What challenges and opportunities do you see for your business in 2025?, Part 2

Following the inauguration of Donald Trump, uncertainty soared to new heights (depths?). Twenty-five percent tariffs (on hold for now) for our two biggest trading partners? Buy Greenland? Rename the Gulf of Mexico? Seize the Panama Canal? Take over Gaza?

“Madness,” say some. “About time,” say others. And “WTF?” say most.

No matter where you stand, uncertainty is bad for business. And so, despite enthusiasm for likely deregulation, with the prospect of shrinking margins from rising costs for capital, commodities, labor, and rents—combined with consumers’ rising debt loads and falling confidence—what’s a multi-restaurant franchisee to do?

Chill. Wait it out. Seek opportunities, but act prudently. Keep informed, but not obsessively. Speak with your peers. Attend the Multi-Unit Franchising Conference (MUFC) in Las Vegas this coming March 25–28. And take to heart the franchising maxim that all you can control is everything inside your four walls. Then there’s always the Serenity Prayer.

“We don’t know what’s going to happen. It will be four to six months until we know what Trump brings,” says John Metz, a longtime restaurant franchisee. (More of his thoughts below.)

Ed Note: For additional answers to this week’s question, see the Jan. 27 issue of this newsletter.

See you in Vegas at MUFC!

Franchisee Bytes: How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)?

Want to hear more from multi-unit restaurant franchisees? Subscribe here.

EVAN FU

Brand: 2 Charleys Cheesesteaks & Wings

Years in franchising: 7 (1 on the franchisee side, 7 on the franchisor side)

In addition to being a franchisee, Evan Fu is Franchise Development Manager for Charleys Philly Cheesesteaks.

Challenges

1. Political uncertainty is creating market instability, which may lead to reduced consumer spending and purchasing power.
2. Global political and economic instability presents significant challenges, including:
   • Consumer spending downturn in China
   • Political turbulence in South Korea
   • The ongoing Russia-Ukraine conflict
   • The conflict in Israel
   • Other geopolitical tensions affecting global markets
3. The potential resurgence of inflation, coupled with possible new government policies such as increased tariffs, could lead to higher operational costs and price pressures.
4. Potential stricter immigration policies could result in labor shortages and increased labor costs, similar to the workforce challenges experienced during the 2021–2022 pandemic period.

While we anticipate additional challenges may emerge, we remain vigilant and adaptable to changing market conditions.

Opportunities

The challenging business environment of 2024 has led to significant market consolidation, particularly in the restaurant industry. This presents several opportunities:

1. Increased availability of prime real estate locations from business closures, providing excellent expansion opportunities for our brand.

2. The high-inflation environment has shifted perspectives among white-collar professionals, leading to increased interest in franchise ownership as an alternative career path. This expands our pool of potential franchisees with strong business acumen and management experience.

CHRIS SHIMER

Brands: 4 Capriotti’s Sandwich Shop

Company: Ruby Food Company

Years in franchising: 4

I think there is some optimism from consumers regarding the economy and we will see consumer spending in the fast casual restaurant space bounce back some. Relative to Capriotti’s, we are excited to continue to grow brand awareness and to take actions to improve the value we offer potential customers. A challenge is that consumers have many options in the fast casual sandwich world. We need to continue to innovate and stand apart from the competition.

JOHN METZ

Company: CEO & Founder, RREMC Restaurants

Brands: 59 Denny’s, 5 Hurricane Grill & Wings, 2 Wahoo’s Fish Taco, 2 Keke’s Breakfast Cafe

Years in franchising: 23

John Metz is Past Chair of the Multi-Unit Franchising Conference and former franchisor of Hurricane Grill & Wings, which he sold to FAT Brands in 2018.

Challenges

The biggest challenge facing us in 2025 is that there’s going to be continued inflation. We’ve lost a lot of our pricing ability, meaning that as we raise prices we will lose customers. So we’ll have continued inflation and not be able to combat that with increased prices as we have in the past. Most brands, including Denny’s will be 1% up, which will not compensate for increased costs.

For multi-unit restaurant owners, there’s also the specter of rising costs for commodities, labor, and finance, says Vic Cudo, COO and partner at RREMC.

Opportunities

We see a unique opportunity for us this year. We have our base business, which is paramount, and we make sure every unit is profitable; we have maybe five units that are not. We’ll make them profitable by year-end or find an alternative.

We have 59 Denny’s today and expect to have 60 by year-end. With our five Hurricanes, two Wahoos, two Keke’s with two more coming this year, we should be at 70 total with about $150 million in revenue by year-end, up about $20 million from 2024. What I like about Keke’s is that it’s an AM eatery with one shift. [Ed note: Denny’s acquired Keke’s in mid-2022 for a reported $82.5 million.]

Looking ahead, I’m seeing organic growth to get to 100 units, and then we’ll try to grow to 200 or 300. We’re just starting that now and are actively looking to acquire smaller franchisees as consolidation continues. We have access to capital and are very interested in buying a rollup of other franchise operators—as long as they don’t compete with our existing brands.

FRANCHISEE BYTES

How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)?

We consistently manage our two major cost areas by monitoring labor on a daily basis and food weekly. If we encounter significant food variances, we switch to daily tracking. For labor expenses, we adjust and pay based on what our budget allows. We have not been shy about raising prices over the past year.
—James Brajdic, President, Customer Maniacs & Green Bay A Dub, 13 A&W

Rising employee costs are certainly a challenge, especially when sales aren’t increasing at the same pace. The cost of goods has gone up, and employees are expecting higher wages due to the increased cost of living. In response, we’ve worked hard to implement a compensation package that includes competitive wages, generous performance bonuses and incentives, healthcare benefits, access to a 401(k), dental coverage, employee discounts, and other rewards. While it’s a balancing act, we’re focused on maintaining employee satisfaction and retention without compromising on the quality of service we provide to our customers. Additionally, we are constantly reviewing our operational efficiency to ensure we’re managing costs effectively.
—Jacob Webb, Franchise Owner, MPUT Holdings LLC, 22 Marco’s Pizza, 4 Tropical Smoothie Cafe

We have been paying close attention to hours allocated per store while also trying to be competitive with wages and benefits.
—Bryce Bares, Franchise Owner, QSR Services LLC, 30 Dunkin’, 1 Baskin-Robbins

This is a constant challenge my locations face. That’s why I do my best to create a positive work environment, foster a fun company culture, and offer competitive pay at each of my shops in hopes of retaining our team members.
—Yousuf Nabi, Owner & CEO, Gotham IP Inc., 10 Mrs. Fields, 10 Sbarro, 4 TCBY

We are pushing digital and third-party sales as well as installing kiosks in our stores to reduce the number of staff per shift.
—Jerome Johnson, Multi-Unit Franchisee, John Cove Management and Jbar Inc., 10 Dunkin’, 4 Sonic Drive-In, 4 Baskin-Robbins, 1 Jersey Mike’s Subs

These costs are part of doing business. We focus on making our people happy so that they can provide the highest level of service to our customers. We offer merit-based paths to upward mobility.
—Mike James, Founder, Managing Partner, Guernsey Holdings, 122 Sonic Drive-In, 20 Zaxby’s, 3 Take 5 Oil Changes, and a 53-unit development agreement with 7 Brew Drive-thru Coffee

We have seen the financial impact on our P&L. Our focus on culture enables us to keep our people. People won’t stay with you just for the money because someone will always give them more. We focus on the Vibe culture and our core values. We’ve seen people want to be part of something larger than themselves.
—Irfaan Lalani, CEO/Co-Founder, Vibe Restaurants, 76 Little Caesars, 60 Wingstop, 3 Whataburger

Improving retention is key. We want to ensure our culture is one that people want to stay in, and we’re continuously exploring new benefits to offer our team.
—Keith Johnson III, COO/Franchisee, Amazing Food Concepts. 20 Qdoba Mexican Eats, 15 Captain D’s, 1 Epic Wings

You have to try and be vigilant on costs all throughout the business to help offset some of the rising employee costs. Labor and food are the two largest components, so you have to try and gain efficiencies wherever you can to help address the rising costs. You can’t keep raising food prices to offset the costs. You have to find ways to gain efficiency. So we’re constantly doing that, and as we grow we can leverage the costs over a broader pool of restaurants.
—Randy Pianin, CEO, Royal Restaurant Group, 61 Burger King, 4 Potbelly

We try to hire the right people and then the pay takes care of itself. We are big believers in “less is more” if the people are the right ones and do the job. We would rather pay four people higher who will do the job correctly on a given shift than six people at a lower wage who aren’t giving their full effort.
—Bill Aseere, CEO, Space Cowboys Restaurant Group, 17 Donatos Pizza, 3 Guthrie’s Chicken, 2 Whit’s Frozen Custard

The margins are shrinking; there’s no doubt about that. Minimum wage has been tough to navigate with competitors consistently raising the bar to attract talent. Some brands are putting golden handcuffs on their team members just to retain staff by overpaying by 10% to 20%. We know that the best way to manage the personnel budget is through tenure. Tenured team members work smarter and faster. They waste less and give better hospitality to new hires. Both of our brands have an incredible track record with retention.
—Alex Carney, Vice President/Franchisee, TR Hospitality Group, 11 Freddy’s Frozen Custard & Steakburgers, three 7 Brew Drive-thru Coffee

This is really hard. Rising employee costs have forced us to be hyper-focused on productivity. We can’t afford to have anyone on payroll who isn’t producing efficiently.
—Milo Leakehe, Managing Partner, Imbue Capital, 3 Crumbl Cookies, 1 PayMore Stores, 1 Tropical Smoothie Cafe, 1 Rolling Suds, 1 Solve Pest Pros

Like many businesses, we see a trend of increased costs in the economy, including employee wages. I currently offer competitive pay to make sure we are hiring top talent who are driven to grow in their roles. To manage these increased expenses, our team works tirelessly to find ways to increase profits and maintain a smaller group of employees.
—Stephanie Moseley, President, Pisa Pie Enterprises, 6 Marco’s Pizza

We had an incredible run in sales and profitability in 2024 and continue our path. We have no plan for changes.
—James Brajdic, President, Customer Maniacs & Green Bay A Dub, 13 A&W

The economy has greatly affected our menu prices. In the past, we would raise prices maybe once or twice a year. We are now changing the menu board at least four times a year to keep up with the rising cost of goods. Labor costs have gone up with the increases in minimum wage, which also affects our menu prices.
—Jerome Johnson, Multi-Unit Franchisee, John Cove Management and Jbar Inc., 10 Dunkin’, 4 Sonic Drive-In, 4 Baskin-Robbins, 1 Jersey Mike’s Subs

After rapid inflation, consumers are increasingly price-conscious, which has required us to focus on value.
—Bryce Bares, Franchise Owner, QSR Services LLC, 30 Dunkin’, 1 Baskin-Robbins

Inflation has had the most significant impact on the QSR business in recent years. In 2022, we experienced more than 40% food cost inflation in the Sonic brand. We then reduced margins from low double digits to low single digits for several periods. We responded immediately with an aggressive menu pricing increase, which restored margins to the low double-digit range.
—Mike James, Founder, Managing Partner, Guernsey Holdings, 122 Sonic Drive-In, 20 Zaxby’s, 3 Take 5 Oil Changes, and a 53-unit development agreement with 7 Brew Drive-thru Coffee

We closely monitor our cash flow and are sensitive to pricing impacts, ensuring we manage our financial health effectively during economic fluctuations.
—Keith Johnson III, COO/Franchisee, Amazing Food Concepts. 20 Qdoba Mexican Eats, 15 Captain D’s, 1 Epic Wings

We’re continuing to do what we do best and have been able to expand our business portfolio, opening new locations. We’re also really focused on being a people-centric organization that values employees, and we’re continuing to refine how we do that. We’ve even taken the necessary steps to look at how we can make a greater impact on the lives of our employees and their families. We’re looking at education funds and similar initiatives.
—Irfaan Lalani, CEO/Co-Founder, Vibe Restaurants, 76 Little Caesars, 60 Wingstop, 3 Whataburger