# Healthy restaurant brands can face financial distress

> A strong restaurant brand can still struggle with debt and cash flow.
- Title: Healthy restaurant brands can face financial distress
- Summary: A strong restaurant brand can still struggle with debt and cash flow. Restaurant brands with good concepts can face financial distress due to complex…
- Keywords: restaurant, financial distress, debt, franchisee, ebitda, leverage, bankruptcy, real estate, Nation's Restaurant News
- Source: Nation's Restaurant News — https://nrn.com/expert-opinions/a-healthy-restaurant-brand-can-still-be-a-distressed-business
- Read time: 1 min
- Topics: restaurant, financial distress, debt, franchisee, ebitda, leverage, bankruptcy, real estate, food, business
## 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.
## Key takeaway

Restaurant brands with good concepts can face financial distress due to complex ownership structures and debt obligations.