Fast-food chain BurgerFi initiates Chapter 11 insolvency proceedings.
Fast-food chain BurgerFi joins the list of struggling businesses in the fast casual sector this year, alongside brands like Rubio’s, Buca di Peppo, and even the well-known Red Lobster filing for bankruptcy. Although major players like McDonald’s, Starbucks, Burger King, and Wendy’s haven't filed for bankruptcy, they too have reported a decrease in foot traffic and overall sales, with McDonald’s and Wendy’s turning to discounted meal deals to draw in customers.
BurgerFi recently sought protection from the U.S. District Court for the District of Delaware, with all corporate locations continuing operations as normal. Exempt from the bankruptcy proceedings, franchise-owned restaurants will carry on business as usual, as stated in a press release.
Bankruptcy often serves as a means for US businesses to scale back operations, eliminate debts, and cut costs. A popular method is Chapter 11 bankruptcy, which allows companies to address financial difficulties through reorganization.
Previously attributing store closures as the primary reason for its sales decline, BurgerFi also cited inflation as a factor. Specifically, the rise in the price of chicken wings and increased employee wages led to an increase in operating expenses.
Based in Florida, BurgerFi is the parent company for Anthony’s Coal Fired Pizza with 51 pizza shops, alongside its 93 burger restaurants.
This development wasn't entirely surprising, with BurgerFi warning in August that it might run out of cash and require bankruptcy protection in the near future. As of August 14, the company had only $4.4 million in cash on hand, anticipating a $18.4 million loss for the quarter ending July 1 (still to be published and without providing comment to CNN). In the same quarter the following year, the chain reported a loss of only $6 million.
As indicated in the bankruptcy filings last Wednesday, BurgerFi estimates its liabilities to be within the range of $100 million to $500 million, while its assets amount to $50 million to $100 million. In the event of insufficient financial support from senior lenders or external providers, BurgerFi previously stated that it might pursue bankruptcy protection and sell off assets.
In preparation for this, the company hired a chief restructuring officer.
In a statement, Jeremy Rosenthal, the chief restructuring officer, explained that "Given the steep post-pandemic decline in consumer spending and the constant inflation along with rising food and labor costs, we must implement a structured process to stabilize the business." He continued, "We are positive that this process will allow us to safeguard our brands, supporting our operational recovery commenced less than a year ago, and to secure extra capital."
BurgerFi went public in 2020, with their stock dropping more than 80% this year, trading at 14 cents per share in midday trading on Wednesday after a 22% decrease.
BurgerFi's financial struggles in the fast casual sector have led it to seek protection from bankruptcy, impacting its corporate locations while franchise-owned restaurants continue business as usual. To address financial difficulties, the company has employed a chief restructuring officer to implement a structured process and secure extra capital, recognizing the impact of post-pandemic consumer spending decline, inflation, and rising food and labor costs on the business.
