Major restaurant chains are taking steps to ensure the long-term viability of regional franchise networks that often account for most of their location expansion but are now being hit especially hard by rising costs and reduced consumer spending.
In recent quarterly earnings calls, executives of some U.S. dining chains discussed measures that include helping franchisees with remodeling and format changes and allowing franchisees to exit operating agreements ahead of contract expirations. This has allowed some chains to take back locations that were formerly franchised, and in some cases reassign stores to better capitalized franchisees.
Moves geared to franchisee assistance or replacement were announced recently by operators such as burger chain Jack in the Box and Dine Brands Global, owner of Applebee’s as well as IHOP. Measures have ramped up this year as restaurant franchisees, like other types of small-business operators, face escalating costs for food, labor and most recently fuel, with gas prices spiking more than 50% since the start of the war in Iran.
“Lower and middle-income groups are pulling back on restaurant spending as higher prices affect their frequency of dining away from home,” Darren Tristano, CEO of industry consulting firm Foodservice Results, told CoStar News. “These struggles more deeply impact franchise restaurants" because they have to spend more on marketing as well as paying fees to the chain owner for the right to use the brand name.
Tristano noted restaurant franchisees are cutting back on labor expenses to offset the lost traffic to the stores and in many cases struggling to meet monthly expenses. “They are in fact more susceptible to bankruptcy and closure, and likely we will see more of the small single- and multiunit operators closing their doors.”
Some restaurant franchisees are themselves large and often publicly traded companies, including several McDonald’s and KFC operators. But most are smaller, independent firms that are not as well capitalized as the corporate owners of the best-known dining brands.
Not all franchisees of restaurant chains are struggling, but even McDonald's and its big fast-food rivals are having to offer more discount menu items to woo customers in the current climate of rising prices. This cuts into profit margins for the chains and their franchisees.
Rising financial struggles
During the past year, several franchisees of major restaurant chains have closed stores, filed for bankruptcy protection or conducted other financial restructuring amid larger industry challenges. Companies filing for bankruptcy protection in late 2025 and early 2026 included multiunit franchisees of Hardee’s, Carl’s Jr., Popeyes, Panera Bread, Burger King, Subway and Firehouse Subs.
In late March, Atlanta-based Neighborhood Restaurant Partners, operator of more than 50 Applebee’s locations in Georgia, Alabama and Florida, filed for Chapter 11 bankruptcy protection. The franchisee has kept its remaining stores open with plans to sell them as part of efforts to restructure its finances, after it closed a total of 14 locations in 2025 and early 2026. NRP’s bankruptcy filing cited factors including softening sales and high inflation.
Pasadena, California-based Dine Brands Global is now acting as the “stalking horse” bidder in the NRP bankruptcy case, seeking to take control of the franchisee’s remaining locations to stabilize their operations.
Dine Brands is stepping in “because we believe that securing these restaurants gives us direct operational insight and allows us to invest in the units through our development initiatives,” Dine Brands Chief Financial Officer Vance Chang told analysts during the company’s latest quarterly earnings call.
Dine Brands, which operates about 3,500 restaurants worldwide, this year acquired 12 Applebee’s eateries in Virginia from a different franchisee, making them company-operated locations with plans to convert at least five to a relatively new dual-brand concept that puts Applebee’s and IHOP under one roof.
Dine Brands is looking to extend the dual-brand concept through its existing and new franchisees, as part of plans to expand those double-branded locations from the 43 currently operating to reach about 80 by year’s end. CEO John Peyton said its restaurants that converted to dual brands since last year have so far about doubled sales from their pre-conversion levels.
“It allows franchisees to reposition lower-performing restaurants, including those that may have otherwise reached the natural end of their life cycle, while also enhancing performance at higher-sales restaurants,” Peyton said during the earnings call.
Closing underperforming locations
San Diego-based Jack in the Box, operator of more than 2,100 mostly franchised restaurants nationwide, previously announced plans to sell off some of its real estate, including leased and owned buildings occupied by its franchisees, as part of larger moves to shore up its finances.
In the current climate of slowing sales, some franchisees “have increased their desire to close earlier than their franchise agreement expiration,” Chief Financial Officer Dawn Hooper told analysts during the latest Jack in the Box quarterly earnings call. Closings of underperforming locations, most of them leased by franchisees, are expected to accelerate in the second half of the current fiscal year.
“We're going to be dedicating more resources to engaging with landlords on exiting the leases because we believe that’s the biggest hurdle that’s keeping franchisees from closing more underperforming restaurants,” Hooper told analysts.
Now halfway through its fiscal year, Jack in the Box year to date has generated $14.7 million in proceeds from real estate sales, the company reported. Hooper said it expects to sell about another $35 million to $45 million by the fiscal year’s end, with proceeds going toward paying down debt.
Hooper said the company is also working with its franchisees on “mini refreshes,” in lieu of more extensive and expensive remodels in the current climate. With much of the chain’s business done at its drive-thru windows, Hooper said Jack in the Box has boosted sales in several locations with moves like exterior painting, parking lot resurfacing and landscaping updates.
“The cost is low,” Hooper said. “We’re seeing same-store sales benefits of low single digits after they’re done.”