Unit economics are important, no matter the model

Noodles & Company would be in better shape with improved unit sales. | Photo: Shutterstock.

This is from the weekly restaurant finance newsletter The Bottom Line. To get this in your inbox every Monday morning, click here.

The Subway system was up in arms last week over a new loyalty program that is among the most generous—if not the most generous—in the industry. Meanwhile, an activist investor wants the perpetually struggling Noodles & Company to sell some 200 locations to franchisees to pay off debt. 

These are unrelated, but for one issue: Unit economics. 

Subway operators are largely upset because they worry about the impact that generous loyalty program will have on their already-weak profits. More than a quarter of the chain’s locations have closed since 2015—enough to make up the sixth largest U.S. chain by unit count—and their sales are down this year, too. 

Noodles, meanwhile, is being urged to sell off company stores. But Noodles wouldn’t have to sell off company stores to pay off debt and reduce bankruptcy risk if the company was able to generate more consistent sales growth over the past decade. Those weak volumes will make it that much harder for the company to sell those restaurants to pay off that debt. 

It’s easier said than done for brands to build volumes. But companies are often so focused on unit growth, especially in Subway’s case, that they lose sight of the importance of improving results on a per-location basis. Unit growth is a lot easier when the unit economics are strong enough to justify the expansion. 

It’s a lesson many chains learn too late.  

This week’s financial news

Fat Brands received another demand for debt payment. While we’ve covered the challenges with the company’s debt, the company’s concepts are mostly underperforming, too. 

We’ve seen a surprising number of restaurant chains simply shut their doors. The latest: K&W Cafeteria.

Chick-fil-A is bringing its owner-operator model to college campuses. There’s a good reason for this: Its model works.

A 10-unit chain just got a private-equity investment.

I’ve long been beating the drum for First Watch as an underrated growth story, so I was thrilled to see my colleague Joe Guszkowski write this piece on the chain. 

Speaking of Joe, he also wrote about one of my all-time favorite restaurant chains, Macaroni Grill, which is still alive somewhere. 

Number of the week

Subway had so many restaurants at its peak that it was able to close 7,600 of them, which would be enough to be the country’s sixth-largest restaurant chain by unit count, and still have plenty left over to be the most prolific chain in the U.S. Insane.

Quote of the week

“F that.” -A Subway franchisee, via text, after we asked them about the company’s new “Sub Club” loyalty program.

On the blog

I wrote about Subway, Noodles and consolidation. Check out all my blog posts at The Bottom Line.

On the podcasts

On A Deeper Dive we continued looking at AI in Restaurants. This time, the back of the house. On The Week in Restaurants we discussed Subway, Fat Brands and Noodles & Company.

For questions, comments or story ideas, send me an email at jonathan.maze@informa.com. And follow me on Twitter at @jonathanmaze. And also LinkedIn. And TikTok.

Restaurant Business Editor-in-Chief Jonathan Maze is a longtime industry journalist who writes about restaurant finance, mergers and acquisitions and the economy, with a particular focus on quick-service restaurants.

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