Franchisees of iconic American chains are 'hemorrhaging' sales, as operators of IHOP, Pizza Hut, and more file for bankruptcy
franchisees that while it had earmarked $40 million in aid for franchisees, some may need to downsize or sell off locations. In an email obtained by Business Insider, McDonald's National Franchisee Leadership Alliance pushed back on downsizing demands, telling franchisees "if you weren't considering downsizing pre-COVID-19, it shouldn't be a consideration as a result of COVID-19 today.
"Denny's is closing 15 restaurants in New York due to the impact of the pandemic.Not all franchisees will suffer equally, as restaurant owners try to decide if its time to leave the business. Fast-food chains were able to keep serving customers via drive-thru throughout the pandemic. While sales at chains includingin the last two weeks of March, most major fast-food have recovered significantly in recent weeks. At chains where the bulk of business comes from sit-down customers, including casual dining chains like Applebee's and TGI Fridays and family-style chains like Denny's and IHOP,in late March. While take-out and delivery provided limited business, some franchisees decided to temporarily close instead of attempting to eke out to-go sales. Reopening dining rooms is far from a silver bullet for these chains. Adding new safety measures and rehiring staff to serve customers is a pricey process, Lipton says. With most states capping capacity in dining rooms at 25% to 50%, many sit-down restaurants will not be able to break even, especially if dine-in sales cannibalize the to-go business. As a result, some franchisees that planed to shutter restaurants temporarily may never reopen or may sell their restaurants.John Gordon, the principal of Pacific Management Consulting Group, says franchisees that went into the pandemic with significant debt are the most likely to have to close or sell their locations as sales slump. These struggling owner-operators are more likely to have entered the business relatively recently, Gordon says, as the costs of becoming a franchisee have risen in recent years. Other franchisees may have gone into debt due to expensive remodels, as franchisors demand updated appearances and technology. Many franchisees received financial support from chain's corporate offices during the pandemic, with franchisors such as
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