Fast food and chain restaurants have been American staples since White Castle opened its doors in Wichita, Kansas, in 1921, along with the first A&W Root Beer's restaurant location in 1921. Today, the fast food and chain restaurant industry employs over 3.8 million people in the United States, with American brands offering locations in all 50 states and also around the world. In 2013, there were nearly 233,000 individual store locations bringing in approximately $200 billion in sales. (For more, see: Can McDonalds Survive Against Fast Casual?)
This iconic sector of the economy, however, is coming under increasing pressure lately and corporate earnings are suffering. The largest chain, McDonald's Corporation (MCD), saw its earnings decline with same-store sales decreasing at a fairly significant rate. As a result, the company announced it would no longer release data on monthly sales figures in order to prevent wary investors from putting downward pressure on the price of its shares. As of September 7, 2018, McDonald's share price is almost equal with that of 12 months prior. Privately owned sandwich chain Subway has also had quite poor performance as competitors focusing more on high quality foods and better service begin edging in. Shake Shack (SHAK), which offers more gourmet hamburgers, has seen its shares increase over 62% since its IPO in February of 2015. (For more, see: The Story of Shake Shack's Success.)
With this recent shake up in the fast food industry, new dominant players may emerge and once mighty brands may dwindle and ultimately fail. Here is a list of the top six formerly prominent restaurant chains that have disappeared from all but our nostalgia. But beyond nostalgia, important lessons can be learned from these failures: 1. The industry is highly competitive and being able to adapt to the competition and changing consumer preferences is critical. 2. Growth is good, but expanding too rapidly and with too many locations can be dangerous. 3. It really doesn't matter how long the company has been around for or how successful it used to be. 4. Even if it fails in America, there may be a second life for it in other parts of the world. (For more, see: Most Affordable Fast Food Chains.)
In the mid-1920s, entrepreneur Howard Deering Johnson borrowed $2,000 to open a small pharmacy and general store in Massachusetts. Soon after, he installed a soda fountain and quickly saw his profits rise. He expanded opening a string of soda shops and concession stands that eventually became Howard Johnson's Restaurants (affectionately known as HoJo's). By 1961 there were 605 HoJo's locations, as well as 88 additional locations in the related Howard Johnson's Motor Lodges. By the mid-1970s, customers began favoring quicker fast food via counter services and without the need for HoJo's formal dining rooms and wait staff. As of September 10, 2018, there is only one Howard Johnson's restaurant location left: in Bangor, Maine. The motel chain is part of Wyndham Worldwide.
Chi-Chi's casual family-style Mexican dining chain of restaurants was founded in Minnesota in 1975, and was taken over by former KFC executive Shelly Frank who moved the headquarters to Louisville, KY. Under Frank's stewardship, the company had grown to over 210 locations by 1995. By the late 1990s the company began its decline as its success had spawned numerous competitors including counter-service Mexican offerings such as Taco Bell and Chipotle Mexican Grill, Inc. (CMG), which took away Chi-Chi's market share. Attempts to save the business by expanding into large markets such as New York City and Boston failed, and by 2003 the company filed for bankruptcy. To make matters worse, a hepatitis A outbreak in Pennsylvania was linked to a local Chi-Chi's location and the company never emerged from bankruptcy. The company did sell the brand name to Hormel Foods Corp. (HRL) to market its grocery-sold salsa and nachos, and a handful Chi-Chi's brand locations still persist in Europe and the Middle East after being sold to a Swiss investor.
This Irish-American themed casual dining chain was the origin of "flair" on the wait staff and tchotchkes fastened to the walls and ceiling to amuse and interest patrons. Founded in 1976 in Georgia, and later owned by Pillsbury Corporation (which also owned Burger King at the time), Bennigan's grew to over 250 locations throughout the nation. But its recipe for success was soon copied as upstarts such as Applebee's and Chili's Grill & Bar (EAT) came on the scene, complete with walls adorned with novelties and staff adorned with flare. Unable to maintain its position, the company filed for bankruptcy in 2008 and shuttered over 200 locations. The company did emerge from bankruptcy under new ownership, but as of January 2018, only features approximately 32 stores.
Steak & Ale
Steak and Ale (S&A) once was part of Pillsbury's portfolio of fast-food restaurants alongside Bennigan's and Burger King. It was created in Dallas, TX, in 1966 by Norman Brinker, who also founded successful restaurant chains Chili's and Jack In the Box (JACK). S&A was the first to introduce a self-service salad bar and grew to over 100 locations by the 1980s. In the 1990s and early 2000s the brand saw decreasing sales and by 2008 only 50 stores remained. Unfortunately, S&A was operated by the same company as Bennigan's when it went bankrupt in 2008, and while Bennigan's emerged from bankruptcy, Steak and Ale closed all of its locations.
Kenny Rogers Roasters
Country singer Kenny Rogers founded his namesake chain of rotisserie chicken and soul food restaurants in 1991, and eventually opened over 425 locations worldwide. The company grew too fast in an already crowded space with competitors like Boston Market and Chick-Fil-A opening stores at a more reasonable pace. Although there was initial success, and the quality of the food was generally praised, the company filed for bankruptcy protection in 1998 and was eventually sold to Nathan's Famous Inc. (NATH), who quietly shut down the remaining locations or converted them into Nathan's locations in the U.S. In fact, the last U.S. location in Ontario, California, closed for good in late 2011. There is some good news, though: The concept has caught on in Asia, with over 150 locations throughout the region, so if you are hankering for some Kenny Rogers, just head over to Malaysia.
Sambo's was founded in 1957 and expanded across the country serving burgers as well as pancakes. At its peak in the 1980s, it had a whopping 1,118 locations nationwide. While the name of the brand was simply a contraction of the names of the two founders (Sam Battistone and Newell “Bo” Bohnet), it was an unfortunate one, and came under increasing pressure in the late 1980s from civil rights activists claiming the name was racially insensitive to black people as an inadvertent reference to the 19th-century book "Little Black Sambo." In 1983, more than 600 locations were renamed Seasons Friendly Eating, but the new brand image didn't catch on. Some locations were sold to Denny's (DENN) and converted into their stores. As of September 10, 2018, one Sambo's exists in Santa Barbara, California.
The Bottom Line
The fast-food market is coming under increasing pressure from competitors offering more upscale fast casual cuisine and higher quality foods that many consumers demand today. Furthermore, a push by fast-food workers to raise their minimum wages is being met with resistance as these companies are seeking to cut costs in order to preserve profitability. Unless these companies are nimble and can adapt to the changing times, they may end up being just a fond memory such as those restaurant chains in the list above. (For more, see: To what extent can fast food restaurants pass along rising costs to customers?)