This Once-Popular Fast Food Chain Made One Pivotal Mistake

The fast food industry has been both thriving and evolving for decades. Although the restaurant industry is among those with the highest failure rate for small businesses, staying profitable over time can be just as challenging as finding success in the first place. There are names that have stood the test of time, such as McDonald's or Burger King, but many other once-popular chains have slipped into obscurity or gone out of business. D'Lites of America is one notable entry on this ill-fated list. Offering healthier meals than many of its competitors, the chain was a great fit for the diet and fitness crazes that consumed the '80s. It expanded to about 100 locations within five years of its first store opening in 1981. Unfortunately, D'Lites ended up shuttering well before the decade was done, largely due to its chain's unchecked and overheated expansion strategy.

Rapid expansion has rung the death knell for a number of restaurants in the hospitality industry. When customers stop getting what they were looking for, they rarely hesitate to show their distaste. Chains like Chi-Chi's, which once had hundreds of locations, or Henry's Hamburgers — the once-popular fast food chain that closed all locations but one — are examples of just how large scale a business can get before falling prey to the delicate pitfall of attempting to expand while retaining profitability. Unfortunately for D'Lites, its leadership took this process to the extreme and paid the price.

In the frenzy of opening up new locations, D'Lites of America largely failed to understand the local dynamics of the markets it was supposed to cater to. Trying to spread its nutritious fast food concept, which had received success in white-collar neighborhoods, D'Lites began attempting to serve up its lean beef and low-calorie fare in areas with demographics that didn't spare quite as much concern for counting calories — at least not yet. This included working-class districts, which were still primarily interested in getting their fries and getting them quickly.

But surely Doug Sheley, the mastermind behind D'Lites, would have known better than to open up locations in places without their ideal customers. Well, even if he did, it didn't matter. Once the company went public in 1984, new members hopped on board and decision-making ceased to be Sheley's sole propriety. Jim Carter, Sheley's childhood friend and fellow D'Lites board member, remembers both of them voting against the idea of starting up more franchises in blue-collar neighborhoods, but both had to concede to the majority vote. "They had one more vote than we did. It was a shame," he reminisced to Franchise Times back in 2015. Carter also believed the decision of going public was what actually killed the restaurant chain in the first place.

One of the biggest cons of rapid expansion, when not done right, is a drop in the quality of customer service. Businesses need to hire and train new staff, putting the existing team under strain to tackle the extra work load. Slacking in any of these areas can disappoint customers and hurt a company's reputation.

Customers had to wait for their hamburgers at D'Lites, and no matter how low in calories they were, they didn't match the swift service other brands offered. On top of that, the giants in the space did not sleep on the healthier market for long: McDonald's, Wendy's, and Burger King were all peddling their own healthy offerings like salads and baked potatoes by the late '80s.

D'Lites also had a habit of buying back franchises that didn't perform well. Although franchise owners can make a surprising amount of money themselves, it can be helpful for companies to demonstrate an ability to run their business, rather than just sell the brand. However, D'Lites' fragile financial positioning did not quite afford them this privilege. Over-draining of resources is another major problem with expanding too quickly, but when done without the proper market research in the first place, companies can find themselves stuck with underperforming assets. D'Lites' bottlenecks in cashflow were too much to clear their debt loads. According to Time, after making a profit of $948,000 in 1985, D'Lites lost $18.7 million in revenue in 1986 –- two years after it went public. It filed for Chapter 11 bankruptcy the same year.