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The fast food industry and its major chains are starting to head down a road to possible multiple chain closures. According to Andy Puzder, former CEO of Hardee’s and Carl’ Jr., these closures are inevitable due to rising menu prices across the board as customers abandon ship and turn to grocery stores for relief.
Puzder argues that these same rising costs are squeezing profit margins for restaurant owners, so in order to stay afloat, some brands are resorting to layoffs and automation to reduce labor costs. Others are raising menu prices further, which has alienated customers already dealing with prices that have outpaced inflation by a shocking 41% since 2017.
Pudzer appeared on Fox Business’s Varney & Company where he said:
“As more restaurants close, there’ll be more customers for fewer restaurants. But people just can’t afford these prices. And there’s only so much you can do to reduce prices.”
Sink Or Swim?
Puzder discussed new tactics being implemented by major chains to reduce costs and continue to survive in today’s market. One of the strategies would see employees laid off en masse as their jobs become outsourced.
Former CKE Restaurants CEO – parent of Carl’s Jr. and Hardee’s – Andy Puzder spoke on the new automation outsourcing tactics to cut costs: “I was talking to a fast food chain CEO about a week ago, and he was saying they’re going to take all of their ordering at the drive-thru… [with] professional order takers in India or in the Philippines. It won’t be anybody in the restaurant that takes your order. They’re doing anything they can to reduce costs so they don’t have to raise prices. But there’s so much pressure, particularly in California.”
The rising minimum wage has also been blamed for the increase in costs but Puzder believes that the minimum wage is just one factor among many. The overall cost of doing business is simply becoming too high for many fast food restaurants.
Andy Puzder said on “Varney & Co.”: “There will be a lot of restaurants underperforming. Middle-performing restaurants are going to go away. Very good-performing restaurants will become midland or low-performing restaurants.”
Chains Hit The Hardest
We’ve seen it already with Red Lobster, the iconic seafood chain that officially announced filing for bankruptcy last week after closing over 100 stores and auctioning off the contents. And Applebee’s, has also been quietly closing locations over the past month.
Fast food chains like, McDonald’s, Jack in the Box, KFC, Starbucks, and Papa John’s are among the major brands starting to feel the burn of reduced traffic compared to previous years. Several Burger King franchisees have been bought out or filed for bankruptcy as hundreds of BK locations have closed their doors over the past 12 months. On the flip – Cava, Wingstop, and Chipotle Mexican Grill are experiencing the opposite, with continued strong sales despite the recent struggles of their competitors.
Jack in the Box CEO Darin Harris told investors: “We in the industry are all seeing this kind of pressure. We definitely felt it coming into the second quarter.”
The closures could have a significant impact on the fast food industry as not only will it lead to job losses, but it could also change the landscape of the industry itself. Smaller, independent restaurants may be more likely to survive than large chains.
When Puzder was asked if he would ever consider going back to work in the restaurant industry, his answer was grim: “It was hard when I did it. It’s a very competitive business, you’re really out there, it’s very cutthroat. But now the government’s making it impossible, particularly [for] a company like I had, which was Hardee’s and Carl’s Jr.”
Right now, the focus is on value deals as chains scramble to put together deals to compete with one another and get customers back through their door or drive-thru. Even Walmart has been stepping up their game, poised to capture the fast food industry’s lost traffic. The grocer giant is launching a premium value brand called BetterGoods with an average price of around $5.
Jack In The Box CEO, Darin Harris closed with: “Value is going to be something we talk about for the rest of the year. We know the competition is doing that. So we will be in the game.”
