As the end of the year draws near, all eyes are on retail and the boom or bust of Black Friday; however, on the periphery the restaurant industry is undergoing a major shift. Restaurants have had a bumpy ride the last three years and with the pandemic in the rearview, many see clearer days ahead, yet they still have to get their houses in order. Great strides have been made to win back customers with off-premise dining options and loyalty rewards that have seemingly led to record profits. These profits only tell part of the story, with traffic decreasing, and major chains filing for bankruptcy. Throw in issues like unionization, labor violations, and rising minimum wages and those quarterly earnings seem like empty calories. The modern restaurant is unsustainable and there is clear dissension about what it should look like going forward.

Three major Burger King franchisees have filed for bankruptcy in the past year and a Wendy’s franchisee filed just this week. Restructuring and closing of underperforming stores is nothing new for foodservice, yet we rarely see it on this scale with major chains. There is no doubt that these bankruptcy filings are a direct result of how companies are dealing with the post-pandemic economy. Franchising is almost always the goal for upcoming restaurants and the increase in scale that comes with it is the only way to match more established brands. More operational scale brings a complicated supply chain and a greater risk of breakdowns. This has led to the shuttering of stores that don’t make the cut and that bar is only getting higher as prices rise and consumers balk.

Major chains have also struggled with quality control as they increase their size through franchising. McDonald’s has been hit with multiple child labor violations this year as unsupervised children worked in kitchens. New laws that make franchisors liable for the reckless actions of franchisees will also add to the pressure. Unionization and violation of unionized workers rights has been a challenge for a company like Starbucks and other chains know that they could be the next to face those same hurdles. This is all added to the rising minimum wage for workers in California and some other states as well as the potential elimination of the tip credit for dine-in . The labor issues that harried companies at the start of the pandemic have not gone away, they have only taken a new shape.

The technological advancements of AI ordering and automated kitchens touted by restaurants have been impressive, yet they are largely driven by the labor issues outlined above. Even with potential labor solutions the central problem they have yet to solve is price. prices have continued to rise and there is no clear end in sight. Some companies have leaned into this by leveraging their products as a premium that customers are willing to pay for and others have tried to get back to value with both seeing mixed results. Customer traffic is down, and loyalty apps have been effective at drawing some back in, yet it has not been enough.

We are likely to see more bankruptcy filings as we continue into 2024 as restaurants try to resolve this price point crisis. We will continue to hear major chains talk about profits being higher and it will only be part of the story. Restaurants need customers to return and more expensive burgers could tip the scales in the wrong direction. Retailers are looking to Black Friday to help them salvage 2023, yet foodservice chains are going to need more than that to salvage theirs.