FAT Brands Inc. (FAT): 5 FORCES Analysis [Nov-2025 Updated]

As a former BlackRock analyst, I've seen companies buckle under pressure, and right now, the situation at the parent company of brands like Fatburger and Round Table Pizza is textbook stress, even with 18 brands and 2,300 units globally. After reporting a $58.2 million net loss in Q3 2025 alongside a 3.5% same-store sales drop, the real shocker is the immediate demand from lenders for repayment on the entire $1.3 billion debt load, leaving them with barely any cash on hand. This financial freefall isn't just a balance sheet issue; it fundamentally reshapes every competitive angle-from supplier costs to customer loyalty-so you need to see how Michael Porter's Five Forces framework illuminates the path forward for this heavily leveraged operator.

FAT Brands Inc. (FAT) - Porter's Five Forces: Bargaining power of suppliers

You're looking at the supplier side of the equation for FAT Brands Inc. (FAT), and honestly, the picture is mixed-some structural advantages are in place, but the underlying commodity risk is always there in the restaurant space.

The company definitely uses scale to its advantage on the purchasing front. FAT Brands Inc. centralized procurement via Foodbuy, a partnership established to implement proprietary technology that grants greater visibility into supply chain cost components and extends custom contracting capability. This structure is designed to push back on commodity suppliers by aggregating the purchasing power across its diverse portfolio of brands.

A significant factor keeping supplier power in check is FAT Brands Inc.'s ownership and operation of its own dough factory. This internal capability directly reduces reliance on external food manufacturing for key components. For instance, in the fiscal second quarter of 2025, the cost of restaurant and factory revenues related to this operation was $98.1 million. This internal production capacity acts as a ceiling on what external dough and mix suppliers can charge.

To give you a clearer picture of the internal manufacturing scale:

Still, the broader food service industry context suggests that for many non-proprietary items, supplier availability remains high, which naturally keeps prices competitive. The sheer number of food distributors and ingredient producers means that for many standard commodities, FAT Brands Inc. has numerous options to choose from, preventing any single supplier from gaining too much pricing leverage.

FAT Brands Inc. is actively moving to further internalize costs and reduce dependence. Management has stated that expanding manufacturing capacity is a key strategic priority. The plan is aggressive: they aim to grow factory production to utilize approximately 55% of excess capacity through both organic channels and third-party manufacturing contracts for dough and mix. The financial expectation tied to this move is a projected adjusted EBITDA growth of an additional $5 million derived specifically from factory operations as they ramp up utilization.

Here are the key levers FAT Brands Inc. is pulling to manage supplier power:

• Centralized procurement via Foodbuy gives leverage over commodity suppliers.
• Ownership of a dough factory reduces dependence on external food manufacturing.
• High supplier availability in the fragmented food service industry keeps prices competitive.
• The company is actively expanding its manufacturing capacity to further internalize costs, targeting 55% utilization of excess capacity.

Finance: draft 13-week cash view by Friday.

FAT Brands Inc. (FAT) - Porter's Five Forces: Bargaining power of customers

When you look at the consumer side of the equation for FAT Brands Inc., the power dynamic heavily favors the end-user, the diner. In the fragmented restaurant space, customers can easily vote with their wallets, and the data from late 2025 shows they are doing just that.

Customers face almost zero switching costs between the company's 18 brands and competitors. You can walk out of a Fatburger and into a competitor's location down the street with no financial penalty. This ease of movement keeps pricing and value proposition under constant pressure. FAT Brands Inc. operates a vast portfolio, including brands like Round Table Pizza and Johnny Rockets, but the sheer scale of the US dining market means consumers have endless alternatives.

The evidence of this power is visible in the recent top-line performance. FAT Brands Inc. reported that its system-wide same-store sales (SSS) declined by 3.5% for the third quarter of 2025. This decline, when viewed against the backdrop of an industry grappling with inflation, signals that consumers are definitely exercising their choice, likely trading down or simply eating out less frequently due to perceived value gaps.

The sheer number of dining options-spanning Quick Service Restaurant (QSR), Fast Casual, and Casual dining-increases price sensitivity across the board. FAT Brands Inc. itself contributes significantly to this crowded field, operating and franchising approximately 2,300 units worldwide across its 18 restaurant brands as of early 2025. This density means that for any single brand, the threat of substitution is immediate and high, forcing management to constantly balance menu pricing against consumer willingness to pay.

Also, don't forget that franchisees themselves are powerful customers, and their dissatisfaction can create significant operational and financial drag. This is clearly evidenced by the recent Round Table Pizza lawsuit over marketing funds. Franchisees are required to contribute 4% of their revenue into a national advertising fund. The Round Table Owners Association filed suit accusing FAT Brands Inc. of "intentional mismanagement," including allegedly using $800,000 from that fund to pay for the company's 2022 Fat Summit, a multi-brand conference. The dispute highlights a major point of friction, especially as the 'due from affiliates' balance related to these funds ballooned to $40.9 million by the end of 2023. This type of internal conflict shows that when franchisees feel their investment is not being managed for their direct benefit, their bargaining power-which includes the power to litigate-is substantial.

Here is a snapshot of key financial context surrounding the Q3 2025 period:

The ability of the customer base to walk away or, in the case of franchisees, to legally challenge fund management, means FAT Brands Inc. must continuously prove its value proposition to both the end-consumer and its franchise partners.

• Zero cost to switch between FAT Brands Inc. concepts.
• Consumer traffic sensitive to price increases.
• Franchisee litigation signals high internal customer power.
• Marketing fund contribution is 4% of franchisee sales.

Finance: draft a sensitivity analysis on the impact of a further 100 basis points SSS decline on Q4 2025 projected EBITDA by next Tuesday.

FAT Brands Inc. (FAT) - Porter's Five Forces: Competitive rivalry

You're looking at FAT Brands Inc. (FAT) right now, and the competitive rivalry force is showing significant pressure. This is a classic case of too many players fighting for the same consumer dollar in the burger, pizza, and casual dining spaces. The numbers from the third quarter of 2025 definitely reflect that fight.

The intensity of this rivalry directly impacts top-line performance. We saw system-wide sales decline by 5.5% for the third quarter of fiscal 2025. That drop signals that competitors are winning the battle for consumer traffic, or at least that FAT Brands Inc. is losing ground in a tough environment. To be fair, the casual dining segment showed some operational strength, posting same-store sales growth of 3.9%, but the overall portfolio was dragged down.

Here's a quick look at how key operational metrics stacked up in Q3 2025, which shows the strain:

This financial instability severely constrains the ability to fight back with marketing dollars. When you post a GAAP net loss of $58.2 million for the quarter, every dollar spent on advertising is scrutinized. Advertising expenses did increase by $2.1 million to reach $12.2 million in Q3 2025, but that spend is fighting against a backdrop of a negative EBITDA of $7.7 million.

Now, let's talk about the structural element that keeps the brands locked in place, even when performance is weak: the debt structure. FAT Brands Inc. is reportedly working to restructure its massive debt load, which lenders recently declared entirely due, totaling approximately $1.3 billion as of late November 2025. The key mechanism here is the securitized debt structure, where cash-flowing assets are separated into Special Purpose Vehicles (SPVs).

This structure creates high exit barriers because attempting to divest a brand means dealing with the collateral tied to that securitized financing. The company is actively negotiating debt restructuring and is trying to raise $75-$100 million in equity at Twin Hospitality Group Inc. to pay down debt, all while pausing its dividend to preserve $35-$40 million in annual cash flow. The immediate pressure is immense, as the company ended the quarter with only $2 million in available cash and another $12 million restricted, far short of the accelerated repayment demand.

The competitive rivalry is thus amplified by internal financial constraints:

• Saturated markets mean price and promotion wars are costly.
• Net loss of $58.2 million limits counter-competitive investment.
• Debt acceleration on $1.3 billion forces focus away from market share.
• Low liquidity-only $2 million unrestricted cash-restricts operational flexibility.

FAT Brands Inc. (FAT) - Porter's Five Forces: Threat of substitutes

Direct substitution from grocery store and home-cooked meals is a constant threat to FAT Brands Inc.'s portfolio. You see this pressure clearly when you look at how consumers allocate their food dollars. As of June 2025, the average U.S. consumer spends about $\text{235}$ per week on groceries compared to only $\text{115}$ per week on restaurants. That $\text{235}$ represents food prepared at home, the most direct substitute for any restaurant meal. While restaurant spending growth has recently outpaced grocery spending growth, the underlying consumer sentiment suggests this trend is fragile.

Economic headwinds definitely increase the appeal of cheaper, non-restaurant food alternatives. In June 2025 research, $\text{67}\%$ of U.S. consumers reported reducing spending across the board due to economic uncertainty. When asked where they are cutting back, $\text{61}\%$ cited restaurants, while only $\text{34}\%$ cited groceries. This indicates that when budgets tighten, the consumer views the restaurant experience as more discretionary and easier to replace with at-home preparation than their food staples. This is a major headwind for FAT Brands Inc., whose brands span the spectrum of dining experiences.

Substitution risk is high across multiple segments, from ice cream to polished casual dining, which is evident in FAT Brands Inc.'s own third-quarter 2025 performance. While the company reported system-wide sales declined $\text{5.5}\%$ and overall same-store sales (SSS) fell $\text{3.5}\%$ in Q3 2025, the performance varied significantly by segment. The Casual Dining segment, which includes concepts like Twin Peaks, actually posted a $\text{3.9}\%$ increase in SSS. This suggests that for the higher-end, experience-driven concepts, the substitution threat is currently being offset by consumer desire for that specific experience, or perhaps those customers are less price-sensitive. However, the overall portfolio decline suggests that the QSR and fast-casual segments, which include brands like Fatburger and potentially others, are feeling the pinch from consumers opting for cheaper alternatives or home cooking.

Here's a quick look at how the consumer environment in mid-2025 sets the stage for substitution pressure:

The threat is amplified because FAT Brands Inc. has brands directly competing with at-home preparation across its categories. For instance, the presence of Marble Slab Creamery means competing with store-bought ice cream, a low-cost treat alternative. Similarly, a brand like Round Table Pizza competes not just with other pizza chains but with frozen pizza or making pizza at home. The fact that $\text{75}\%$ of consumers are concerned about a recession in 2025 suggests this substitution dynamic will remain a primary concern for FAT Brands Inc. management.

You should watch for how FAT Brands Inc. addresses the lower end of its portfolio. The company is actively managing this by closing underperforming locations, such as $\text{11}$ Smokey Bones locations in Q3 2025. This action directly reduces exposure to concepts where the substitution threat, combined with operational issues, is too great to sustain. Conversely, the focus on co-branding, like the Round Table Pizza-Fatburger dual location that doubled sales, is a strategic move to increase value perception and combat substitution by offering a more compelling, bundled experience.

FAT Brands Inc. (FAT) - Porter's Five Forces: Threat of new entrants

You're looking at the barrier to entry for the restaurant franchising space where FAT Brands Inc. operates. Honestly, for a newcomer, the sheer scale required to compete is a massive hurdle. It's not just about having a good burger or pizza recipe; it's about infrastructure.

The capital required to scale to 2,300 units and manage 18 distinct brands creates a significant barrier. Think about the upfront investment needed just to get close to that footprint-securing financing, building out corporate support, and managing the complexity of that many concepts is capital-intensive. New entrants don't just start with one store; they are immediately competing against a portfolio that spans fast casual, quick-service, and casual dining.

Still, the franchising model itself offers FAT Brands some defense against immediate competition. A pipeline of roughly 1,000 signed development deals suggests that franchisees are still willing to commit capital to open future locations under the existing banners. This pipeline represents future revenue streams and brand presence that a new entrant would have to build from scratch.

New entrants face difficulty securing prime real estate and national supply chain contracts. FAT Brands Inc., with its 18 brands and 2,300 franchised/owned units, already locks in volume discounts and preferred locations. You can see the scale of their current operations here:

The company's current debt crisis, however, acts as a double-edged sword for the industry's perceived risk. Lenders recently demanded immediate payment on $1.3 billion in debt, according to an SEC filing. This event definitely makes the industry look riskier overall, which could deter some new, cautious capital.

Here's the quick math on the financial strain: FAT Brands ended the most recent quarter with only $2 million in available cash and another $12 million restricted. That is far short of the funds needed to meet the accelerated debt demands. This high-leverage environment, which led to a dividend pause preserving $35 to $40 million annually, signals a potential weakness in the sector's financing structures, but it doesn't lower the operational barrier to entry for a well-capitalized competitor.

What this estimate hides is the cost of reputation damage. While the debt situation might scare off a few, a well-funded competitor could see the current distress as an opportunity to acquire assets cheaply or gain market share while FAT Brands Inc. is focused internally. The defense is in the existing franchise agreements, not the balance sheet right now.

The existing franchise defense is further supported by specific growth commitments:

• Goal to open more than 100 new restaurants in 2025.
• A new development deal in Florida for 40 additional Fatburger locations over the next decade.
• Pipeline includes approximately 50 additional co-branded locations in development.

Finance: draft 13-week cash view by Friday.