, JC’s BBQ & Grill and Powercat Sports Grill. Booth Creek Wagyu and other concepts that were previously under HCI were not included in that transaction. 

KBP buys 78 Sonic restaurants

KBP Brands expanded its Sonic Drive-In portfolio by 78 units following a February transaction. It now has about 164 units. The newly acquired units are in Ohio, Kentucky, North Carolina, Tennessee and Virginia and were previously owned by Sonic. KBP has been an Inspire Brands franchisee since 2021, when it added Arby’s to its portfolio. 

KBP owns and operates over 1,100 units with a portfolio including Sonic, KFC, Taco Bell and Arby’s restaurants across 32 states. 

OneRyan Global acquires Mr. Gatti’s

OneRyan Global, a family investment office of G. Brint Ryan, bought a majority stake in Mr. Gatti’s Pizza chain in January. The operator originally invested in the chain last October when it purchased a company-owned Mr. Gatti’s in Austin, Texas. Last September, OneRyan Global bought a minority stake in Mr. Gatti’s. 

Mr. Gatti’s, which has 200 units, will maintain its headquarters and leadership team. The brand has a path toward adding dozens of restaurants to its system through non-traditional channels, including a 92-unit deal with Walmart. 

Franchises have been particularly active in buying brands in recent years, including Jack in the Box’s sale of Del Taco to Yadav Enterprises last year. Sun Holdings also has acquired several brands of late, including Uncle Julio’s, Bar Louie and Freebirds World Burrito.