FAT Brands' Cheetos Collaboration: A Spicy Play for Growth Amid Industry Challenges

The snack food industry is a battleground for innovation, and few brands have mastered the art of flavor-driven partnerships like Pretzelmaker. In 2024, FAT Brands' pretzel specialist teamed up with Frito-Lay's Cheetos to launch the Cheetos Flamin' Hot Pretzel Bites, a bold fusion of crispy pretzel bites drenched in Cheetos' iconic spicy dust. This collaboration isn't just a gimmick—it's a strategic move that could redefine FAT Brands' trajectory in an increasingly competitive market.

The Power of Flavor Partnerships

Strategic brand alliances are critical for quick-service restaurants seeking to stand out. Pretzelmaker's 2023 Cheetos Pretzel Bites—a milder iteration—generated buzz and sales, so scaling up to Flamin' Hot in 2024 was a calculated risk. The product's extended availability until September 2024, beyond its initial July launch window, signals strong demand. While the financials for Q4 2024 don't explicitly quantify its impact, the move aligns with a broader trend: limited-time offers (LTOs) drive foot traffic and customer engagement, especially when paired with iconic flavors like Cheetos' signature spice.

This isn't just about snacks; it's about brand relevance. The collaboration taps into Frito-Lay's massive consumer base and leverages Cheetos' cult-like following to attract younger, thrill-seeking diners. For FAT Brands, which operates 18 global brands across ~2,300 locations, such partnerships can cross-pollinate loyalty and create new revenue streams without requiring massive capital investments.

Navigating Short-Term Headwinds for Long-Term Gains

FAT Brands' recent financials—Q4 2024 revenue down 8.4% to $145.3 million—might deter casual investors. But dig deeper:

• The declines stem partly from a refranchising strategy, where the company is shedding corporate-owned stores (e.g., eliminating 57 Fazoli's locations) to focus on franchising, which typically offers higher margins and lower operational risk.
• The spin-off of Twin Peaks into a standalone entity (Twin Hospitality Group) removes underperforming assets and redirects capital toward high-growth brands like Pretzelmaker.

Why Now Is the Time to Invest

1. Franchise Momentum: FAT Brands added 92 new stores in 2024, with a pipeline of 1,000 locations. Franchisees, buoyed by the Cheetos partnership's success, may accelerate openings.
2. Cost Efficiency: Refranchising reduces overhead. By 2025, the company aims to retain only 33 corporate-owned stores (mostly Hot Dog on a Stick), slashing operational drag.
3. Brand Synergy Payoffs: The Cheetos collaboration isn't a one-off. Pretzelmaker's ability to partner with Frito-Lay—a $20B+ snack giant—opens doors for future LTOs with other brands, creating a recurring revenue model.

Risks, But Manageable Ones

• Execution Risk: Over-reliance on LTOs could dilute core pretzel sales if not managed well.
• Debt Load: FAT Brands' FY 2024 interest expenses hit $120.58 million. However, the spin-off and refranchising should reduce liabilities over time.

Conclusion: A Spicy Recipe for Recovery

FAT Brands is at a pivotal juncture. The Cheetos partnership isn't just a flavor play—it's a blueprint for leveraging partnerships to fuel growth while restructuring the business for profitability. With refranchising and spin-offs addressing legacy issues, and innovative LTOs reinvigorating brands like Pretzelmaker, the company is positioned to rebound.

For investors willing to look past near-term losses and focus on strategic execution, FAT Brands offers a compelling risk-reward tradeoff. The question isn't whether the Cheetos collaboration succeeded—it's how many more spicy ideas FAT Brands has in the pipeline.

Act now: The stock's dip presents an entry point to capitalize on a turnaround story fueled by smart partnerships and structural reforms.

Data as of February 2025. Past performance does not guarantee future results.