Your favorite local fast-food restaurant may disappear before you even notice. That's because the sector is now preparing for the year ahead, and companies are reevaluating their businesses, cutting costs, separating the profitable restaurants from the unprofitable ones, and deciding which locations will make it into 2024. Competition has never been so tough, and with economic conditions suggesting that consumers will continue to limit their dining-out budget, brands need to adapt to the new market conditions and cut off some bad apples that could compromise their growth and stability in the near future.
For instance, after parent company Yum! Brands reported a 25% drop in net income for the first quarter of 2023 due to declining sales and foot traffic at its restaurants, KFC and other chains owned by the company began closing stores to start rebalancing their business. Since 2020, almost 70 KFC restaurants have been shuttered, with 35 closings happening over the past twelve months. Though the chicken chain also opened some locations in 2022, after generating its first unit growth in years, it reverted back to closures this fall. Revenue slipped by 1.1% during Q1, but data from the most recent quarters hasn't been released to the public yet. Now, the popular fried chicken fast food chain is exiting the market of one U.S. state completely, shuttering all stores and liquidating its assets in the region. According to the U.S. Sun, dozens of KFC locations are closing down in Louisiana. And the last seven closures meant that the chain will no longer serve customers in the state. KFC restaurants in Jennings, DeRidder, Crowley, Eunice, Lake Charles, Lafayette, and Sulphur were reportedly closed without notice. The company didn't respond to the outlet why it is leaving the state. Staffers said they were only made aware of the shutdowns by notices put at the restaurants' doors. The stores were not franchisee-owned, but operated by the corporation. According to retail analysts, the only reasonable explanation for the sudden closings is underperformance. Right now, Yum! Brands is reassessing its portfolio, and many other chains operated by it, including Taco Bell and Pizza Hut, are likely to follow the same move as KFC.
Similarly, burger chain Hardee's seems to be in trouble. In 2022, annual sales declined by 4.2%, and average sales volumes dropped by 3%. The brand is a sister to Carl's Jr., and both chains have been reporting weak sales since at least 2018, according to Restaurant Business. Then, Summit Restaurant Holdings, a large Hardee's franchisee went bankrupt and closed 40 restaurants. Now, parent company CKE Restaurant Holdings is planning to reduce Hardee's store count by 13%, or approximately 213 locations. The targeted restaurants are based in Alabama, Florida, Georgia, South Carolina, Kansas, Missouri and Wyoming. During the filing, CKE said Summit Restaurant Holdings should sell the restaurants it operated to a “qualified and well-capitalized buyer, with a record of success across the restaurant, entertainment, food, beverage and retail markets.” Unfortunately, that didn't materialize, and the restaurants are at risk of being liquidated.
For most of these brands, closing stores is not something they take lightly. Oftentimes, that is their last resort. However, they must protect their business now to be able to navigate the challenges ahead. In many cases, it's a matter of survival. This trend is likely to intensify as economic conditions continue to deteriorate, meaning that we may have to say goodbye to multiple beloved restaurants before the year ends.