The most honest document a public franchisor produces is its proxy statement, which almost nobody reads past the director biographies. That is where the company explains what it decided to pay its executives for. Wendy's filed its latest on April 2. For 2025, 20% of the corporate bonus rode on Global Net Unit Growth, which the company defined as "the increase in global gross restaurant openings reduced by global restaurant closures." The compensation committee then excluded fourth-quarter closures tied to the Project Fresh turnaround as "a non-recurring and unusual item," which added "+19 net new units" to the bonus math. The system missed its 3.09% target anyway. For 2026, the committee "eliminated Global Net Unit Growth" from the corporate grid altogether.
Closures were part of the scorecard until they started to count.
I don't think Wendy's directors were being cynical. Pruning weak restaurants in a turnaround is defensible (I will get to the case for it). But dropping the measure was the wrong fix. The closure number is the truest thing a franchise system reports about its own development, truer than signings, openings or net units. The people who sign new stores should be paid on it: on whether the stores they signed are still open three and five years later.
What a Franchise Closure Rate Shows
On Monday, Sept. 14, Nation's Restaurant News reported that Mile High Pizza Company, a Domino's franchisee in north-central Ohio, had shut 13 stores. Its jobs site, still up as the stores went dark, said: "Since the start of 2020, we have grown our number of locations by over 400%." Every one of those years registered as development progress.
The next day Jonathan Maze of Restaurant Business explained why that was news. Domino's closed seven of its 7,014 U.S. stores in 2025, about 0.1%, and opened 179. The Ohio closures alone equal its total for the last two years combined. "Domino’s lack of closures means its new unit openings aren’t simply replacements of older facilities but actual expansion," Maze wrote. The company called Ohio "an isolated franchisee matter" (to its credit, the record lets it say so with a straight face).
Subway is the other kind of system. It reported 499 U.S. openings in 2025, which sounds like a development machine until you learn that more than half of those stores had been temporarily closed in earlier years. The chain lost 729 net units, and the franchisor's net income rose to $688 million from $397 million while it shrank. Reopening a store you already had counts as an opening.
Item 20 of the disclosure document records all of it: openings, transfers, terminations, non-renewals, reacquisitions and stores that simply closed. A net figure folds that churn into one number and hides it. Buyers are told to read the churn. Boards should read it too.
Who Answers for a Closed Store
Where does development's job end? FranConnect, which sells software to franchisors, gave the usual answer in July: "Development teams typically own the process through agreement signing. After that point, responsibility shifts across real estate, construction, operations, training, finance and the franchisee."
That is a sensible division of labor and a strange division of consequences. The signing is where the risk is taken. When FRANdata studied 28 brands that began franchising in 2011, it found "statistically significant evidence that a high rate of change in units opened disproportionately increases the number of closures in the years to come." FRANdata puts the riskiest stretch for a new unit at roughly two and a half to four years in. By then the development team has long since been paid for the signing.
Fuzzy's Taco Shop ran the whole arc in Houston. A franchisee signed to have three stores open there by the end of 2025, opened the first in Sugar Land in June 2025, and closed all three the weekend before Sept. 1, about 15 months later. The signing and the three openings were booked as development. The closings went into a different column.
I would defer a real share of the development bonus and pay it on cohorts: of the stores signed in a given year, how many are open and trading at year three, and how many at year five. A store that changed owners but kept its doors open has survived. A store that is "temporarily closed" has not. The measure follows the stores a team signed, not the system as a whole.
When Closing Stores Is Good Strategy
The best argument against me comes from Papa Johns. On Feb. 26, Ravi Thanawala, its finance chief and North America president, told investors the chain would close about 300 North American restaurants by the end of 2027. Most are franchised, more than a decade old and doing under $600,000 a year, stores that "typically generate negative four-wall income." A similar program in the U.K. lifted average volumes 17%. "Similarly, select strategic closures will allow our North American franchisees to redirect resources to drive operational excellence in their core restaurants and accelerate growth in priority markets," he said.
He is right. A scorecard that docked his development team for those closures would be a foolish one. Wendy's directors probably had the same worry. That is why a cohort beats a system count. The Papa Johns stores being closed were signed in another decade, by people who were paid long ago. Pruning them is an operating decision. A three-year-old store with negative four-wall income is a development decision, and it should cost the people who made it.
Two other objections are fair. Where closures are rare, gross openings do the job: McDonald's pays 15% of its annual bonus on new restaurant openings, and I would not tell it to stop. And small systems produce noisy numbers, since a 20-unit brand that loses two stores shows a 10% closure rate. A young brand can pool several years of signings before it judges anyone.
A consultancy called Franchise Beacon told development teams in July, "You can turn a future closure into a transfer." Any metric can be gamed. The question is which gaming you would rather pay for, and a team gaming a survival measure has to keep the store open.
A week ago today, FRANdata reported that "More than 37% of franchise brands that surpassed the 100-unit milestone since 2010 now operate fewer franchised units than at their historical peak." It also offered a line worth taping above the pipeline slide: "Perhaps the strongest indicator of a healthy franchise system is not simply how many new franchisees it recruits, but how many existing franchisees choose to reinvest." Nobody reinvests in a store that closed.
Think about who pays when a store closes. The franchisee loses the investment. The landlord gets an empty box. In Minnesota and Wisconsin this month, Denny's workers learned a day ahead that their diners would close and that their final paychecks were not guaranteed. The brand reports the closure in Item 20 for three years, where every prospect can read it. Everyone connected to the store pays for it.
Except the person who sold it.
