Chad Finkelstein is a partner at the law firm of Dale & Lessmann LLP and chair of the firm’s franchising, licensing and distribution group. His clients include U.S. and Canadian franchisors.
Survey quick-service restaurants right now and you’ll likely hear a version of the same story: Customers are still coming in, but they’re ordering less. Fewer sides. Fewer toppings. Smaller portions.
The explosive rise of GLP-1 medications such as Ozempic and Wegovy is not just changing waistlines. It is changing consumer behaviour in ways that may alter the restaurant industry as we know it. A recent survey shows that one-third of Canadians on such drugs are eating less often, and nearly another third are eating smaller portions.
Unlike fad diets or short-lived wellness crazes, GLP-1 drugs reshape hunger signals at a biological level. People feel fuller, sooner. They snack less. They skip the impulse purchases that drive revenue for many food businesses – the extra topping, the appetizer, the dessert, the “make it a combo” nudge.
This is likely to prove more than a trend, and may reshape restaurant menu design and pricing forever. It could also spell the next battleground of legal disputes between franchisors and franchisees. Chains are in the early stages of incorporating GLP-1-friendly items into their offerings, including Chipotle’s and Shake Shack’s high-protein menus.
Opinion: Taking weight-loss drugs could mean spending less on food, but is it worth it?
Restaurant menus and pricing are built on a specific set of assumptions about consumer behaviour: that customers will spend a predictable amount per visit, that upsizing and add-ons will boost standard orders and that foot traffic will grow along with population. Above all, there is a fixed number of seats in a restaurant. When the same number of customers are occupying the same number of seats, but ordering less, the revenue declines, too. A restaurant’s labour costs, rent, insurance, utilities and loan payments don’t shrink when a customer drops a side dish. But their margins do.
Independent restaurants can be nimble in adjusting to changes, notwithstanding the considerable cost and further erosion of profit margins when responding to disruptions. But restaurant chains, whether franchised or not, rely on these assumptions to model their entire business. Menus, staffing, pricing, equipment, layout, supply chains and franchise fees are all built around a certain expected dollar value per order, and since change must be uniform, it can be slow and costly.
Franchising is uniquely vulnerable because of how the economic relationship between franchisor and franchisee is structured. Franchisors generally collect royalties as a percentage of gross revenue, not profit. That means a decline in average order size hurts the franchisee, first, and then the franchisor, which results in a smaller budget available to review data, conduct testing and roll out systemwide changes.
Consistency across products, pricing, branding and operating systems is what makes franchising successful. It also means that franchisees cannot independently respond to these shifts by unilaterally redesigning the menu, changing portion sizes, lowering prices or creating new products tailored to GLP-1-era diners.
Generics of Ozempic and Wegovy expected to lower insurance costs for employers and workers
The next wave of legal disputes between franchisors and franchisees may emanate from the financial impact resulting from smaller appetites. Franchisors may be insisting on menu changes that franchisees resist incurring the cost of. Franchisees may advocate for more pricing increases that franchisors object to, lest the brand lose its reputation as a value option. Restaurant redesigns may be proposed to provide for fewer seating and more takeout space, all of which costs money.
Restaurants have experienced shocks before – the pandemic, the rise of delivery apps, labour shortages, supply chain disruption and the rising cost of goods. Each required years of adjustment. But the GLP-1 effect is different because it is not about how customers buy their food but rather about how much they consume.
Restaurants, franchised or not, will find a path forward, as this resilient industry always does. Expect menus to be redesigned around higher-margin, smaller-portion offerings. Pricing models may need to shift away from combos or upsizing toward premium, nutrient-dense products that appeal to consumers using these medications. Some chains have already added GLP-1 menus to their standard offerings.
For franchised restaurants, long-term viability will be anchored in the ability of franchisors and franchisees to communicate openly about the changing landscape. Profitability is not likely to be recovered through promotions and discounting. A patient, collaborative, data-driven approach will be essential.
GLP-1 drugs are already reshaping how North Americans eat. Unlike a pandemic or a recession, this change is unlikely to reverse. Restaurants, and in particular restaurant franchisors, should begin planning for menu changes now, rather than wait for revenue to slim down.