The restaurant industry has been hit hard by the financial strain caused by the Covid-19 pandemic in recent years, with several fast-food chains finding themselves in dire situations that led to bankruptcy filings. These difficult decisions were made in a bid to restructure debts, sell off assets, and ultimately stay afloat in the ever-changing landscape of the industry.
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Restructuring Finances for Survival
- Companies that opted for bankruptcy protection took the route of restructuring their debts, which, in some cases, helped them emerge with stronger balance sheets and a fighting chance to remain in business for the long haul.
- For instance, BurgerFi, owning and franchising 144 burger and pizza restaurants nationwide, filed for Chapter 11 bankruptcy protection after a failed turnaround plan left them no choice but to reorganize their operations.
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Selling Assets to Stay in Business
- On the other hand, some chains were forced to sell off their assets to creditors or the highest bidder to keep the chain operational. This situation often arose when restructuring debts alone couldn’t salvage the business.
- Notably, TREW Capital Management, which swooped in to purchase BurgerFi out of bankruptcy, made the strategic move to sell the 85-unit BurgerFi brand to another competitor, Savvy Sliders, after the chain exited bankruptcy.
- Franchisees Facing the Brunt
- The challenging financial times extended beyond corporate-owned chains, with fast-food franchisees also feeling the pinch. Names like Pizza Hut franchisee EYM, Arby’s franchisee Miracle Restaurant Group, and Popeyes franchisee RRG Inc. all had to resort to Chapter 11 filings to navigate the storm.
The struggles were not limited to national chains, as evidenced by the recent bankruptcy filing by the parent company of Highway 55 Burgers Shakes & Fries. The chain faced financial distress amid costs and labor shortages exacerbated by the pandemic, and the company shift towards brand expansion.
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Timing and Expansion Woes
- Highway 55’s decision to expand in 2018 aimed to modernize its locations and adapt to industry trends, transitioning from strip malls to standalone buildings with pick-up windows.
- However, their expansion plans hit roadblocks with financing challenges, compounded by delays caused by the pandemic that affected the opening of new locations.
- Operational Issues
- In a critical misstep a year prior to filing, Highway 55 had to overhaul its accounting department due to financial mismanagement, including missed payments to utilities and taxing authorities.
- Rising costs of equipment and goods due to supply chain disruptions and inflation further exacerbated the company’s financial woes, coupled with the inability to raise menu prices without alienating its customer base on fixed incomes.
These stories underscore the challenges faced by not just large chains but also smaller players in the restaurant industry during tumultuous times. As we look ahead, it’s imperative for businesses in the food sector to adapt, innovate, and make proactive decisions to ensure their survival and success in a rapidly changing marketplace.
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