Are You Buying a Floundering Restaurant Brand or the Locations?

 

In the last decade, the foodservice and commercial real estate industries have increasingly overlapped, especially as restaurant chains falter under the weight of declining consumer relevance, rising operating costs, and outdated models, according to Steven Johnson Grocerant Guru® at Tacoma, WA based Foodservice Solutions®.

The key question facing investors today isn't whether the struggling restaurant brand can be turned around—it often can't—but whether the value lies in the locations themselves rather than the banner on the front door. Examining food industry trends over the past ten years shows a stark truth: most struggling restaurant brands are weak and stay weak, while their prime locations remain an overlooked asset.

 

The Historical Picture: Floundering Brands Stay Floundering

The narrative of restaurant brand failure isn't new. Over the last decade, Sbarro, Friendly's, Quiznos, and Blimpie are prime examples of brands once perceived as strong yet faltered due to – among other reasons – poor management, lack of innovation, and a failure to keep up with consumer dining preferences. For brands like these, even changes in ownership failed to inspire enduring growth.

The harsh reality: Most struggling brands don't possess the relevance to rebound. According to Technomic's industry data, nearly 70% of restaurant brands that fall into steep decline fail to regain market momentum, despite reorganization efforts.

Why?

·         Consumer Migration: Customers are increasingly loyal to convenience, quality, and value-driven competitors, such as fast-casual chains, grocerants, and third-party meal delivery options.

·         Identity Loss: Brands too far removed from their original core identity (think: inconsistent menus and uninspired innovations) lose emotional appeal.

·         Market Saturation: A once-beloved concept might fail not because it's universally flawed, but because it became redundant among the dining landscape.

These brands remain locked in cycles of discounting and ‘revamped concepts’ that yield minor bumps but no sustained profitability. In short: A bad brand doesn't age well.

 

The Power Is in the Locations

The locations that these struggling restaurants occupy, however, tell a different story. While the banners above the doors fade, the physical real estate remains a highly prized asset. Prime locations in areas of strong foot traffic, suburban centers, and growing metropolitan corridors hold value far beyond a legacy brand's diminished returns.

Consider this:

·         The National Restaurant Association reported that 50% of restaurant visits over the last 5 years occur in convenience-centric spots such as mixed-use developments or neighborhoods experiencing demographic booms.

·         Well-positioned buildings with drive-thru infrastructure remain particularly lucrative in the age of delivery and off-premises dining, increasing value regardless of whether a restaurant chain fails.

Key takeaway: Investors can often derive more profit from the real estate redevelopment or repurposing of these spaces rather than sinking funds into revitalizing a stagnant brand. A floundering concept may only stand in the way of unlocking greater commercial potential.

Who Are You Competing With for

Share of Stomach

 

Investor Pitfalls: The Skill Set Problem

In many cases, groups acquiring struggling brands fail to identify their weaknesses—either by overestimating their own ability to breathe life into stale restaurant concepts or by ignoring emerging foodservice trends.

Two Major Realities:

1.       Lack of Operational Expertise: Many buyers come from real estate, finance, or outside sectors and lack the hands-on, forward-thinking expertise to rejuvenate failing restaurants. A familiar name, historical familiarity, and perceived nostalgia often trick investors into thinking a brand still holds latent consumer appeal.

o    Example: When Quiznos franchises were acquired by investment groups, owners misread the consumer's appetite for new, healthy QSR innovations, while Subway and Jimmy John's surged ahead with agile branding strategies.

2.       Failure to Create Consumer-Relevant Brands: Most struggling brands falter precisely because they aren't meeting today's consumer expectations. Acquiring firms without the vision to pivot to fresh, on-trend dining models simply accelerate the brand's demise.

o    Meanwhile, success stories like Sweetgreen, Shake Shack, and Chipotle show how forward-thinking brands capitalize on flavor innovation, pricing transparency, and frictionless delivery models.

In essence, many buyers fail to identify whether they're truly purchasing a viable concept or merely saddling themselves with an albatross.

 

Case Study Examples

·         Ruby Tuesday: Acquired several times over the last decade, Ruby Tuesday's core weaknesses persisted—uninspired casual dining, bloated menus, and neglected store upkeep. The high-value real estate that locations occupied (near major retail hubs and suburban crossroads) became more valuable than the brand itself. Buyers failed to capitalize on newer food trends, accelerating its closure rate.

·         Burger King Locations Redeveloped: In the wake of closures across declining markets, numerous Burger King franchises turned into profitable Starbucks or Chick-fil-A spots. Well-situated sites with high-volume traffic lived up to their potential, even when the Burger King banner had not.

The Future Outlook: Redevelop, Don't Rescue

As restaurant industry competition intensifies and consumer expectations evolve, underperforming restaurant brands will remain risky purchases. However, for savvy buyers, the locations present strategic advantages far exceeding their operational histories. When high-demand areas meet physical spaces built for dining convenience—drive-thru, delivery access points, and high-traffic areas—the opportunities multiply.

Consider this actionable framework for buyers:

1.       Prioritize Location Metrics: Location value lies in high consumer visibility and service capability, not in legacy nostalgia for old brands.

2.       Redevelop for Consumer Relevance: Convert failing locations into new QSR concepts, mixed-use retail, or on-trend grocery partnerships (e.g., ghost kitchens).

3.       Assess Market Conditions Aggressively: Brands with sinking operational metrics—plummeting comp sales, shrinking margins—indicate future stagnation regardless of ownership.

 

Think About This: Real Estate Triumphs Over Nostalgia

The last decade has cemented this fact: the restaurant industry rarely rewards outdated concepts trying to claw their way back to relevance. Many investors chase failed turnarounds for far too long—while smarter players recognize the enduring value of prime real estate. Floundering brands are risky ventures, but their locations can serve as fertile ground for the next big concept.

Savvy investors don't ask whether they can revive an underperforming chain. Instead, they ask: How much value can we unlock from where that restaurant stands?

Invite Foodservice Solutions® to complete a Grocerant ScoreCard, or for product positioning or placement assistance, or call our Grocerant Guru®.  Since 1991 Foodservice Solutions® of Tacoma, WA has been the global leader in the Grocerant niche.