The end of fast food's reign: why US franchises are closing

The end of fast food's reign: why US franchises are closing

A Burger King franchisee invests a million euros, pays 6,000 euros a month in rent, and is left with three euros per ticket after product and staff. Inflation eats that margin. The math no longer works. In the US, fast food closures have accelerated in recent months, and the reasons go far beyond simple market saturation.

Unsustainable costs in an inflationary environment

Opening a Burger King franchise costs around a million euros, between the entry fee, renovations and equipment. Add to that a monthly rent that in a commercial location or shopping mall rarely falls below 6,000 euros. With an average ticket of 10 euros (about 9 euros net after VAT), the typical breakdown is: 3 euros for the product, 3 for staff, and barely 3 to cover the premises, operations and profit. Any rise in costs —energy, raw materials, wages— throws that fragile balance off. The royalties demanded by the parent company (around 5-6% of sales) finish drowning the franchisee. Inflation has made everything more expensive, but the wages of the target customers —middle- and lower-income families— haven't risen at the same pace.

The ecosystem that sustained the business has changed

The classic fast food model was designed for a world of full offices, massive shopping malls, packed cinemas and teenagers with pocket money. That world has faded away. Remote work has emptied business districts and reduced the flow of office workers eating out. Cinemas close early (the last meal in many cities is served at 10:30 p.m.), and today's young people, more absorbed in screens and delivery, visit physical locations less often. On top of that, competition has multiplied: it's no longer just McDonald's and Burger King, but hundreds of chains, sushi franchises, poke bowls, kebabs and alternatives perceived as healthier.

The countercyclical business trap that no longer works

Historically, fast food was considered a countercyclical business: in a downturn, people who couldn't afford expensive restaurants took refuge in the 10-euro meal. That peine in 2008, but this time it's different. Because inflation has pushed those meals up to 12-13 euros, which is no longer so cheap compared to a two-course restaurant menu with wine. A family with two children spends 60 euros on a fast food dinner that's over in half an hour. Many choose to cook at home: a quality burger costs less than a chain's combo. The price gap has narrowed to the point of wiping out the competitive advantage.

Oversupply and demographic change

Some point to sheer oversupply: in the 1990s and 2000s, a small town had one or two fast food chains; now there are dozens competing for the same wallet. The customer base isn't growing at the same pace as the supply. Add a demographic shift: the birth rate in the US has been falling for decades, and today's young consumers belong to cultural groups less tied to Western fast food culture. Kebabs and other options are gaining ground.

The result: closures in waves. It's estimated that more than 1,000 locations close nationwide every year. Not even the drive-thru, which was a lifeline during the pandemic, is spared. Eyewitnesses describe ghost queues. Meanwhile, the franchisor keeps winning: the real business is real estate and royalties, not running the restaurants. The one putting up the money —and the work— is the franchisee, increasingly trapped in a financial trap.