A relationship with a restaurant is a slow romance. After the first date, you are smitten, endlessly talking to your friends like an idiot about “the burger.” The second time, things deepen. You even learn some things you might not like, by which I mean the duck breast. Eventually, your identity and the restaurant’s merge until you become the “why don’t we just go to Pasjoli” guy. Over decades, the restaurant declines in quality, but you stick by it until it closes, and you mourn it for the rest of your life.
That’s not how private equity dates restaurants.
Private equity talks sweet and gets handsy fast. They meet a great joint and whisper, “Baby, we’re going to take you all over the world.” Soon, there are two dozen Umami Burgers, 40 Sprinkles Cupcakes, and nine Fig & Olives. Then they’re almost all gone, private equity having taken what it wanted and moved on to Magnolia Bakery, Whataburger, and Sweetgreen. They’ll use them up, too, eventually throwing them back out on the street, where, in this metaphor, the street is an airport where travelers say, “Huh, I thought that place went bankrupt?”
I don’t know if – like so many on social media claim – private equity has ruined Jersey Mike’s, Whataburger, Panera, Cinnabon, and Auntie Anne’s, since I would never eat at those places. But I wouldn’t be surprised.
“The stereotypical type of private equity is looking to grow the bottom line at the expense of quality,” says Richard Shank, senior principal and vice president of innovation at Technomic, a food industry research firm. Some private equity firms, he says, do invest in making the food better. Despite being named after the libertarian, self-obsessed protagonist of Ayn Rand’s The Fountainhead, Shank says Roark Capital improved the quality of Jimmy John’s. Still, improvements aren’t that impressive when you’re starting with Jimmy John’s. With higher-end restaurants, it usually goes in the other direction. “When you’re investing in a premium brand, some private equity firms are going to have the intention of spinning it off at a higher multiple after five to eight years, and that’s probably going to come out of the quality.”
Private equity has gone big into restaurants, investing $94.5 billion between 2014 and 2024. Sometimes they use leveraged buyouts, which sounds like the kind of thing you momentarily thought you understood while watching The Big Short. With a leveraged buyout, the private equity firm finances its purchase with borrowed money and then transfers that obligation from the firm to the restaurant it just bought, saddling it with debt. They’ll also sometimes use sale-leasebacks, where they sell the real estate the restaurant sits on, keep the cash, and make the restaurant pay rent. This is how Golden Gate Capital, which had already sent Romano’s Macaroni Grill and California Pizza Kitchen into bankruptcy, did the same to Red Lobster in 2024. Red Lobster is still closing locations despite Flavor Flav’s attempt to save it by ordering the entire menu and a poll by The Atlantic finding that its Cheddar Bay Biscuits are the second-best free bread in America.
But regular old expansion can destroy restaurants without private equity’s help. If you’re sourcing a local pepper for your single Dallas restaurant, you’re going to have to adjust your recipes when you go international. There’s an online uproar that, ever since Campbell’s bought it in 2024, Rao’s Homemade jarred marinara sauce sucks. I haven’t noticed that Rao’s has gotten worse, but I always pretended to like bottled Rao’s more than I actually did out of foodie peer pressure. I don’t know how authentic you should expect a supermarket sauce to be when it claims to come from a 130-year-old, ten-seat Harlem restaurant where all the tables are permanently reserved, but I let people believe what they wanted.
I do, however, know that Magnolia is the dry, unfilled shell of the West Village bakery I used to walk to late at night when Allysa Torey ran it, basking in the relief that Sex and the City and I finally agreed on something. I also know that Umami Burger was once good. And that I long for the first All'Antico Vinaio sandwiches I had.
Such is the circle of restaurant life. But private equity launches that cycle into warp speed. When a corporation purchases a company, it’s making a long-term investment and is therefore more likely to tell an owner to keep doing what they’re doing, as Unilever did with Ben & Jerry’s. Private equity would be more likely to suggest replacing the fudge chips in Karamel Sutra Core with less sexy fudge chips.
In Paris and Montreal, restaurants thrive in one place for generations without expanding. But here, it’s grow or die. A successful restaurant is a miracle, but it’s a miracle that pays poorly. If you can’t turn at least one menu item into a scalable asset, you’re not going to last. Private equity is a way out.
So enjoy Matu cheesesteaks and Salt Hank French dips while you can. Soon, some Wharton grad is going to make them suck.
