The future of restaurant franchising may depend less on abandoning America’s major cities, or betting on their comeback, and more on fundamentally rethinking where, how, and why brands grow.

For decades, expansion into America’s largest metropolitan markets carried an almost automatic assumption of success. New York. Chicago. Los Angeles. Seattle. San Francisco. Boston. Washington, D.C. These were markets brands wanted on their development maps, investors wanted in their portfolios, and emerging concepts often viewed as validation that they had arrived.

Population density was attractive. Tourism was attractive. Employment centers generated enormous daytime populations. Affluent neighborhoods offered strong consumer spending. Major universities, hospitals, airports, entertainment districts and convention centers created seemingly endless demand generators. And perhaps most importantly, visibility in a major American city carried prestige.

For franchisors, opening in Manhattan, downtown Chicago or Los Angeles could mean something beyond the economics of the individual restaurant. It could elevate the brand.

But prestige does not pay the rent.

And increasingly, the economics of operating restaurants in some of America’s largest cities are forcing franchisors, franchisees, investors and restaurant executives to ask a question that would have sounded almost heretical not long ago:

Do we still need to be there?

Perhaps an even more important question is this:

If we do need to be there, does the restaurant we put there need to look anything like the restaurant we have traditionally built?

Those are two very different questions, and the distinction between them may help determine where the next decade of franchise growth occurs.

The Restaurant Industry Is Growing. That Doesn’t Mean Every Market Works.

There is an important contradiction developing within the restaurant business.

On the national level, the industry remains enormous and remarkably resilient. The National Restaurant Association projects restaurant and foodservice sales of approximately $1.55 trillion in 2026. Consumers still want restaurants in their lives, and the Association continues to report strong underlying demand for dining out, takeout and delivery.

Yet underneath those impressive numbers is a much more difficult operating environment.

The National Restaurant Association estimates that total expenses for an average restaurant increased approximately 36% between 2019 and 2026. Food and labor alone each account for roughly one-third of restaurant sales, while occupancy, utilities, supplies, insurance, credit-card fees and other expenses have also risen substantially.

At the same time, traffic remains uneven. Consumers continue to eat out, but many are becoming more selective about where, when and how often they spend their restaurant dollars. Some nominal sales growth is being generated by higher prices rather than significantly more customers walking through restaurant doors.

That distinction matters enormously.

A restaurant can generate record sales and still produce disappointing returns.

A franchise system can report systemwide sales growth while individual franchisees experience deteriorating margins.

And a market can possess millions of consumers while becoming increasingly difficult to operate profitably.

That is where the discussion about America’s major cities must begin.

The Big-City Restaurant Equation Has Changed

Consider Seattle.

The city’s minimum wage is $21.30 per hour in 2026. That number alone doesn’t determine whether a restaurant succeeds or fails, nor should minimum wage policy become a convenient explanation for every struggling restaurant. Successful operators adapt, and wages are only one component of the restaurant P&L.

But labor costs do not exist in isolation.

Combine higher wages with elevated food costs, occupancy costs, insurance, utilities, delivery commissions, credit-card processing fees, permitting requirements and consumers who are themselves feeling squeezed, and the restaurant’s margin for error becomes extraordinarily thin.

Similar combinations of pressures are being felt differently across New York, Chicago, Los Angeles and other large metropolitan markets. Recent restaurant and longtime-business closures in Chicago provide another reminder that even established operators are not immune to changing economics.

Yet we should be careful about declaring America’s major cities dead.

They aren’t.

Los Angeles continues to produce new restaurant openings despite the extraordinary challenges operators there have confronted. New York remains one of the world’s great restaurant markets. Chicago remains a global food city. Seattle remains affluent, educated and economically important.

The opportunity has not disappeared.

The economics surrounding the opportunity have changed.

That should lead franchisors toward a more sophisticated conclusion than simply “cities are bad” or “cities will come back.”

The real issue is whether yesterday’s franchise development model still fits today’s urban economics.

In many cases, it does not.

Franchisors Must Stop Confusing Population With Opportunity

Franchise development has traditionally relied heavily upon familiar demographic measurements: population, household income, daytime population, traffic counts, competitive presence and trade-area characteristics.

Those metrics remain important.

But they are no longer sufficient.

A market containing 500,000 attractive consumers isn’t necessarily superior to one containing 100,000 if reaching those 500,000 requires dramatically higher occupancy costs, wages, taxes, insurance, buildout costs and regulatory complexity.

Franchisors should increasingly evaluate what I would describe as market friction.

How difficult is it to convert consumer demand into franchisee-level profitability?

That question changes site selection.

Instead of asking only how much revenue a restaurant might generate, development teams need to ask how much revenue remains after the cost of operating in that particular market.

Consider two hypothetical restaurants.

One generates $2 million in annual sales in a prestigious urban location.

Another generates $1.5 million in a secondary or tertiary market.

Historically, development teams might instinctively prefer the $2 million location.

But what if the first restaurant requires $300,000 more in annual occupancy and labor costs, substantially more initial capital, higher insurance expenses, greater management complexity and a longer permitting and construction period?

Suddenly, the $1.5 million restaurant may be the far superior investment.

The question isn’t simply Where can we generate the highest AUV?

It is increasingly:

Where can our franchisees generate the best return on invested capital with an acceptable level of operating risk?

That is a very different development philosophy.

Perhaps the Next Great Franchise Markets Are Places We Have Been Flying Over

For years, franchise expansion strategies have frequently followed predictable maps.

Major metropolitan areas first. Suburbs next. Secondary markets afterward. Smaller communities eventually—if ever.

That hierarchy deserves reconsideration.

Population and economic activity have been shifting across the United States for years. New employment centers are emerging. Manufacturing investment is creating new economic corridors. Logistics facilities, technology operations, healthcare systems and distribution centers are generating significant employment outside traditional downtown business districts.

Meanwhile, many smaller cities and suburban communities offer something franchise operators desperately need:

More manageable economics.

Lower occupancy costs can allow restaurants to operate with lower break-even points. More affordable real estate can support drive-thrus and parking. Development approvals may be easier. Employee commutes may be shorter. Franchise territories can be larger. Competition for prime sites may be less intense.

Most importantly, the franchisee’s investment may go considerably further.

This doesn’t mean franchisors should blindly abandon major markets for small-town America.

It means the old definition of a “secondary market” may itself be obsolete.

Some of tomorrow’s best franchise markets may be communities that development departments historically dismissed because they didn’t satisfy traditional population thresholds.

A 70,000-person community surrounded by growing suburbs, a regional hospital, a college campus, manufacturing facilities and highway traffic may offer a better restaurant opportunity than a dense urban neighborhood containing several times the population.

Franchisors need to start looking beyond dots on population maps and toward economic ecosystems.

Where are people working?

Where are families moving?

Where are houses being built?

Where are hospitals expanding?

Where are warehouses being constructed?

Where are universities growing?

Where are highways converging?

Where are new manufacturing facilities opening?

Where are consumers underserved?

Follow economic activity, not simply population.

The Opportunity Outside the Traditional Restaurant Box

There is another dimension to this conversation that may ultimately become even more important.

Perhaps franchisors shouldn’t only rethink which markets they enter.

Perhaps they should rethink what constitutes a location.

For decades, restaurant franchising has largely revolved around boxes: inline retail, endcaps, freestanding buildings and drive-thrus.

Those formats aren’t disappearing.

But restaurants increasingly have opportunities to operate where consumers already are rather than spending enormous amounts of money trying to attract consumers to where restaurants happen to be.

Airports.

Hospitals.

Universities.

Corporate campuses.

Travel centers.

Highway plazas.

Casinos.

Sports facilities.

Entertainment venues.

Military installations.

Convention centers.

Hotels.

Grocery stores.

Food halls.

Mixed-use developments.

Industrial and logistics campuses.

Ghost and shared kitchens where appropriate.

Smaller pickup-focused units.

Mobile formats.

These should no longer automatically be considered secondary extensions of the “real” franchise model.

For some brands, they could become an important component of the franchise model itself.

Imagine a franchise system whose traditional restaurant requires a $1.2 million investment and 2,500 square feet.

What happens if that franchisor develops a 900-square-foot version requiring substantially less capital?

Or a hospital format?

A university format?

A travel-center format?

A food-hall format?

A delivery-and-pickup-oriented format?

Suddenly, the addressable development universe changes dramatically.

More importantly, so does the potential franchisee universe.

Smaller Footprints May Become One of Franchising’s Greatest Competitive Advantages

For years, restaurant brands often grew their prototypes along with their ambitions.

Larger dining rooms. Bigger kitchens. More elaborate architecture. Expensive finishes. Large footprints designed to showcase the brand.

That approach made sense when construction, financing, labor and occupancy economics supported it.

Today, every square foot needs to justify itself.

A 3,000-square-foot restaurant isn’t necessarily more valuable than a 1,600-square-foot restaurant simply because it can accommodate more guests.

What percentage of those seats are occupied on Tuesday at 3:00 p.m.?

How much of the kitchen is actually required?

How much storage is necessary if supply-chain practices change?

Can technology reduce counter space?

Can ordering move partially or substantially digital?

Can a smaller menu increase throughput and reduce labor requirements?

Can a drive-thru, pickup window or dedicated digital-order area produce more revenue per square foot than additional dining-room seating?

These are no longer merely operations questions.

They are franchise development questions.

Every reduction in development cost potentially lowers the barrier to franchise ownership. Every improvement in unit economics potentially improves franchisee returns. Every reduction in required square footage potentially increases the number of viable sites.

Franchisors should be engineering prototypes around return on investment, not architectural tradition.

But Should Franchisors Give Up on America’s Great Cities?

Absolutely not.

That would be an equally dangerous overreaction.

Major cities have gone through economic cycles before. Neighborhoods decline and regenerate. Commercial rents rise and eventually reset. Consumer behavior changes. Political leadership changes. Businesses adapt. New generations rediscover neighborhoods previous generations abandoned.

Urban America has repeatedly reinvented itself.

And therein lies the opportunity.

When everyone wants into a market, landlords have leverage.

When everyone wants out, opportunity begins to shift toward tenants and buyers willing to look beyond today’s conditions.

That creates a fascinating strategic question for franchisors.

Could the current challenges eventually create one of the greatest urban restaurant acquisition opportunities in years?

Possibly.

But timing matters.

Franchisors should be studying distressed urban markets now—not necessarily because they should immediately begin opening dozens of restaurants, but because they should understand where conditions may eventually create opportunity.

Vacant restaurant spaces.

Second-generation kitchens.

Former franchise locations.

Reduced key money.

Landlords willing to provide tenant-improvement allowances.

Developers willing to renegotiate economics.

Existing operators looking to sell.

Independent restaurants whose owners want an exit.

Commercial districts preparing redevelopment initiatives.

Those conditions can change the economics dramatically.

A restaurant site that makes no sense at today’s rent may become very attractive after twelve months of vacancy and a landlord willing to negotiate.

A $1 million buildout becomes a different proposition when much of the restaurant infrastructure already exists.

Franchisors should therefore resist two extremes.

Don’t expand into difficult cities simply because “we need to be there.”

But don’t erase those cities from the development map either.

Prepare to reenter when the economics—not the prestige—justify the investment.

The Renaissance Strategy

If major cities experience a meaningful restaurant renaissance, franchise brands could actually possess advantages that many independent operators do not.

They have purchasing power.

Established supply chains.

Recognizable brands.

Training systems.

Technology platforms.

Marketing resources.

Operational standards.

Access to experienced franchise operators.

And potentially greater negotiating leverage with landlords and developers.

But franchisors interested in participating in an urban resurgence should begin preparing before the resurgence becomes obvious.

That means identifying neighborhoods worth watching.

Building relationships with landlords and developers.

Monitoring restaurant vacancies.

Studying consumer migration within cities.

Identifying franchisees capable of operating complex urban restaurants.

Developing smaller prototypes.

Creating urban-specific menus and labor models.

Exploring conversions of existing restaurant spaces.

And perhaps most importantly, determining exactly what economic conditions would trigger renewed development.

Strategy shouldn’t be, “We’ll go back when things improve.”

It should be, “Here are the five conditions that must exist before we deploy capital.”

That turns hope into strategy.

Franchise Development Must Become Portfolio Management

Perhaps the biggest shift franchisors need to make is psychological.

Development should no longer be viewed simply as selling territories and opening units.

It should increasingly resemble portfolio management.

A strong franchise system may need exposure to several different types of markets simultaneously.

Large metropolitan markets provide visibility, density and potentially enormous sales volumes.

Growth markets provide population and employment momentum.

Suburban markets provide households, accessibility and often stronger unit economics.

Secondary and tertiary markets may provide lower costs and less competition.

Nontraditional locations provide captive or semi-captive demand.

Travel corridors provide transient customers.

College towns provide concentrated populations.

Healthcare markets provide extraordinary daily populations.

The strongest franchise systems of the next decade may not choose one of these.

They may intentionally build across all of them.

Diversification isn’t only an investment concept.

It may become a franchise development strategy.

The Territory Map May Need to Be Torn Up

Traditional franchise territory planning frequently begins with population.

Perhaps future territory planning should begin with economic nodes.

A regional hospital employing 8,000 people is an economic node.

A university with 30,000 students is an economic node.

A logistics park employing 12,000 workers is an economic node.

A highway interchange serving tens of thousands of vehicles is an economic node.

A manufacturing corridor is an economic node.

A suburban entertainment district is an economic node.

An airport is an economic node.

A rapidly growing master-planned community is an economic node.

A military installation is an economic node.

Instead of asking, “How many people live within five miles?” franchisors should increasingly ask:

How many consumer occasions exist within this trade area every day?

That is what restaurants ultimately monetize—not population.

Occasions.

Breakfast on the way to work.

Lunch between meetings.

Dinner after youth sports.

A meal during a hospital shift.

Food before boarding a flight.

Dinner while traveling interstate.

Lunch between college classes.

Takeout on the way home.

Late-night food after an event.

Understanding occasions may reveal restaurant opportunities demographic reports alone miss.

Franchisors Should Be Doing the Work Now

Waiting for perfect economic conditions is not a strategy.

Neither is indiscriminate expansion.

The franchise brands positioned to win the next cycle should be using this period to rethink their development architecture.

That means stress-testing unit economics at different wage rates and occupancy costs. It means developing smaller prototypes. It means identifying markets previously excluded from development plans. It means mapping employment and population migration. It means examining second-generation restaurant opportunities. It means developing relationships with nontraditional venue operators. It means reconsidering franchise territory sizes. It means identifying multi-unit operators capable of entering distressed markets when the economics become attractive.

And it means being willing to say no.

No to a prestigious address whose economics don’t work.

No to a development agreement built around outdated assumptions.

No to a prototype that costs too much to build.

No to opening another restaurant simply because a territory schedule says it is time.

The franchisor’s responsibility is not merely to grow the number of units.

It is to create an environment in which franchisees have a reasonable opportunity to generate sustainable returns.

Those two objectives should align.

Too often, they don’t.

There May Never Have Been a More Interesting Time to Rethink Franchise Growth

The current environment shouldn’t necessarily be viewed as a retreat from restaurant franchising.

It may be an invitation to reinvent it.

America is changing.

Where people live is changing.

Where people work is changing.

How people commute is changing.

How consumers order food is changing.

How much restaurant development costs is changing.

How franchisees evaluate investment opportunities is changing.

And therefore, where franchise brands grow must change as well.

The future may include Manhattan.

It may also include a 900-square-foot restaurant inside a Texas medical complex.

It may include downtown Chicago.

It may also include a drive-thru outside a manufacturing plant in a community a development team previously overlooked.

It may include Los Angeles.

It may also include a travel plaza, college campus, suburban entertainment district, airport terminal or rapidly growing town that barely appeared on the franchise development map five years ago.

The choice doesn’t have to be cities or growth markets.

Traditional or nontraditional.

Urban resurgence or geographic diversification.

The more compelling strategy may be optionality.

Build a franchise system capable of succeeding in several environments rather than one dependent upon a single prototype, customer pattern or real-estate model.

And continue watching America’s great cities carefully.

Because there may come a point when today’s restaurant closures become tomorrow’s real-estate opportunities. When landlords who once dictated terms begin competing for quality tenants. When vacant second-generation restaurant spaces reduce development costs. When neighborhoods begin another cycle of reinvention.

When that moment arrives, the brands that benefit will probably not be those that suddenly decide to return.

They will be the ones that never stopped paying attention.

Final Thoughts

For years, franchise development was largely a race to plant flags.

More cities. More territories. More restaurants. More units.

The next era may require considerably more discipline.

The winners may not be the brands that open the most restaurants.

They may be the brands that become exceptionally good at understanding where a restaurant should exist, what that restaurant should look like, how much it should cost to build, and what economics must exist before a franchisee signs the lease.

Franchising does not need to abandon America’s major cities.

Nor should it wait passively for them to recover.

It should prepare for their reinvention while aggressively exploring the growth markets, smaller communities, economic corridors and nontraditional locations that may define the next chapter of restaurant expansion.

Perhaps the franchise development map of America isn’t shrinking at all.

Perhaps we’re simply discovering that we’ve been looking at the wrong map.