The restaurant industry has a tough survival rate—only about 1 in 5 new ventures lasts more than five years. Given those odds, I’ve been thinking about what it takes to achieve lasting success.
If you look at any long-standing, thriving franchisee, chances are each new generation of leadership has spent time in the kitchen. Decision-makers who understand the challenges of frontline jobs are invaluable.
I’ve shared examples in this newsletter. A 50-store Burger King franchisee once showed me how he saved $1,500 per store annually by training staff to slice tomatoes precisely. The late S. Truett Cathy, founder of Chick-fil-A, was hands-on experimenting with recipes, adjusting kitchen equipment, and even changing lightbulbs. His grandson now runs the company. Another example is Jersey Mike’s founder, Peter Cancro, who started as a teenage sandwich maker before buying the shop.
Successful franchisees and strong brands share a common trait: leadership with practical operational experience.
John Hamburger of Restaurant Finance Monitor recently spotted a similar pattern among major restaurant chains. Brinker International, which owns 92% of Chili’s locations, had the top-performing restaurant stock last year. “They’re driving positive traffic the old-fashioned way, focusing on value and operations,” he wrote. When the brand and franchisees are aligned, and the brand’s owners are directly accountable for store-level performance, restaurants tend to thrive.
In contrast, Hamburger noted, brands that follow an “asset-lite” model—prioritizing share buybacks and dividends while leaving operations to franchisees—often struggle. Take Applebee’s, a Chili’s competitor operated by Dine Brands Global. As Applebee’s closed dozens of locations, Dine Brands’ stock dropped 39% last year, while Brinker’s stock soared 200%.
I’ve seen this dynamic play out firsthand. When I moved to my city, I witnessed Burger King’s push to match McDonald’s store count. As I drove past shuttered locations, I often thought, “No wonder that store failed—terrible location. Why would anybody build a store there?” It was a case of the front office having a goal divorced from one of the primary disciplines of any seasoned operations manager: Make sure we have great locations.
Top-down mandates from decision-makers lacking operational insight often backfire in the field. One of my clients was offered to buy 25 stores from a franchisor on the condition that he build 25 more within a set timeframe; he wisely declined. My guy said, “No, thanks! I don’t have unlimited capital, and I don’t own a construction or real estate company. And even if I could build that fast, I wouldn’t be able to find enough worthwhile locations.”
That franchisor failed to grasp a crucial reality: forced expansion leads to bad locations, declining unit sales, cost-cutting to protect margins, and a deteriorating customer experience. The negative impact doesn’t show up immediately, but in three to five years, you’re Applebee’s, closing stores by the dozen.
As John Hamburger noted, now is the time to celebrate brands like Chili’s that prioritize operations. From where I sit, that’s also a strong indicator of a franchisee worth betting on.
