Major fast-food chains are pushing franchisees to accelerate expansion plans despite intensifying cost headwinds across the industry. Brands like Firehouse Subs, owned by Restaurant Brands International (QSR), are dangling incentives like up to $100,000 upfront for new operators who are current/former first responders or veterans in hopes of fueling growth.
Yahoo Finance Senior Reporter Brooke DiPalma breaks down the details.
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Editor's note: This article was written by Angel Smith
Video Transcript
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BRAD SMITH: All right, let's rock. Fast food giants, they're serving up incentives to encourage franchisees to expand their business amid rising costs. But will these pricey incentives pay off? Brooke DiPalma is here with the latest. Hey, Brooke, what do we know?
BROOKE DIPALMA: Good morning, Brad. That's right, we heard the story of COVID closures during and post pandemic. And now it's really a story of growth. These major operators really looking to encourage franchisees to boost growth.
But you can't help but think of the many challenges that are up against franchisee owners right now. That includes higher food costs, higher inflation costs, higher labor inflation that is. At the start of this year, we heard many states raise their minimum wage more than 30 that is. And you also have that looming FAST Act in California come April 1. Franchisees also facing higher interest rates as well as increase in construction costs. It's up 30% to 35% compared to pre-pandemic.
But now, this is leading franchisees to be very cautious, very smart about just how much they want to develop post pandemic. But brands are also looking to get in front of as many consumers as possible, as they feel like there really is an opportunity in this sort of environment to ramp up growth for fast food and fast casual chains, and really a need there that consumers want.
So some of those investments-- incentives, rather, that we're hearing from operators includes one out on Wednesday from Restaurant Brands International subsidiary company called Firehouse Subs. So they announced a cash upfront incentive of $100,000 for up to three locations for new franchise operators that are either former or first responders or veterans that's core to the Firehouse Subs brand.
We also heard from Mike Hancock, who's Firehouse Subs President, that since the company was acquired by Restaurant Brands International, they have been ramping up growth. That has been a key initiative for the company. And they're not alone in this initiative to really push and accelerate growth.
We heard from Papa John's earlier this month that they're looking to boost North America development. They're waiving payments to the national marketing fund for up to five years for new stores built in 2024. And we also heard from Wendy's last year that they're also announcing an incentive. So this will be something to watch just how much she's playing to growth.
SEANA SMITH: So Brooke, I think the big question is, when does this make sense in terms of whether or not we're seeing a return, in terms of whether or not these incentives are the smartest way to go? What are some of the things that investors need to keep in mind?
BROOKE DIPALMA: Yeah, it's very early to tell given that these incentives are just out. But new store development will certainly be one to watch. Just how much these work, just how many new stores are out this year-- also take a closer look at same store sales growth within the coming year to see just how much these new operators are able to bring in new customers and really ramp up that ticket size based upon the franchisees renovating how they look, those new kiosks, those new snazzy ways that really companies are looking to intrigue customers to come in and ultimately spend more.
And ultimately, it'll be up to that partnership between franchise operators and corporate brands. At the end of the day, these corporate brands, like say a McDonald's or Restaurant Brands International a Yum! Brands, a Wendy's, a Papa John's, and so on-- they really need to make sure that they're keeping up with their A-game, presenting the best marketing campaigns, menu innovation, attracting younger audience, and also keeping in touch and building strong relationships with food suppliers. And so it really is a two-way street here.
SEANA SMITH: It certainly is, and one that I'm sure you're going to be following as we try to figure out whether or not this is paying off. Well, Brooke, thanks so much.
