I Looked Into Why Restaurant Quality Is Declining. What I Found Is SHOCKING.
For a long time now, I've wanted to do a deep-dive into why every single chain restaurant, without exception, has become terrible in recent years. I finally went looking for answers, and what I found was shocking.
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So for a long time now, I've wanted to do a deep dive into why every single chain restaurant without exception has become terrible in recent years.
And after I ordered a pizza a few days ago, a pizza that tasted just like every other pizza from Domino's, Pizza Hut, Papa John's, Little Caesars, and so on, I decided this investigation simply could not wait any longer.
Something is causing the quality of prepared food to decline in a very noticeable and frankly kind of disgusting fashion.
So what is it?
And this is a question that matters.
And not just because it's annoying that every chain restaurant in the country serves inedible slop.
It matters because most Americans have a sense, have a general sense that the general quality of everything has declined across the board.
And as quality declines, quality of life declines.
So why is that happening?
I mean, what is going on?
Is it even true that it's actually happening?
Or is this all, are we all just being nostalgic for do we have a, you know, rose-colored glasses about the past?
Well, it is true.
And so we're going to focus just on the issue of restaurants here.
The first, the very first answer that you'll hear if you ask around on social media, well, they'll say, well, of course, capitalism is the culprit.
Specifically, it's the private equity companies who are purchasing beloved brands and then slowly strip mining them to extract every last dollar of available profit until nothing is left.
And therefore, we need to abolish the banks and all the investment companies and the concept of money itself and immediately adopt socialism.
You know, because in socialist countries, they have really good food.
They're known for that.
That's kind of the consensus at this point.
But there are a couple of problems with the consensus.
First of all, the decline I'm talking about is a relatively recent phenomenon, but we've had capitalism in this country for a long time, as you may have noticed.
And private equity is nothing new either.
In 1992, a private equity firm invested hundreds of millions of dollars in the parent company of Denny's and Hardees.
Domino's sold off to Bain Capital in 1998.
A consortium, including Goldman Sachs, bought Burger King more than two decades ago in 2002.
The Carlisle Group took over Dunkin' Donuts and Baskin Robbins in 2005.
So there's nothing new about private equity getting involved in the restaurant business.
And for the record, despite all these acquisitions, most restaurants still are not owned by private equity.
Most are part of large organizations that are publicly traded.
And then a few restaurants like In-N-Out and Little Caesars are family-owned.
But even if private equity controlled most restaurants, the logic still doesn't really work.
Private equity refers to investors who purchase a company or a large stake in it in one of two scenarios.
Either the target company is rapidly growing and private equity wants to bet on its future success and a potential IPO so they can profit, or more commonly, the target company is struggling and desperately needs a cash infusion or else it will fail.
And private equity thinks they can turn the company around and then sell it for a profit.
So they buy it for relatively low price in the hopes that it will one day be worth much more.
And in both of these scenarios, the private equity company has a financial incentive for the company to succeed.
What private equity is looking for in an ideal scenario is to create a cash cow that prints money over the long term.
That's what happened with Arby's back in 2011.
Arby's is one of the only good fast food restaurants in existence at this point, for my money.
But 15 years ago, it was losing tens of millions of dollars a year.
They were a punchline on late night television.
Rather than go out of business, they sold to Rourke Capital and Rourke immediately took action, saved the company.
They introduced the We've Got the Meats ad slogan, moved away from any attempt at appealing to health-conscious consumers, cleaned up many of the stores, introduced new partnerships, including Buffalo Wild Wings.
In the end, it worked.
Arby's is in a much more sustainable position than it was back in 2011.
Now, again, there are many legitimate complaints about private equity and their role in degrading the restaurant industry.
Because that is happening.
We'll get into that in a second.
But we can't talk about those if we aren't honest about the whole picture.
And right now, you know, there's a lot of oversimplification that goes on.
To give another example of what I'm talking about, consider the case of Red Lobster, which is often cited as a tragic casualty of private equity, even though it was always a garbage restaurant that no one actually liked.
Here's how CNBC covered the restaurant's fate in a video entitled, How Private Equity is Behind Red Lobster and TGI Friday's Bankruptcies.
Watch.
TGI Fridays prepares to file for bankruptcy.
A group of investors are going to be acquiring the restaurant chain by the end of the month.
As soon as Mother's Day was done, they shut the doors and didn't tell anybody.
2024 was a tough year for the restaurant industry.
Over 200 restaurant and bar companies filed for bankruptcy, the most in at least a decade, including in 2020.
21 were chains.
And of those, 10 were backed by private equity.
The most notable were two of America's biggest casual dining restaurants, Red Lobster and TGI Fridays.
Companies that are owned by private equity firms are significantly more likely to go bankrupt.
This is a true statement, but it's misleading.
It's true that companies that are backed by private equity are more likely to fail, but that's a bit like saying a patient who sees a highly experienced cancer surgeon is more likely to die.
In the case of private equity, they often swoop in when a company is dying anyway because the company is extremely cheap to acquire at that point.
And therefore, we don't learn anything simply from the fact that private equity got involved.
So what happened specifically with Red Lobster, as you may remember, there were a lot of claims that their unlimited shrimp promotion had bankrupted them, but that wasn't true.
It only cost them about $11 million in total, which wasn't much compared to their overall annual profits.
The real story is more complicated.
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Darden Restaurants, which also owns Olive Garden, owned Red Lobster before it was taken over by Golden Gate Capital in 2014.
The reason Darden put Ride Lobster up for sale is that customers were falling off substantially.
The restaurant's earnings had dropped by more than 25% in just one year, in part because customers were going to fast casual places like Chipotle instead.
People were not clamoring for Red Lobster, so the company suffered a catastrophic drop in profits.
The trajectory was not sustainable.
You know, imagine if you owned a stock that dropped 25% in one year with no end in sight.
You'd probably be looking to sell to stem your losses.
So Darden sold off Red Lobster to a private equity company that was willing to catch a falling knife, so to speak.
And there was indeed a willing buyer.
And for more than $2 billion, Golden Gate Capital bought a fixer-upper company that was only making around $100 million a year and dropping.
Now, to mitigate their risk, Golden Gate Capital sold much of the land the Red Lobster restaurants were occupying for a price of $1.5 billion, forced the restaurants to lease the property where they stood.
This is called a sale leaseback.
It raised the risk for Red Lobster considerably, but it made the acquisition substantially less risky for Golden Gate Capital.
And none of this was particularly unusual in the industry.
As CNBC acknowledges in that video, the sale leaseback was not a particularly strange arrangement.
Plenty of companies do it with or without the involvement of private equity.
Watch.
Red Lobster had to repay the debt from a buyout on top of rent.
In 2020, Golden Gate Capital sold its remaining equity stake in Red Lobster to a consortium comprised of publicly traded seafood supplier Thai Union, who already had a 25% stake in the chain.
At the time, Red Lobster had a $380 million loan that was due summer 2021.
It later refinanced, but pandemic restrictions and rising interest rates further contributed to the seafood chain's downfall.
In May 2024, the month it filed for bankruptcy, almost half of its bills were at least 91 days late, according to CreditSafe.
There are a lot of moving parts.
There are a lot of pieces to the puzzle.
It is not just black and white that sale leasebacks always, always result in problems, but they often do.
So Red Lobster was really in a vise.
And that is, I think, central to the reason why it failed.
It's important to note that there are also cases where a company will sell its real estate in a sale leaseback deal without the backing of private equity.
Burger chain Red Robin, for example, sold nearly 30 restaurants for $84 million using the strategy over the course of three deals as part of a turnaround plan.
So this is the reality of what happened to Red Lobster and many companies like it.
It was a struggling company.
COVID lockdowns hit.
Interest rates increased.
Competition went up.
Everything that could have gone wrong in the end did go wrong.
And against this backdrop, a private equity company took over, executed a very risky all-or-nothing strategy called a sale leaseback in order to recoup some of the investment.
And due to very unfortunate economic conditions, ultimately made an already terrible situation even worse.
So here's the key point.
Private equity companies and major corporations are not going to intentionally destroy their own investments.
Just from a business standpoint, that makes no sense.
But they are doing their best to degrade quality as low as it can possibly go before too many consumers notice and flee the brand.
So that is happening.
They're trying to find that sweet spot because the goal of private equity is to expand the brand as much as they possibly can.
And when you're scaling up, every dollar that you save is very important.
Now, one issue with this approach is that in many cases, private equity companies and large conglomerates don't really understand or appreciate their own products.
After all, they're large institutions that own a large portfolio.
Take Jimmy John's, for example.
They had an owner named Jimmy John, that was his name, who was obsessed with sandwiches to an almost pathological degree.
And when you got a guy who owns the place and he loves what he does and he loves the product, you're going to end up with a good product.
But then private equity took over and their primary interest was cutting costs and pushing out all kinds of marketing gimmicks, gimmicks, and ridiculous sandwiches like the Pickle Witch, which is an abomination, that are intended to go viral.
You know, and if you've used their app, you know exactly what I'm talking about.
They've made a simple sandwich as tacky and annoying as they possibly can.
And, you know, it might be getting them, it probably is getting them more sales because that is ultimately when the private equity companies come in, they don't want to destroy the business.
They just want to sell more.
They want to make more money.
The problem is that that's all they care about.
It's just making more money.
They don't care about the quality of the product.
And so in this case, it's destroying the company or at least ruining their image in the eyes of millions of consumers.
So the bottom line might be fine, but the quality of the product has gone down.
Now, again, it's not that private equity wants to destroy Jimmy John's.
Rourke Capital spent billions of dollars on it.
So there's no reason to ruin the brand on purpose.
But at some level, they can't help themselves.
They're overstaffed with consultants and analysts.
And eventually that becomes very apparent.
People keep buying the sandwiches in large numbers, but more discerning customers are turned off.
And then they complain on the internet like I'm doing right now, but most people still buy the product.
Now, another factor, which isn't talked about nearly enough, is that the people who are working in fast food restaurants like Jimmy John's usually are not high school students anymore.
You know, that used to be the case, but now it's not a first job for kids who are eager to work for their first paycheck.
Increasingly, these jobs are occupied by adult drug addicts.
Now, ask anyone in the industry and they'll tell you the same thing.
According to the Substance Abuse and Mental Health Services Administration, 20% of food service workers reported using illegal drugs within the past month.
17% have a substance abuse disorder.
12% reported binge drinking in the past month.
So we're not talking about someone who smokes a blunt every now and then, which you shouldn't do that either, but we're not talking about that.
We're talking about hardcore drug abusers.
And these numbers have gotten much worse in recent years post-COVID.
According to Quest Diagnostics, quote, substance abuse soared last year among restaurant and hotel employees with a proportion of workers failing drug tests jumping to 12.9%.
Marijuana use increased sharply with 17.3%.
More hospitality workers testing positive for THC.
Now, not that it really needs to be said, but when your fast food worker or line cook is high and drunk, he's probably not going to produce the highest quality sandwich.
And that's what we're getting.
Now, in the early 1980s, something like 60% of teenagers were employed and they were doing these kinds of jobs.
Now that number is under 35%.
What's happened is that especially with the surge in foreign migration into this country, much of it illegal, young people are being pushed out of the workforce.
They're being replaced by migrants, drug addicts.
And the restaurant's owners will happily hire them because they're probably not going to leave for college anytime soon.
And frankly, the restaurant may not have a better option anyway.
And as long as they can get over the very low bar to just churn out the slop, that's all that matters.
Keeps the money coming in.
And crucially, customers don't usually make a big deal out of it.
Americans have insanely low standards at the moment.
We've been conditioned to accept mediocrity everywhere, especially since COVID.
But this was a trend that goes back much further than COVID.
Think about air travel, streaming services, really anything.
Everything's become lower quality in tandem.
And as a factual matter, rather than stop spending our money on these services, millions of Americans have continued to do so.
And the reasons for that are actually somewhat complicated.
So let's return to my original complaint, which is that a lot of food, including pizza, now tastes the same.
It's all gotten worse.
And it's something that every living person has noticed.
It doesn't matter where I get my pizza, whether it's the supermarket, Papa John's, anywhere else.
This is, you know, this is an issue probably can't be blamed on marijuana use.
Every single employee who makes a pizza everywhere in the country can't be high at the same time.
So what's actually going on here?
If the problem isn't capitalism per se, then what is the problem?
Well, as it turns out, a single cheese company called Laprino Foods controls 85% of the pizza cheese market.
To be clear, that's not the cheese pizza market.
It's the market for cheese that goes on the pizza.
Laprino is based in Denver, and they supply pretty much every pizza place from Pizza Hut to Domino's to Papa John's.
In other words, Laprino is like the Willy Wonka of cheese.
You've never seen the guy's face, but his product is everywhere.
You can't escape it.
Whether you're ordering delivery from a major chain or buying a frozen pizza at the supermarket, the base core ingredient of your pizza, one way or another, is going to come from exactly the same place.
So how did Laprino achieve this dominance?
Are they somehow the only people in the entire country who know how to make cheese?
Well, if you look into it, you'll find that actually Laprino's dominance is the result of patents, lots and lots of patents.
You might not think that cheese is the kind of thing that you could patent, but you'd be wrong.
Specifically, Laprino Foods holds more than 50 patents related to manufacturing cheese.
And one of these patents, for example, describes the step of converting at least a portion of protein containing starting milk into discrete curd particles and forming the curd particles into a cheese precursor.
Some of their most famous patents allow for the creation of cheese in a continuous high-speed stream, which greatly increases volume production while retaining consistency.
They also patented a method for quick freezing cheese as soon as it was produced, which prevents cheese from aging prematurely.
Very quickly, pizza places realized that the frozen cheese was more viable for a longer period of time than anything they could buy fresh, even though it doesn't taste as good.
It doesn't taste fresh because it's not, but it's more viable and it's more profitable.
And it was also more consistent from location to location, which is particularly important for a national brand.
So because Laprino made logistics easy, everybody just kind of went with it.
The decision had nothing to do with the quality of the cheese.
It was about the performance of the cheese.
And while Laprino does provide slightly different cheese blends to different customers as a way of making you think that Papa John's cheese is different from the cheese you get at Domino's, really it's coming from the same place with the same general methods.
You know, it's sort of like how if you buy eyeglasses, whether they're designer frames or not, they're probably coming from the exact same factory.
It's like the same thing.
But wait a minute, you might say, what's wrong with this arrangement?
It seems like efficiency.
If people weren't okay with this arrangement, if they insisted on locally sourced cheese on their pizza, then Laprinos would collapse overnight.
All their patents would be worthless.
Local dairy farms would see a major surge in popularity.
Instead, the opposite is happening.
In just the past year, bankruptcies at local dairy farms went up by more than 55%.
Meanwhile, Laprino is growing faster than ever.
Now, the truth, as uncomfortable as it may be to admit, is that this argument has merit.
The fact is, the vast majority of consumers have been conditioned to a point where we're okay with eating slop.
That's indistinguishable from every other slop factory.
It's not just the pizza industry that works like this.
Pretty much every restaurant has realized the same thing.
That's what explains the enormous popularity of Cisco, the world's largest food distributor.
You've probably noticed a giant Cisco truck in the parking lot of your favorite restaurant at one point or another.
Along with U.S. Foods, which Cisco recently attempted to merge with, Cisco is responsible for a very large amount of the food that you see on restaurant menus.
So if you order mozzarella sticks, for example, doesn't matter if you're at Caraba's or Applebee's or Chili's or anywhere, you're almost certainly getting the same reheated product from the back of the same Cisco truck.
And over the past decade, Cisco's dominance has only increased.
They've been on a buying spree, snatching up all their competitors.
Watch.
The scary thing about Cisco was it didn't become this giant through organic growth, but instead it became a giant through relentless acquisitions that went unchecked.
They've acquired over 150 companies to become really one of the only national broadline distributors for restaurants.
Now, Cisco doesn't disclose how many restaurants it serves, but they do disclose that they serve around 730,000 customer locations, which would imply, if we're being very conservative with our estimate, that they provide food to probably around 300,000 restaurants at a minimum, since restaurants make up most of their sales.
U.S. Foods, meanwhile, serves at about an estimated 150,000 restaurants.
To put that number in context, there are roughly 750,000 restaurants total in the entire country.
So therefore, assuming U.S. Foods and Cisco mainly serve different restaurants, more than half of the restaurants in the country are getting prepackaged prepared food from the same place or one of the two same places.
So if all the food tastes the same everywhere, it's because it is the same.
It's literally the same food.
But U.S. Foods and Cisco, they aren't the only companies that are pushing frozen foods.
It's easy to blame them.
And they're certainly responsible for most of the phenomenon, but they're not the only ones.
Consider what's happened at Cracker Barrel.
You know, they're not controlled by a private equity company for what it's worth.
They're a publicly traded corporation.
But Cracker Barrel, as you may remember, just undertook probably the single most disastrous rebrand in the modern history of restaurants, which they quickly reversed.
The female CEO, a woman with three names called Julie Fells Messino, somehow was not fired after the incident.
At the same time, the rebrand wasn't actually the biggest problem facing Cracker Barrel.
For many years beforehand, they'd seen declining sales and relevance.
Why is that?
Well, after the rebrand became national news, one Cracker Barrel employee explained.
Watch.
If you think what's happening in the front of house of Cracker Barrel is bad, you should know that what's happening behind the scenes in the back is even worse.
I worked at Cracker Barrel for eight years as a cook, and it's slowly gone downhill with a rapid acceleration in the past year.
Let's start with biscuits.
You can see here, they're frozen now.
What they used to do is I used to make these pans of biscuits every day for like an hour is how long they would last because we went through them and they would be hot and fresh straight out of the oven for the guests.
And now they freeze them for days ahead of time.
So what you could be getting is days old and they don't, they just put them in a warmer for about 40 minutes and that's what you're getting.
And that's why they look like this now instead of those nice big, thick, fluffy biscuits with butter smeared on top.
No, you're getting frozen nothing.
And now they cook eight to 12 to 15 a day and then bag them up like this for you and microwave it.
Just a nice micro plastic piece of meat.
That's so gross.
So you can't blame Cisco or U.S. Foods for this.
He didn't say they're loading all the food from a truck and reheating it.
He says they're cooking it in-house and then reheating it several days later.
And this is not a private equity thing.
They don't own Cracker Barrel.
So who's actually responsible?
Why did Cracker Barrel, like so many other restaurants, switch from preparing fresh meals to reheating frozen pre-packaged dinners?
This is the main factor causing the quality of food to decline everywhere.
This is it.
Nothing is fresh.
You're just eating glorified TV dinners almost everywhere you go.
And it wasn't always like this, but now it is.
Why is that?
Well, the only explanation that makes sense is that from the customer service reps behind the counter all the way up to the ownership, at every level now, when you go to these places, there is not anybody involved at any level who cares what the food tastes like.
The CEO doesn't care.
If a private equity firm owns the place, they don't really care about the quality of the food.
The employees who are coming in, most of them, they don't care.
And in a lot of cases, the customers don't care either because they keep eating it.
They're keeping these companies in business by purchasing their slop.
And this part of the story is indeed a new phenomenon.
In the recent past, women like Julie Fells Messino were not put in charge of businesses they didn't understand.
They weren't given the opportunity to destroy brands like Budweiser or Cracker Barrel.
But that's changed now.
Incompetent women like this are now rising to the highest levels of the food industry solely because of their gender.
And meanwhile, millions of people have been badgered by the media, by the HR departments, by declining standards of living into accepting mediocrity.
That's why everybody can sense that our general quality of life is declining in seemingly small ways all over the place.
It adds up.
You know, your sandwich is garbage for the same reason that most streaming shows are garbage, which is the same reason most universities are garbage, and so on and so on and so on.
People who tolerate mediocrity are keeping these restaurants and private equity companies in business.
They're paying the salaries of the CEO of Cracker Barrel and they're making Cisco the largest distributor of food in the world.
We're doing this for no discernible reason, by the way.
I'm just as guilty.
But I don't need a sandwich from Subway or from Jimmy John's.
Most of that could be, you could do that at home for a fraction of the price.
You can make a lot of this food now you can make at home and it'll be better and cheaper.
So we don't need to abolish capitalism to stop this long-standing, humiliating decay.
We can adopt some standards.
We can stop wasting our money in exchange for slop from Subway, which is owned by the same private equity company as about a dozen other brands.
We can choose to withhold our money until we get quality in return.
It's actually not anywhere near as difficult as it sounds.
Yes, private equity companies and CEOs and big conglomerates, they want your money.
