Hardee’s has closed 200 locations from 2019 to 2024, and more this year. | Photo: Shutterstock.
We wrote this week about Hardee’s, which is at war with another of its large-scale franchisees. It’s the second major legal dispute involving a big operator and could portend to more closures.
It’s been a tough period for the fast-food burger chain, whose domestic sales have fallen more than 7% over the past five years.
Hardee’s struggles stand out, even in a sector that has undergone as much market share shift as any other and one that in recent years has struggled with weak sales and traffic.
On average, for instance, the 10 largest quick-service burger chains have grown sales by 35% since 2019. Two chains have leapfrogged Hardee’s over that period: In-N-Out, whose sales have grown 75%, and Culver’s, which has more than doubled over that period. Everybody else, including Hardee’s sister chain Carl’s Jr., have grown sales over that period, even if not by very much.
Hardee’s average-unit volumes are lower than any other major fast-food burger chain, and by some $400,000 per location. The pandemic and its ugly aftermath have not been great for the company, whose average-unit volumes should be at least 38% higher if they kept pace with inflation over the past decade.
And even that would not get Hardee’s to the same average-unit volumes as Burger King, the same chain that has had franchisee bankruptcy problems of its own over the past couple of years.
Hardee’s is trading legal filings with a large franchisee whose sales are so bad at some locations that it feels the need to close them at 2 p.m. every day, arguing that it is better off doing so.
In the latest instance, the private-equity company that owns Church’s, Quiznos and Taco Del Mar acquired a bunch of stores in 2023 from the bankrupt Summit Restaurant Holdings. That arrangement worked for just more than a year before the operator, ARC Burger, stopped making royalty, ad fund and lease payments, and now the issue is in court.
What’s more, Hardee’s in its lawsuit noted that High Bluff Capital, the firm that owns ARC, receives a management consulting fee of at least $1 million, or 5% of EBITDA—earnings before interest, taxes, depreciation and amortization—whichever is larger.
The two actions show that Hardee’s is taking a tough stand on its franchisee base, to the point that it risks dozens more closures in the process. But it also demonstrates what happens when brands can’t grow unit volumes over an extended period of time—it creates some problems and reveals others.
The chain has closed 200 locations from 2019 to 2024. More stores have closed this year—local reports have said that at least 15 locations have closed, mostly in the Midwest, since early November.
Exactly why Hardee’s has had its challenges is difficult to assess. The brand has always been a more challenged fast-food brand, with a lot of locations in small towns and rural areas. Even during its better years it was on a tier below larger rivals McDonald’s, Burger King, Wendy’s and Jack in the Box.
The chain was operated for years under a strange, different-name, same-brand style with Carl’s Jr., which acquired Hardee’s in the late 1990s. That in theory gave the Hardee’s-Carl’s two-headed brand a bigger national voice.
But it also meant that Hardee’s more conservative customers were subject to a series of racy ads featuring stars such as Paris Hilton.
Yet the “split” of Carl’s and Hardee’s in 2018 hasn’t exactly led either chain to thrive, either.
As we’ve said before, unit volumes trump everything. Brands that can’t generate some relatively consistent growth in per-location sales will struggle over time to convince franchisees to do things like remodel locations or keep staff on hand to handle busy periods.
And when it gets particularly bad brands end up dealing with operators that go rogue and close in the middle of the afternoon or fail to pay royalties on time.
