In recent times, the fast-food sector has seen plenty of challenges. Many well-known chains are struggling with changing customer purchasing patterns, rising interest rates, inflation, and rising food and labor prices, among other financial difficulties.
While some restaurant owners have sought bankruptcy protection to stabilize their operations and control growing debt, others have turned to out-of-court restructuring techniques.
Examining well-known fast-food chains impacted by these financial difficulties, this paper explores their restructuring initiatives, bankruptcies, and more general industry problems confronting the business today.
The Effect of Financial Considerations on Fast-Food Restaurants
Fast-food companies nationwide are under financial strain from several problems, which makes some of them unable to survive. These economic difficulties include:
- Post-Pandemic Consumer Spending Patterns: Since COVID-19, spending patterns have changed; customers are dining out less or giving various restaurant experiences a top priority.
- Growing Interest Rates: Rising interest rates have affected companies that rely mostly on loans or credit for daily operations, increasing borrowing expenses.
- Sustained Inflation: Higher prices for supplies, food, and raw materials have driven up general restaurant expenses and taxing budgets.
- Rising Food and Labor Costs: Restaurants are finding it harder to stay profitable without raising menu pricing as salaries and ingredient costs keep rising something that might turn off price-sensitive patrons.
Measures for Out-of-Court Restructuring
When fast-food chains struggle financially, their first line of action is usually looking for answers outside the courtroom. Common tactics include:
- Layoffs: Reducing labor expenses by layoffs or schedule changes helps to prevent overstaffing.
- Negotiating Leases: Dealing with landlords to lower rent, especially in high-end areas.
- Refinancing Debt: Restructuring loans will help you to get better interest rates or longer payment periods.
- Closing Locations: Closing underperforming sites will help to reduce running costs and concentrate on successful ones.
Although these tactics could occasionally help companies become stable, they are insufficient. Should out-of-court reorganization fail, eateries could have to resort to bankruptcy protection.
Recent Fast-Food Industry Bankruptcy Filings
Several fast-food restaurants have turned to bankruptcy recently to better control their debt and company operations. Among the noteworthy ones are:
EYM Pizza: Franchisee Pizza Hut
Operating Pizza Hut franchisees in Texas, Wisconsin, and Ohio, EYM Pizza struggled to make enough money to pay the royalty payments it owed. Pizza Hut sued over this deficiency, which finally caused EYM to declare for Chapter 11 bankruptcy protection on July 22.
EYM wants to consolidate its finances and maybe simplify its processes by declaring bankruptcy to prevent a complete shutdown.
BurgerFi International: A Nationwide Brand in Crisis
Financial difficulties also beset BurgerFi International, the owner and franchisee of burger and pizza outlets. On September 11, BurgerFi filed for Chapter 11 bankruptcy protection following a turnaround strategy it had developed less than a year earlier, which failed to provide the expected financial gains.
Seeking bankruptcy protection, the company wants to restructure its business model and find a way to get back on track financially.
Working via the Chapter 11 process, EYM Pizza and BurgerFi are enabling businesses to remain in operation while restructuring debt and applying improvements to better their financial status.
Big Boy Frisch: Dealing with Closures and Evictions
Unlike EYM Pizza and BurgerFi, Frisch’s Big Boy has had to act aggressively to remain in business rather than declare bankruptcy. Here is a deeper look at Frisch’s present difficulties:
- Closing Locations: Based in Cincinnati, the famous hamburger brand Frisch’s Big Boy intends to shutter many restaurant sites. The closures are a means of addressing legal conflicts and financial difficulties with its landlord. Originally scheduled to close many sites in April 2024, Frisch’s timetable has been sped forward by recent events.
- Eviction Hearings: For more than 20 outlets in southern Ohio, Frisch’s Big Boy is now handling an eviction lawsuit. The corporation asked for a stay on the eviction hearing on October 21 to negotiate with N REIT LP, the landlord, over a possible closing date.
- Operational Corrections: Frisch’s has closed two restaurants in Kentucky and three in Ohio as part of cost-cutting initiatives; it has not yet indicated which sites will close.
Bob’s Big Boy Against Frisch’s Big Boy
Though Frisch’s Big Boy is now a well-known brand in Ohio and nearby regions, it is not the same as the original Bob Wian-founded Bob’s Big Boy business, established in Southern California in 1936.
Under changing management, Bob’s Big Boy is still a mainstay in the Western U.S. Dave Frisch met Bob Wian at an industry event and was granted permission to use the Big Boy moniker in Ohio, beginning a regional franchise.
Changes in Public Equity and Ownership
Private equity companies, which want profit but can struggle to handle the particular difficulties of the restaurant business, have acquired several fast-food restaurants. NRD Capital paid $175 million to buy Frisch’s Big Boy in 2015.
Frisch’s had 121 restaurants then, but the business has 75 stores in Ohio, Kentucky, and Indiana today. Private equity ownership may create demands to maximize profits and decrease costs sometimes at the price of the brand’s long-term health even while it might provide financial support and operational direction.
Conclusion
Unprecedented economic difficulties still beset the fast-food sector. Many chains find it challenging to remain profitable due to rising prices, changing client tastes, and other factors following the epidemic.
For some, such as EYM Pizza and BurgerFi, bankruptcy protection has presented an opportunity for a fresh start. For others, such as Frisch’s Big Boy, talks and calculated closures help to control ongoing legal and financial issues.
Fast-food restaurants will probably continue to change to fit customer tastes and financial realities as the sector develops. Some firms are currently trying to survive by shutting underused sites, renegotiating debt, and adopting more environmentally friendly business strategies.
FAQs
1. Why are financial issues afflicting many fast-food chains?
Post-pandemic changes in customer buying behavior, growing food and labor costs, inflation, and increased borrowing rates all of which strain budgets and profitability are causing many fast-food establishments to struggle.
2. Before declaring bankruptcy, what actions do restaurants take?
First, restaurants sometimes undertake out-of-court restructuring, which can involve debt refinancing, lease renegotiations, layoffs, and closing underperforming sites. Should these steps prove inadequate, they may seek bankruptcy protection.
3. For fast-food restaurants, what does Chapter 11 bankruptcy entail?
Chapter 11 bankruptcy lets businesses keep running while restructuring their debt and changing their company plan to strengthen their financial situation. This strategy enables the business to turn profitable once more.
4. Regarding its financial situation, how is Frisch’s Big Boy doing?
Closing many sites and working with landlords helps Frisch’s Big Boy control financial demands by handling eviction issues. The business is also planning further potential closures.
5. Do fast-food outlets benefit from private equity firms?
Although they may concentrate on increasing short-term profits, private equity companies can offer financial support and aid to simplify operations. This can occasionally result in closures and reorganizations that might not help the brand in the long run.
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