QSR Magazine

September 13, 2024

Operators face rising costs, labor shortages, and shifting consumer behaviors in 2024, forcing them to innovate.

Restaurants are braving rough waters in 2024. Inflation has eased from its pandemic-era peak. Commodity and labor markets are showing some signs of stabilizing after a volatile few years. But franchisees are still contending with higher input, occupancy, and development costs. Plus, they’re grappling with a consumer base that’s feeling the pinch of price increases and pulling back on discretionary spending in a murky macroeconomic climate. All of that is pushing franchisees to rethink their strategies, prioritize cost efficiency, and explore fresh solutions to maintain growth and profitability.

Hamra Enterprises, a Springfield, Missouri-based franchise group operating around 200 Wendy’s, Panera, and Noodles & Company locations, is seeing a growing demand for value across all of its brands, particularly in the fast-casual segment, says CEO Mike Hamra. Pricing is a baseline for delivering on that proposition, but it’s just one piece of a much larger puzzle.

Ultimately, Hamra says, value is about providing the right experience for guests “from the interaction to the follow through, to making sure that the orders are executed with the speed and accuracy that the customer expects.” That cuts right back to a restaurant’s biggest asset: its people.

“If you’re not supporting your team members, they’re not going to support your guests,” Hamra says. “And if you’re not supporting your guests and providing those exceptional experiences, people stop coming in. It’s simple math. Transactions start to drop. People come back less frequently or stop coming back at all. That’s where I’ve seen a lot of people get in trouble. They think it’s a P&L problem. They try to cut costs instead of investing back in people. Pulling back on that is the worst thing you could do. The best thing you could do is lean in and invest in people, because that translates back into a great guest experience and supports a business that’s going to succeed long term.”

Beyond training and development, Hamra says franchisees need to provide comprehensive support and benefits to remain employers of choice in a tight labor market. His company offers tuition reimbursement for those who wish to continue their education and provides an on-site homework program for student workers. Employees are paid to work on their homework for an hour before or after their shift. They’re also rewarded for good grades with bonuses.

Additionally, Hamra Enterprises runs a program funded by employee contributions and company matching to provide financial assistance for extended medical leave, funeral expenses, and transitional housing. It also aids in financing home ownership and covering daycare costs.

“Competition for the brightest and best employees is pretty fierce out there right now, so it makes a big difference for people when their employer is supporting them not just with a paycheck, but in other areas of their lives that are important to them,” Hamra says, “We typically find that when our support structures are in play, and people are utilizing them and engaging with them, those employees are happier and stay with us longer. They also spread the word about us as an employer to their friends and family, and that makes a big difference in attracting and retaining people.”

The recent uptick in bankruptcies in the restaurant world underscores just how challenging the landscape is. This past year has seen filings from large franchisees for a growing number of major brands, including Burger King, Hardee’s, Wendy’s, Popeyes, McDonald’s, Subway, and Arby’s to name a few.

Hamra says it isn’t all doom and gloom out there, with successful franchisees looking inward and focusing on the factors they can control to stay on course, he says.

“We’ve seen these kinds of dynamics happen in the past before, maybe in different ways, and certainly in different combinations,” he says. “It’s part of our industry. We’re used to dealing with headwinds like this and getting on the other side of them.”

Some brands and franchisees are targeting a turnaround by closing underperforming units. Others are putting a pause on development to focus on maintaining successful locations. Those that are growing are finding the price tag for new stores is still higher than it used to be.

“Building costs have certainly gone up, too, which makes it harder to pencil out how to make it work,” Hamra says. “Everything costs a bit more to get a brick-and-mortar building up. That’s definitely created some challenges.”

In response, quick-service brands are value-engineering new prototypes to lower investment costs for franchisees looking to build new stores. Franchisors are shrinking footprints and enhancing the efficiency of restaurant designs, enabling operators to achieve the same volume with less square footage.

Nontraditional locations also offer a cost-effective path to unit growth. Along with opening new streamlined and digital-focused Wendy’s and Panera stores, Hamra Enterprises has opened new units inside of travel centers and hospitals.

Despite the wave of bankruptcies and mounting pressures, success stories and pockets of growth are still emerging. Franchisees seeking to diversify their portfolios and drive expansion are focusing on fast-growing, traffic-boosting concepts in high-growth categories like beverages and chicken.

Hamra Enterprises branched out and brought a new brand into the fold for the first time in a decade last year. It inked a deal to open two dozen Caribou Coffee locations throughout Missouri.

“We’re looking for things that are growth vehicles,” Hamra says. “Consumers are seeking out craveable products and looking for innovation. They’re sharing where they’re getting new things and trying new products. All of that elevates the competitive nature of the business that we’re in. We were blown away by the different offerings Caribou has and the innovation that they’re doing around beverages. For us, it was about getting into that category, because it’s different from anything else that we have in our portfolio right now.”