ORLANDO, Fla. — Struggling to hang on through the coronavirus crisis, Omelet Bar has had to let go of most of its three dozen employees. But the owner of the independent brunch spot near the University of Central Florida hopes a small-business loan from the federal government will help his business stay afloat.
“I’m down to a minimum crew,” said Tarek Kanso, a UCF graduate who started Omelet Bar three years ago. “This money would help me bring more of the crew back to work and help with bills and maybe rent if there’s anything left over after that.”
Kanso said he is still waiting for his “Paycheck Protection Program” loan. But the owners of thousands of restaurants in the nation’s largest franchise chains have already received theirs.
Executives at Denny’s Corp., which has more than 1,700 franchised diners around the country, told investors last week that franchisees representing more than half of those restaurants have been approved for PPP loans. McDonald’s Corp., which has more than 13,000 franchised restaurants across the country, told its investors that it thinks most of its franchisees have obtained PPP or other small-business loans backed by the federal government. Papa John’s International Inc., which has more than 2,500 franchised locations in the U.S., said a lot of its franchisees have probably “looked” at PPP loans.
Restaurant Brands International Inc., the owner of Burger King, Popeyes Louisiana Kitchen and Tim Hortons; and Dine Brands Global Inc., the owner of Applebee’s and IHOP, both say government loans have provided significant help to their franchisees.
And thanks in part to PPP loans, Dunkin’ Brands Group Inc. — which has more than 9,600 Dunkin’s coffee-and-doughnut shops and 2,500 Baskin Robbins ice cream parlors in the U.S., all of them franchised — says its average franchisee will likely reach 80% of the cash flow it was expecting to produce this year before the pandemic erupted.
“Our expectation is that a lot of our franchisees will have gotten help through the PPP program,” Wendy’s Co. Chief Financial Officer Gunter Plosch told Wall Street analysts on a conference call last week. “So I would expect that they’re actually in pretty decent shape.”
The nearly $700 billion PPP fund for small businesses has become one of the central pillars in the federal government’s multi-trillion-dollar effort to stabilize the U.S. economy during the COVID-19 pandemic.
The U.S. Small Business Administration has processed more than 3.8 million loans through the “Paycheck Protection Program” so far, but the Trump administration has refused to disclose a list of recipients. That makes it all but impossible to evaluate how successful the program has been in tossing a coronavirus lifeline to the nation’s smallest businesses.
But backed by bigger companies with sophisticated lobbying, accounting and legal teams, franchisees in large restaurant chains appear — anecdotally, at least — to have fared better than the restaurant industry as a whole in the race to claim PPP loans before the money is exhausted.
The initial $350 billion that Congress allocated for the program ran out in less than two weeks. Lawmakers added another $310 billion in late April; more than half of that money has already been claimed.
“I think with the bigger operations, more likely there was some amount of infrastructure that you might have been able to tap into as a franchisee that the franchisor may have helped create,” said Matthew Haller, a lobbyist for the International Franchise Association. “It just goes back to how well-oiled the machine is.”
Not long after the Paycheck Protection Program launched, a series of publicly traded, midsized restaurant chains — including Shake Shack Inc. and the Winter Park-based parent of Ruth’s Chris Steak House — disclosed that they had taken out loans through the program. The public backlash was immediate and severe, prompting them to return the money.
By contrast, some of the restaurant industry’s far larger franchisors, which have been reporting quarterly earnings over the past two weeks, have been emphasizing that they haven’t used the program directly. For instance, McDonald’s, Dunkin’ and Papa John’s have all said that they haven’t taken out PPP loans themselves.
But many of them have been working hard to make sure their franchisees get the loans. Yum! Brands Inc., the parent company of Taco Bell, Pizza Hut and KFC, paid a Washington firm $20,000 to lobby the U.S. Senate to ensure franchisees were included in the program.
After Congress created the program, Dunkin’ Brands organized tutorials to coach its franchisees through the application process and made sure they had all the information that bankers and regulators would demand. Then the company created tools to help franchisees track how the loan proceeds are spent to ensure they stay within the loan-forgiveness guidelines.
Many franchisees run relatively small operations. Wendy’s says more than half of its franchisees own no more than five restaurants. Dunkin’ Brands says the average Dunkin’ franchisee owns eight restaurants with 150 employees across the network and the average Baskin Robbins franchisee owns no more than two stores with a dozen employees.
“I would just remind everyone, our operators are small, independent business owners who are eligible for the loans,” McDonald’s Chief Financial Officer Kevin Ozan said on the company’s quarterly earnings call last week.
Some franchisees are much larger. One Michigan-based Wendy’s franchisee, which owns more than 300 of the fast-food restaurants, revealed last month that it got $29.1 million in PPP loans. Representatives for the company did not respond to requests for comment.
The profits of the big restaurant franchisors ultimately depend on the solvency of their franchisees, who pay fees, royalties and rents to the brand owners.
“The company’s success as a heavily franchised business relies to a large degree on the financial success and cooperation of our franchisees,” McDonald’s says in its disclosures to investors.
“Our financial results are to a large extent dependent upon the operational and financial success of our franchisees,” Dunkin’ Brands says is in its own disclosures.
The independent ones
Some smaller restaurant owners say the big chain companies could be spending more of their own money to help their franchisees. That, they say, would free up more public money for independent eateries that don’t aren’t backed by multinational giants.
McDonald’s turned a $6 billion profit last year. The company also steered $8.6 billion to shareholders through stock repurchases and dividends.
“If you’re a franchisee, I’m sure you get protected by the franchisor if you run into trouble,” said Naomi Pomeroy, the head chef and owner of small gourmet restaurant in Portland, Ore., called “Beast.” “Whereas with us small independents, we don’t have access to more capital as easily as that.”
Pomeroy is an organizer with a group called the Independent Restaurant Coalition, which is lobbying Congress to create a fund exclusively for nonchain restaurants. The money would be off-limits to any publicly traded companies or any restaurant with more than 20 locations under the same name and would give priority to restaurants owned by women or people of color.
An estimated 54.5% of U.S. restaurants are independent, according to The NPD Group, a consulting firm.
Other groups are urging federal lawmakers to find ways to help truly small businesses across all industries — whether through payroll subsidies, micro-grant programs or other mechanisms. But it’s not at all clear yet whether Congress will include any of the ideas in its next round of economic aid, whenever that comes.
“We need to do better — we need to do a lot better — for real small businesses,” said Amanda Ballantyne, the national director of a group called the Main Street Alliance.
The organization represents more than 30,000 members around the country — most of whom, it says, have fewer than 25 workers and none of whom have more than 250.
“It’s a real crisis for actual small businesses who are on the verge of bankruptcy right now,” Ballantyne said.