A major franchisee says dozens of Freddy’s Frozen Custard and Steakburgers restaurants are dragging its business into losses, raising questions about store performance, costs, and the outlook for fast-casual dining.
M&M Custard, an operator of Freddy’s locations, said its finances have turned negative because of underperforming units. The company cited 31 restaurants as the pressure point. The statement signals rising strain inside a sector already hit by higher costs and uneven traffic.
“M&M Custard says 31 Freddy’s Frozen Custard locations put them in the red.”
Background: A Franchise Model Under Stress
Freddy’s operates with a franchising model. Local operators run restaurants and pay fees based on sales. That setup can move risk to franchisees during tough periods.
Restaurant operators have faced higher prices for beef, dairy, cooking oil, and packaging over the last two years. Wage rates have also climbed across quick-service and fast-casual dining. Rising interest rates increased borrowing costs for build-outs and remodels. Each factor squeezes margins, especially at stores with lower sales volume.
Industry data show menu prices have risen faster than before the pandemic. Customers have become more price sensitive in some markets. That creates a dilemma: raise prices to protect margins or hold back to protect traffic.
Inside the Numbers: Why 31 Stores Matter
For a multi-unit franchisee, a cluster of weak locations can swing the entire profit picture. Fixed costs, including leases, equipment, and debt, do not fall quickly when sales drop. Cash flow from stronger stores must cover shortfalls elsewhere.
Operators often group decisions by region. If several stores in one area underperform, local marketing, staffing, and supply costs may all suffer. That can magnify losses and reduce options for targeted relief.
- Leases and debt service tie up cash, limiting room to adjust operations.
- Labor and food costs take the largest share of sales in many units.
- Lower traffic can turn small pricing errors into major margin hits.
What Stakeholders Are Watching
Employees may worry about hours, benefits, or potential closures if losses persist. Suppliers and landlords watch payment timelines. Lenders track debt coverage and covenant risks.
Customers could see shorter hours, limited menus, or slower remodel plans. Communities that rely on these restaurants for entry-level jobs fear reduced hiring. Local tax receipts can also take a hit if sales decline.
Franchisors usually prefer to stabilize operators rather than risk closures. Common steps include temporary royalty relief, coordinated marketing, and operational audits to improve speed and upselling. Store-level fixes can include tighter scheduling, simplified prep, and shrink control.
Industry Benchmarks and Possible Fixes
Analysts say a healthy fast-casual unit often targets labor near the low 20s as a percent of sales and food costs in the upper 20s to low 30s. When either measure climbs several points, profits can vanish quickly.
Operators facing persistent losses evaluate options. They renegotiate leases, pursue rent abatements, or trim capital spending. Some shift to smaller footprints or drive-thru heavy formats to lift throughput. Others consider refranchising or closing the most troubled sites.
Menu engineering can help. Focus on items with strong margins. Reduce complexity to speed kitchens and reduce waste. Pair promotions with dayparts that can handle extra volume without hurting service times.
Balancing Views on Accountability
Franchisees often argue that fees and mandated vendors limit flexibility when costs rise. They want faster pricing power and marketing support tied to local realities. Franchisors counter that brand standards protect long-term value and customer trust.
Both sides share the same goal: sustainable unit economics. That means consistent traffic, efficient labor, and menu prices customers accept. When 31 stores go negative for a single operator, it becomes a test of how quickly both parties can respond.
M&M Custard’s statement puts a spotlight on how thin margins are across many locations. It also highlights how fast a regional slump can ripple through an operator’s books. The outcome may hinge on rent talks, cost resets, and how much demand can recover.
For now, the focus will be on whether the struggling stores can return to break-even through operational improvements and targeted pricing moves. If not, selective closures or ownership changes could follow. The next few quarters will show whether traffic, wages, and food costs move in a direction that gives franchisees breathing room.
