FAT Brands' Strategic Co-Branded Expansion in California: A Capital-Efficient Play in Multi-Brand Franchising

FAT Brands Inc. (NASDAQ: FAT) is making waves in the fast-casual sector with its bold co-branded expansion strategy, leveraging its portfolio of 18 restaurant brands to drive capital-efficient growth. The recent opening of its first co-branded Round Table Pizza and Fatburger location in Rancho Cordova, California, marks a pivotal moment in the company's evolution. This model—combining two distinct yet complementary concepts under one roof—offers a compelling case for investors seeking exposure to unit economics optimization and scalable real estate utilization.

The Co-Branded Model: A Strategic Lever for AUV Growth

The co-branded location in Rancho Cordova is more than a novelty; it's a calculated move to maximize revenue per square foot. By pairing Round Table Pizza's dinner-driven traffic with Fatburger's lunchtime appeal, FAT Brands is effectively extending the operating window of its real estate. This dual-brand approach not only captures multiple dayparts but also enhances customer retention through diversified menu offerings. For instance, a family might start with a Fatburger lunch and later return for a Round Table dinner, increasing the average ticket size and frequency of visits.

While specific average unit volume (AUV) figures for co-branded locations remain undisclosed, the company's broader digital initiatives suggest a strong foundation for performance. At Great American Cookies, digital sales now account for 25% of revenue, with loyalty-driven sales up 40% year-over-year. If similar digital engagement metrics can be replicated at co-branded units, the potential for AUV growth becomes even more pronounced. Investors should note that FAT Brands' Q2 2025 earnings report highlighted a 3.7% decline in system-wide sales, but the co-branded model could serve as a counterbalance to these trends by injecting fresh demand into underperforming markets.

Real Estate Optimization and Capital Efficiency

The co-branded strategy also addresses a critical pain point in multi-brand franchising: the high cost of acquiring and maintaining separate locations. By retrofitting existing Round Table Pizza sites to include Fatburger, FAT Brands minimizes capital expenditures while leveraging its existing infrastructure. This approach reduces occupancy costs per unit and accelerates time-to-profitability for new locations. For example, the Rancho Cordova site required no new construction, allowing the company to focus resources on marketing and customer acquisition rather than real estate development.

Moreover, the model's scalability is evident in FAT Brands' stated goal to open 10 co-branded locations, with three expected by 2026. This phased rollout allows the company to test and refine the model before broader deployment, mitigating risk while preserving capital. The ability to replicate this strategy across other brand combinations (e.g., Marble Slab Creamery and Great American Cookies) further underscores the capital-efficient nature of the initiative.

Financial Context and Shareholder Value

Despite FAT Brands' Q2 2025 revenue decline of 3.4% to $146.8 million, the company's strategic focus on co-branding and franchise expansion signals long-term value creation. A recent bondholder agreement to shift debt to interest-only payments is projected to save $30–40 million annually, providing flexibility to reinvest in high-impact initiatives like co-branded locations. Additionally, the company's pipeline of 1,000 signed development deals—targeting over 100 new units in 2025—positions it to capitalize on market gaps and geographic diversification.

Investment Thesis: Positioning for a Breakout

For investors, FAT Brands' co-branded expansion represents a high-conviction opportunity in the fast-casual sector. The model's ability to boost AUVs, reduce occupancy costs, and extend daypart coverage aligns with industry trends toward omnichannel engagement and experiential dining. While the company faces near-term challenges—such as the Q2 2025 net loss of $3.17 per share—the strategic pivot to co-branding and digital innovation offers a clear path to recovery.

The key risks include execution delays in scaling the co-branded model and potential cannibalization of existing units. However, FAT Brands' disciplined approach—prioritizing California, a market with high brand recognition and consumer demand—mitigates these concerns. Investors should monitor AUV metrics for co-branded locations in future earnings reports, as well as the pace of new unit openings.

Conclusion: A Capital-Efficient Catalyst

FAT Brands' co-branded expansion in California is more than a tactical move; it's a strategic repositioning to unlock value in a fragmented multi-brand franchising landscape. By optimizing real estate, enhancing customer engagement, and leveraging digital tools, the company is building a scalable model that could redefine unit economics in the sector. For investors with a medium-term horizon, positioning in FAT Brands offers exposure to a capital-efficient growth story with the potential for a breakout in the fast-casual space.

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