M&M Custard, a franchise operator for Freddy’s Frozen Custard & Steakburgers, says its group of 31 locations is losing money. The company’s brief statement signals deeper pressure in the fast-casual sector as operators face higher costs and uneven traffic.
The disclosure raises questions about the financial health of franchisees running mid-sized portfolios. It also brings fresh attention to how inflation, wages, and borrowing costs are reshaping restaurant economics across several regions of the United States.
What the Franchisee Says
“M&M Custard says 31 Freddy’s Frozen Custard locations put them in the red.”
The remark suggests operating losses across a sizable footprint. While details on timing, markets, and store performance were not released, the scale of 31 locations indicates the pressure is not isolated to a handful of underperforming sites.
Freddy’s, founded in 2002 and known for steakburgers and frozen custard, has grown through franchising. That model often relies on tight unit economics. When costs rise faster than sales, even a small margin squeeze can tip a portfolio into losses.
Context: Restaurant Costs and Demand
Restaurant operators have faced higher input costs over the past two years. Food, packaging, and labor expenses rose as suppliers adjusted prices and state and local wage floors increased. At the same time, borrowing costs have remained elevated, raising the expense of new builds and remodels.
Traffic patterns have also shifted. Many chains reported mixed results, with some customers trading down, using coupons, or skipping add-ons. Price increases helped protect margins for some brands, but higher menu prices can dampen visit frequency, especially for value-focused diners.
Industry data over 2023 and 2024 showed food-away-from-home inflation running above historical norms, even as the rate of increase slowed. Operators that rely on volume to cover fixed costs can struggle when sales per store flatten while wages and inputs keep rising.
Why Franchise Margins Are Under Pressure
Franchisees typically cover royalties, marketing contributions, rent, debt service, labor, and food costs. Most of these are moving targets in a period of persistent inflation.
- Labor: Higher minimum wages and competition for staff lifted hourly pay and benefits.
- Food and paper: Input costs rose, with volatility in beef, dairy, and packaging.
- Capital and rent: Higher interest rates and construction costs raised occupancy and financing expenses.
- Traffic: Value-sensitive guests curtailed spending or sought promotions.
For a 31-unit portfolio, small declines in unit-level profit can create large consolidated losses. Fixed overhead, such as regional management and training, becomes harder to absorb when average unit volumes soften.
Implications for Freddy’s and Franchisees
M&M Custard’s statement could prompt closer review of unit economics across the chain. It may also lead to discussions about menu pricing, promotions, labor scheduling, and supply contracts. In some systems, brands provide temporary fee relief or operational support when franchisees face widespread pressure.
Customers may see more value offers as operators try to protect traffic. But discounts have to be matched with cost controls. Otherwise, deeper promotions can widen losses.
Local communities could feel the effects if franchisees slow expansion, delay remodels, or reduce hours. Staffing decisions often follow sales trends, which affects hiring and scheduling.
What to Watch Next
Several factors will determine whether losses persist or ease in the months ahead. Monitoring menu price growth relative to traffic will be key. Stabilizing food and fuel costs could help, as would any easing in interest rates that lowers debt service.
Franchise systems often revisit store-level playbooks when costs stay high. That can include streamlined menus, kitchen efficiencies, and digital ordering that smooths peak periods. These changes can add points of margin when executed consistently across locations.
For M&M Custard, the path forward may hinge on market mix, lease terms, and the speed of any operations changes. The company’s brief statement signals urgency. The question is whether sales and costs can realign before further cuts become necessary.
The bottom line: a 31-unit operator reporting losses suggests broad pressure, not a one-off miss. Stakeholders will track cost trends, guest demand, and any steps the brand and franchisees take to restore profitability.
