From Nation's Restaurant News · · 2m
Healthy restaurant brands can face financial distress
A strong restaurant brand can still struggle with debt and cash flow.
In brief
A strong restaurant brand can still struggle with debt and cash flow. Restaurant brands with good concepts can face financial distress due to complex ownership structures and debt obligations. Originally reported by Nation's Restaurant News.
Restaurant sales expected to grow
Restaurant sales are expected to reach $1.55 trillion in 2026, up from 2025.
Real sales growth slow
The National Restaurant Association expects real, inflation-adjusted sales growth of just 1.3% this year.
Most restaurants report declining traffic
Six in ten operators reported declining traffic in 2025, and only 58% said they were profitable.
Bankruptcy filings rise
Restaurant Chapter 11 bankruptcy filings rose an estimated 50% in 2024.
Ownership structures complex
The ownership structure behind a restaurant can be complex with multiple layers of stakeholders.
Franchisor and franchisee roles
The franchisor may own the brand and collect royalties while the franchisee operates the restaurants and carries unit-level debt.
Private equity investment
Private equity invested an estimated $94.5 billion in bars and restaurants between 2014 and 2024.
Bankruptcies linked to PE
Nearly half of restaurant and bar chains that filed for bankruptcy in 2024 were PE-backed.
Sale-leasebacks example
Red Lobster's $1.5 billion sale-leaseback converted real estate into leases with annual rent escalators.
Red Lobster rent burden
By 2023, rent had reached roughly $190 million a year, about 10% of revenue and six times annual interest expense.
Franchisee distress
A national brand can remain viable while individual franchisees struggle with debt and rising costs.
Diagnosing financial issues
Restaurant leaders need to separate restaurant-level performance from corporate overhead and lease burden.
Key financial metrics
Healthy operators typically have debt-to-EBITDA leverage of 4.75 to 5.75 times, while distressed franchisees can reach six-to-eight times.
Solutions for distress
Fixing the right problem requires operational improvements, lease renegotiations, or restructuring underperforming locations.
The headline
Restaurant brands with good concepts can face financial distress due to complex ownership structures and debt obligations.
